Castrol India : Analyst/Investor Call Transcript – 1 August 2023

already.

Then pursuant to a June '23 agreement with Mahindra Insurance Brokers Limited, Castrol Auto

Service multi-brand passenger car workshops have an option to be empaneled as distributors of

eligible insurance policies from top motor insurance providers through Mahindra Insurance

Brokers Limited. The workshops can now potentially offer automotive insurance products

digitally alongside repair and maintenance services for their customers' vehicles.

By the end of the first half, we've already established a network of over 5,500 Castrol Bike Points

and 350 Castrol Auto Service outlets. In the second half, we aim to reinforce our position in the

aftersales service market, committed to enhancing our presence and providing exceptional

service to our valued customers.

Pursuant to alliances with OEMs for supply of EV fluids, we launched Castrol ON EV

transmission fluids and other relevant fluids for EVs for the aftermarket earlier this year.

Consumers can now buy the product on e-commerce platforms. Additionally, we are conducting

ASDC-certified EV readiness trainings to make car and bike mechanics in India EV-ready.

Until now, we have trained 200 mechanics across India. And in third quarter, we expect to further

increase that number through providing more trainings. And this will help us strengthen our

market position going forward as well. At the same time, we do all this while keeping our focus

on sustainability. We continue to explore raw material optionality to reduce carbon footprint and

our 3 state-of-the-art plants in Paharpur, Patalganga and Silvassa continue to perform well with

a capacity of about 260 million litres for lubricants.

I think as a part of our Castrol's global PATH360 sustainability agenda, we moved our

Patalganga plant to 100% renewable energy electricity now, and the plant is procuring this green

electricity directly from the grid. The plant also won prestigious award for industrial health and

safety practices by the Government of Maharashtra and occupational health and safety award,

the Golden Peacock Award. The Paharpur plant was also awarded Gold Award for Plant

Efficiency category by Apex India Foundation.

And on that note, I'd like to thank you for your attention and would like to open the session for

your questions, feedback and views, please.

Moderator:

Thank you very much. We will now begin the question-and-answer session. We have our first

question from the line of Swechha from ANS Wealth.

Swechha:

I have two questions. First was, you said the revenue growth of 7% Y-o-Y, how much of this

was the volume growth? If you could give me the volume growth numbers Y-o-Y and sequential

also? And the second question was, if you could give me a breakup of how much revenue was

generated from EV fluids in this quarter and the previous quarter, that would be helpful?

Sandeep Sangwan:

Yes. Deepesh, do you want to take that?

Castrol India Limited

August 01, 2023

Deepesh Baxi:

Yes. So first question in terms of the volume growth, I think we grew volume. We had about 58

million litres this quarter versus 55 million litres the previous quarter. In terms of the growth on

volumes, we were about -- 20% growth has come from volume. In terms of the EV fluids, I think

it's too early to really share with you the numbers. As you know, the EV market is effectively

very nascent stage. And the percentage of EV sales itself in motor cars is at single digit in terms

of the total car sales. So very early stage in terms of -- so it's now very difficult to give you a

number at this stage.

Swechha:

Okay. Okay. So if you could -- just a follow-up on this. So if you could give a broader outline

as to how do you see this EV fluids contributing to our revenues, say, going down 2 years or 3

years down the line or maybe 4 quarters to 6 quarters down the line. What percentage of revenue

this can become at a later stage?

Sandeep Sangwan:

I think if you're looking at the next 5 quarters to 6 quarters, the contribution of EV fluids is going

to stay relatively very, very small, because I think given the low penetration of cars in India, a

lot of consumer demand is still being fulfilled by ICE vehicles. And we expect that the lubricants

market even for a medium to long-term will continue to stay robust still well into the 2035, 2040.

So I think in the next few quarters, the contribution of EV fluids is going to be very small. But

what we are making sure is that all the relevant products are available for EV vehicles to our

customers.

Moderator:

We have our next question from the line of Sabri Hazarika from Emkay Global.

Sabri Hazarika:

Yes. Sir, two questions. Firstly, I mean, your commentary in the press release was quite

optimistic in terms of the outlook for the market as well as the growth outlook for this year. So

what do you think is happening in the market? And what do you think -- how would that pan out

in terms of your overall growth for the year?

Sandeep Sangwan:

Yes. So Sabri, I think I'd like to answer that in 2 respects. So first of all, the lubricant market is

growing, okay? We -- and we expect the total volumes and value to grow in this year, could be

in the range of about like anywhere from 5% to 7%. But we're quite optimistic on demand growth

in the lubricants category. Point number one. Second is, if you remember, last year, there was a

lot of inflation, a lot of cost pressures, and we had to take multiple price increases to protect our

margins. And I think those costs -- and as a result of that, the volumes in the second half of last

year were impacted or under pressure. And with cost inflation having eased out now, we expect

the volumes to start growing again, and that's one of our focus areas.

And we operate a strategic pricing framework, and we'll continue to take pricing actions so that

we continue keep giving good value to our consumers and customers. So hopefully, if the

inflation stays, cost -- raw material input inflation stays at levels where we see now, we're quite

optimistic on demand in the second half of this year.

Moderator:

We have our next question from the line of Saumil Shah from Paras Investments.

Saumil Shah:

Yes, sir. Congratulations on good numbers. So sir, my question was similar to the previous

participant that I want to understand on the EV space basically. So what would be our revenue

per vehicle on the EV side? See, I do understand EV is still at a nascent stage, but if we compare

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Castrol India Limited

August 01, 2023

with, say, internal combustion engine per vehicle content versus per vehicle content on EV side.

So just wanted your outlook on the same?

Sandeep Sangwan:

Yes. So I think on EVs consume less fluids as compared to ICE because EV don't need any

engine oil, okay? But the technology is still developing and depending on how the technology

develops will also -- because, for example, there's a higher need of thermal management and

batteries for electric vehicles and that may consume fluids. So again, it's a function of time. At

the same time, as a company, we're also kind of entering into new areas, things like Auto Care

that I've spoken about to make sure that we expand into areas beyond lubricants. But just to give

you the reassurance, we expect the lubricants market to continue growing into 2040, okay? So

while the EV -- EVs will grow in the future, we don't see an immediate impact or even in the

medium term from a business perspective.

Moderator:

We have our next question from the line of Pratik Poddar from Nippon India Mutual Fund.

Pratik Poddar:

Yes. Just 2 questions. One is if you could just talk a bit about the replacement lifecycle of this

EV fluid -- the transmission EV fluid?

Sandeep Sangwan:

So normally, the EV fluids tend to be filled for life. The -- it's -- the replacement cycles are not

something like engine oil, which you need to service every few months or every 10,000

kilometers or so. But technology is still evolving. As I said, nobody has all the answers. So --

but typically, they tend to be filled for life.

Pratik Poddar:

And the realizations, would it be substantially higher than like-for-like vehicles or they are

lower?

Sandeep Sangwan:

Yes. The realizations because it's a different technology tend to be slightly on the higher side,

okay? But it's a very small number or small volume by expansion.

Pratik Poddar:

Got it. Got it. And last question sir, on Castrol Auto Service outlets, these are franchisee outlets,

right? Just wanted to...

Sandeep Sangwan:

Yes, absolutely. These are outlets where we don't own the assets. These are outlets where we

provide branding support, we provide training support, and we provide certification and these

outlets primarily use Castrol lubricants so that consumers can get quality assurance service.

Pratik Poddar:

And it is that this network that you are introducing other car care products also, right?

Sandeep Sangwan:

No, no. So we're introducing our product in all the outlets that we cover. So today, we cover

almost about 100,000-plus outlets. So we'll sell these products in whichever channel is relevant

for these products.

Moderator:

We have our next question from the line of Hemal, an Individual Investor.

Hemal:

Yes. So as I see -- if you see 2016, '19 area, our EBITDA margin range used to be 27% to 30%.

And going forward, I mean, because of maybe competitive intensity, our margins now we're

guiding towards 23% and strategic pricing that you've been mentioning, but the industry is

growing. Are we to expect -- if you take 3-year,4-year view that the competitive intensity or the

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