“Focused investments, interventions and actions taken in the second half of 2020 towards brand-building with increased marketing and advertising spends, and new product introductions as well as corrective pricing aided by improving demand trends, especially in tractor and SUV sales, have had a positive impact on overall topline growth of Castrol India in Q1FY21, notes Sandeep Sangwan, Managing Director.

The company has reported strong financials in Q1FY21, building on a resilient secondhalf performance in calendar year 2020. According to Mr Sangwan, “We delivered robust revenue and profit growth with Q1 revenue from operations amounting to Rs 1,139 crore (66% higher) and profit before tax Rs 332 crore (96% higher) versus Q1FY21 which saw the onset of the Covid-19 pandemic and resultant business slow down beginning March 2020. Our cost efficiency programmes and judicious working capital management efforts led to healthy cash from operations at Rs 269 crore in the quarter, which is equivalent to 1.1 times profit after tax.” Referring to the success of the previous year, Mr Sangwan explains, “The company saved costs, drove efficiencies and cash performance to deliver a healthy balance sheet with strong cash on hand. It gained good momentum in the second half with the revival of demand. Revenue improved by 54% at Rs 1,818 crore whereas profit from operations was 122% higher at Rs 501 crore versus the first half of 2020.”

Revealing that “the company has invested in cuttingedge technology and launched several new brands during the last year which was a tough period,” Mr Sangwan adds, “Strong advances into new channels ascertained easy accessibility to Castrol lubricants for millions of Jio-BP customers across over 1,350 Jio-BP sites.”

STRATEGIC TIE-UP

In order to strengthen its network, expand its footprint and build its participation in digital market platforms, Castrol has entered into a strategic collaboration with Ki Mobility Solutions Pvt Ltd to supply lubricant products to Ki Mobility workshops in India, and will also be available on ‘goBumper’, their digital platform. The second wave of Covid-19 in India has resulted in a market slowdown in various parts of the country. In addition, supply disruptions on account of base oil and raw materials availability, logistics challenges and rupee depreciation are likely to adversely impact demand and supply. Expressing his concern, Mr Sangwan says, “The management is keeping a close watch on the situation and is responding with appropriate actions, as needed.” India is the world’s largest lubricants market after the US and China, with approximately 2.8 billion litres of annual consumption. The company operates in all major categories such as automotive, industrial and marine & energy applications. According to Mr. Sangwan, long-term volumes guidance stands ~4% YoY. The company would continue to focus on its Personal Mobility business. Our CY22E estimate was already aligned with its guidance, and thus remain unchanged. The company has entered into a strategic collaboration with ki Mobility Solutions to supply lubricant products to its workshops in India and will also be available on goBumpr, their digital platform.

Capex guidance for CY21 stands at INR 80 crore to Rs. 100 crore. Competition remains intense and the industry is likely to grow in lower single-digits. The company has always enjoyed brand equity in the market. It will be able to secure its profitability with better product mix, cost control, and launch of advanced products with better realization. The company's products are now available in ~1,400 Jio-BP retail outlets (up from 1,350 in 4QCY20). Further expansion of Jio-BP retail outlets (to over 5,500 sites) in the next couple of years would help strengthen its network.

The company has already launched EV fluids globally (China and Europe). In CY20, itsigned agreements with MG Motors and Tata Motors for supply of EV fluids inIndia. The management expects it would be another 15-20 years before ascalable EV fleet is seen on Indian roads. The company is also looking at various revenue streams in the future. The deal with3M is a reflection of its diversification plans into new avenues.