CASTROLINDNSEQ1 FY226 May 2022

Castrol India Limited

6,461words

73turns

11analyst exchanges

11executives

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Management on call

Sandeep Sangwan

MANAGING DIRECTOR

Deepesh Baxi

CHIEF FINANCIAL OFFICER & WHOLE- TIME DIRECTOR

Apurva Dagli

COMMUNICATION COORDINATOR

Babita Chetwani

COMPLIANCE FINANCE ANALYST

Debarati Banerjee

FINANCE ANALYST

Hemangi Ghag

COMPANY SECRETARY & COMPLIANCE OFFICER

Pranita Amonkar

PA TO MD

Reena Shah

INDIA COMPLIANCE MANAGER

Rs Swarnalatha

FINANCE ADVISOR

Saswati Panigrahi

COMMUNICATIONS MANAGER

Swetha Balakrishnan

CURRENT GLOBAL

Key numbers — 40 extracted

Rs. 1,236 crore

hy we call it quarter 1 for us. In first quarter '22, CIL registered revenue from operations of Rs. 1,236 crores registering a growth of 9% compared to Rs. 1,139 crores in the first quarter of '21. Profit befo

t quarter '22, CIL registered revenue from operations of Rs. 1,236 crores registering a growth of 9% compared to Rs. 1,139 crores in the first quarter of '21. Profit before tax for the quarter stood

Rs. 1,139 crore

CIL registered revenue from operations of Rs. 1,236 crores registering a growth of 9% compared to Rs. 1,139 crores in the first quarter of '21. Profit before tax for the quarter stood at Rs. 311 crores compared

Rs. 311 crore

pared to Rs. 1,139 crores in the first quarter of '21. Profit before tax for the quarter stood at Rs. 311 crores compared to Rs. 332 crores in first quarter of 2021. If I look at first quarter '22, it's one of

Rs. 332 crore

n the first quarter of '21. Profit before tax for the quarter stood at Rs. 311 crores compared to Rs. 332 crores in first quarter of 2021. If I look at first quarter '22, it's one of the best quarters we've ha

rs,

which was October to December quarter, which was fourth quarter of last year. So, in all parameters, we've delivered double-digit growth. Our volumes were also higher versus pre-pandemic levels in 20

13%

9% from Rs. 1,139 crores in the first quarter of last year, which was 1Q 2021, and then we are up 13% on revenues from Rs. 1,091 crores in sequential quarter, which is the fourth quarter of 2021.

Rs. 1,091 crore

res in the first quarter of last year, which was 1Q 2021, and then we are up 13% on revenues from Rs. 1,091 crores in sequential quarter, which is the fourth quarter of 2021. As far as PBT is conce

21%

021. As far as PBT is concerned, we delivered Rs. 311 crore this quarter. This was up 21% from Rs. 257 crores in sequential quarter 4Q of 2021. However, it was a drop of 6% from Rs. 332 c

Rs. 257 crore

As far as PBT is concerned, we delivered Rs. 311 crore this quarter. This was up 21% from Rs. 257 crores in sequential quarter 4Q of 2021. However, it was a drop of 6% from Rs. 332 crores in the corres

. This was up 21% from Rs. 257 crores in sequential quarter 4Q of 2021. However, it was a drop of 6% from Rs. 332 crores in the corresponding quarter of last year, which was the first quarter of 202

50%

ch of the variants are based on Castrol's unique Dual Lock technology that reduces engine wear by 50%. We also recently concluded the fourth edition of our Castrol Super Mechanic Contest, which is In

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Guidance — 10 items

Tushar

“And my second question will be on the state of the cash reserves that the company is holding.”

Sandeep Sangwan

“So, first of all, let me reassure you that we see a robust growth in internal combustion engines also going forward for another 15 years, another 20 years especially in the 4-wheeler personal mobility space.”

Narayan S

“Can we expect any product line this year regarding EV fluids?”

Sandeep Sangwan

“Our first intent was to kind of make sure that we are able to provide a quality service, which the consumers expect post warranty period and that's where the focus has been.”

Deepesh Baxi

“So, I mean all of this is something we keep looking at as a management team, keep a more medium-term view and if required, we take action in the market.”

Bhagyesh Kagalkar

“What do you feel is the market share and how many market share you can target?”

Bhagyesh Kagalkar

“So, what is the market share we should target and at the expense of whom basically, the PSUs or the other players?”

Sandeep Sangwan

“The electrification in 2 wheelers will come much faster than the 4-wheelers, but there's a bit of compensation and I don't want to get into all kind of projection to start because what happens is if a 2-wheeler uses 1 liter of oil for a vehicle change, the car uses like 4 to 5 liters of oil for a lube change.”

Bhagyesh Kagalkar

“Second part is what is the market share now and how much market share you target because if the market is going to shrink, whatever one may say, how much market share you can target?”

Bhagyesh Kagalkar

“If you can highlight that also, that will be fine.”

Risks & concerns — 8 flagged

Further, Castrol India is exploring technology collaboration with some of the leading 2-wheeler EV manufacturers in India as they work on technology improvement, especially around battery cooling and battery management system around especially the higher end performance kind of bike segment or performance 2-wheeler segments because that's a challenge that they need to solve.

— Sandeep Sangwan

In the backdrop of the current geopolitical situation, the external environment will continue to remain volatile.

— Sandeep Sangwan

So, if you can just help us understand obviously crude prices are extremely volatile and we've seen a lot of that in the previous few months.

— Hemang Khanna

So, I think as far as the crude price and therefore the base oil price, which is our key raw material input, continue to be volatile.

— Deepesh Baxi

So, I mean it's very difficult to predict, right.

— Deepesh Baxi

But I don't see a major issue in terms of the drag on the margin.

— Deepesh Baxi

So, it's very difficult to say whether it covers or does not cover.

— Sandeep Sangwan

I just want to kind of reassure our people on the call that as a company, I think we are very conscious of the input situation, the supply situation, the cost pressure.

— Sandeep Sangwan

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Q&A — 11 exchanges

Sir, my question is based on our EV lubricant and other oils portfolio. So, could you please delve a bit deeper into how many products we are offering, what is their purpose, their consumable and replacement cycles so that we can what is our recurring and replacement demand like? And my second question will be on the state of the cash reserves that the company is holding. Sir, given that we have a high dividend payout and in our current Indian -- according to our current Indian tax laws, won't dividend be a much more efficient option for all shareholders while also increasing the EPS of the sh

Sandeep Sangwan

Let me take the EV question and then I'll pass on to Deepesh to talk about cash reserves that we have on our balance sheet. As far as EVs are concerned, so let me reassure everybody I think India will continue to see a robust lubricant demand going into 2035s, 2040s because I think the penetration levels of personal mobility vehicles in India is still very low if I compare it to the likes of China, which are almost kind of getting to a developed level or the developing countries. So, there is a huge room for ownership penetration increase and that demand will not be fulfilled by EVs alone, oka

I was asking that my first question was a bookkeeping one. So, what's the volume for the quarter and the volume split if we can have between passenger cars, 2-wheelers, and other segments? So, that's the first one.

Sandeep Sangwan

Deepesh, do you want to take that. The volumes -- how much is the volume and split between various segments? So, I'll just repeat myself. I think the volume for first quarter was about 59 million liters and personal mobility, which is bikes and cars is about 43% to 45%, CVO which is commercial vehicles is about 40% and the rest is industrial. That's really helpful. And my second question was more around the strategic direction that company is taking. Sir, as Sandeep mentioned in his initial comments that we still see a robust demand for lubricants for another decade, decade, and a half. So, wh

My question regarding, do we have any specific market share, market segment in the wind turbine segment, lubricant for wind turbine or anything like that? My second question regarding Castrol ON, how much market share has that available? Can we expect any product line this year regarding EV fluids?

Sandeep Sangwan

We do have wind applications. We work very closely with the likes of Vestas at a global level and we also work with the local wind manufacturers and operators. So, we have a very strong portfolio on wind products especially around wind sales and something called Optigear and the whole industry range on wind sector. As far as the market share is concerned, I think our market share is -- we have the largest market share in the retail segment in India in the automotive market upwards of about 20%-odd and whereas the second closest is almost ¼ of our kind of market share position. As far as EV flu

Sir, as you mentioned that the auto service centers are the key growth areas. So, are they contributing anything to the revenues or profitability currently?

Sandeep Sangwan

So, let me take that. It's just kind of at a concepted. The idea is to give a value proposition to the consumers in the aftermarket space where they can get a quality service. As far as revenue models from that space are concerned, it's still kind of work in progress and I wouldn't like to comment on that. Our first intent was to kind of make sure that we are able to provide a quality service, which the consumers expect post warranty period and that's where the focus has been. And secondly, more on Jio-bp stations, sir. I understand that all these stations are operational currently where you h

So, if you can just help us understand obviously crude prices are extremely volatile and we've seen a lot of that in the previous few months. If you could just help us understand how the raw material scenario is panning out obviously in this quarter on a blended basis. We did see some kind of moderation in the overall raw material costs. But if you could help us understand how the trend is looking at and what are current raw material prices? And I'll just continue with the follow-up post this.

Sandeep Sangwan

So, Deepesh, do you want to take that question, please? So, I think as far as the crude price and therefore the base oil price, which is our key raw material input, continue to be volatile. First quarter 2021, we were looking at base oil in the range of Rs. 600, Rs. 750 and we're now hovering in the range of about Rs. 900, Rs. 950. And given the way crude is behaving and developments in the geopolitical environment and supply issues, it looks like it will further go up. It could be in the range of plus Rs. 1,100 as well. So, that's the kind of volatility that is there in the range. There is on

I just joined 2 minutes late, so I'm not sure whether I missed out on this. Just wanted the volume numbers for this quarter.

Deepesh Baxi

It's 59 million liters. 59 million liters, okay. And what is the price hike that has been taken in this quarter? So, I think let me take that, Deepesh. I can talk about myself and whatever information is available in the public domain. So, we took a price increase, which was ranging anywhere from Rs. 12 to Rs. 20 kind of depending on the various product segments and stuff, but that's the ballpark number. So, Rs. 12 to Rs. 20? Yes, depending on the segment and the product categories.

My question is as a follow-up to the previous question that Hemang asked and your reply to that given the volatility that is in the base oil prices. Sir, wanted to check how your working capital is being handled in the sense because of the uncertainty, which is prevailing with of tonnage, in tonnage term if there is an increase or decrease that the way you are managing it? And just as a bookkeeping, can you also give number on the cash flow from operations that were generated for the first quarter?

Sandeep Sangwan

Deepesh, over to you. I'll take that. So, in terms of the working capital management, I think we continue to be for the quarter into a negative working capital, right, which is good management of our working capital, I’m excluding cash out of that. I think we have taken quite a few steps both on the debtor side and the creditor side to ensure that we either do necessary prebuying in terms of the trade-offs that we do because we've been seeing the base oil and the other additives pricing going up. We've also signed. But at the same time given some liquidity crunch in the market, we have support

Sir, I agree with the assessment that the conventional ICE oriented loading in the industry has a long way to go, 10 to 15 or even 20 years depending on other thing. The issue here is the 2 wheelers may happen faster and it will take time for the personal wave. What do you feel is the market share and how many market share you can target? Because ultimately over about 15, 20 years this market is shrinking. So, what is the market share we should target and at the expense of whom basically, the PSUs or the other players? So, what is happening on that front or is the company losing market share?

Sandeep Sangwan

So, let me answer both the questions. So, first of all, I think you're absolutely right. The electrification in 2 wheelers will come much faster than the 4-wheelers, but there's a bit of compensation and I don't want to get into all kind of projection to start because what happens is if a 2-wheeler uses 1 liter of oil for a vehicle change, the car uses like 4 to 5 liters of oil for a lube change. So, I think as the cars penetration grows, there's that volume compensation also. But again, you are absolutely right that the electrification in 2 wheelers will come much faster. We're conscious of t

Most of my questions are answered. I just have one clarification that I wanted to have. When you give these base oil price, as I have understood, there are different qualities of base oil. So, are you saying g Castrol only using 1 type of base oil or are there wide varieties and each of your prices averaged out as Rs. 1100?

Sandeep Sangwan

So, I think let me take that. There are different varieties of base oils and it also depends on the kind of product that you're manufacturing. If you’re manufacturing a synthetic product, then it requires a different quality and different standard of base oil. And if you're manufacturing a more lower-end lubricant which is mono-grade or a multi-grade non-synthetic product, that is a different base oil. So, when we talk about Rs. 1,100, Rs. 1,000, Rs. 900, Rs. 860, it's almost averaged out across product categories. So, it's the individual base oils could be very differently priced. So, you're

So, I was saying that the price increase that you spoke about Rs. 12 to Rs. 20 per liter, in that yet to flow through because your blended realization on per unit basis are actually lower on a sequential basis.

Sandeep Sangwan

So, Nitin, typically what happens is when we announce a price increase, not everything starts flowing in the same month because trades are sitting on inventories and we also have inventories kind of old base stocks. So, typically it could take anywhere from 1 month to 3 months depending on which segment and which category you're talking about for the 100% price realization to flow through to the financials. So, it's like if the understanding is correct, so we are going to see a chunk of that improvement perhaps in this quarter in the June quarter when you close through. Again, as I said, it's

Thanks, Ritika. And sincere thanks to all the people who've participated in the analyst investor call and thanks for your questions, very insightful. I just want to kind of reassure our people on the call that as a company, I think we are very conscious of the input situation, the supply situation, the cost pressure. But our intent is to continue growing the top line, keep protecting the margins and deliver a healthy bottom line for our shareholders and that's something that we'll continue to do. We are also very conscious of continuing to invest in building our brands and also continuing to e

Deepesh Baxi

Thank you.

Speaking time

Sandeep Sangwan

Deepesh Baxi

Moderator

Nitin Tiwari

Hemang Khanna

Sami Sabnis

Mandar Pawar

Hemal

Tushar

Abhijeet Bora

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Opening remarks

Sandeep Sangwan

Thanks. Good afternoon, everyone, and thank you for joining us today. I hope you and your family are doing well and are safe and healthy. We're pleased to share that Castrol India Limited has delivered strong performance in the first quarter ended 31st March 2022. I'd like to highlight once again that we follow the January to December period for our reporting and that's why we call it quarter 1 for us. In first quarter '22, CIL registered revenue from operations of Rs. 1,236 crores registering a growth of 9% compared to Rs. 1,139 crores in the first quarter of '21. Profit before tax for the quarter stood at Rs. 311 crores compared to Rs. 332 crores in first quarter of 2021. If I look at first quarter '22, it's one of the best quarters we've had with Castrol India delivering double-digit growth in volumes, revenues, gross profit and PBT making a significant growth over the previous quarter, which was October to December quarter, which was fourth quarter of last year. So, in all paramete

Deepesh Baxi

Thank you, Sandeep, and good afternoon to all. Let me share some key highlights from our 1Q 2022 results for Castrol India Limited, which we announced on 2nd May. We reported strong financial performance in the first quarter. Our revenue from operations was Rs. 1,236 crores. This was up 9% from Rs. 1,139 crores in the first quarter of last year, which was 1Q 2021, and then we are up 13% on revenues from Rs. 1,091 crores in sequential quarter, which is the fourth quarter of 2021. As far as PBT is concerned, we delivered Rs. 311 crore this quarter. This was up 21% from Rs. 257 crores in sequential quarter 4Q of 2021. However, it was a drop of 6% from Rs. 332 crores in the corresponding quarter of last year, which was the first quarter of 2021. With shortages in supplies of driveline products and overall category being soft in 1Q 2022 versus 1Q '21 plus some impact due to third wave of COVID in the first fortnight of Jan, our profit before tax for this quarter registered a slight drop of

Sandeep Sangwan

Thanks, Deepesh. Besides the financial performance, I'd like to draw your attention to some interesting business developments at our end. We continue to make strategic investments to leverage growth opportunities through independent workshops, premium branded products, and new formats such as Castrol auto service centers and Castrol express oil change outlets. Apart from investing in our brands, we are also strengthening in service, our service and maintenance offerings. Castrol express oil change is our new service on offer at Jio-bp mobility stations across India. 38 such outlets are currently operational across India offering swift and reliable oil change to 2-wheeler consumers on the go. We expanded our Castrol auto service network and now we have 116 multi-brand passenger car workshops in 50-plus cities across India. In addition to existing partnerships with 2 of the leading manufacturers of 4-wheeler electric vehicles in India; BYD or B-Y-D, which is a Chinese OEM, has approved t

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Castrol India Limited

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