CASTROLINDNSEAugust 02, 2022

Castrol India Limited

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67turns

11analyst exchanges

2executives

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Management on call

Sandeep Sangwan

MANAGING DIRECTOR,

Deepesh Baxi

CHIEF FINANCIAL OFFICER,

Key numbers — 31 extracted

Rs. 1,242 crore

eriod for our reporting. In 2nd Quarter 2022, Castrol India registered revenue from operations of Rs. 1,242 crores and profit before tax of Rs. 280 crores. Our 2nd Quarter performance was in the backdrop of a vo

Rs. 280 crore

22, Castrol India registered revenue from operations of Rs. 1,242 crores and profit before tax of Rs. 280 crores. Our 2nd Quarter performance was in the backdrop of a volatile market environment where we had t

Rs. 1,242 crore

esterday. In 2Q 2022, we reported a strong financial performance. Our revenue from operations was Rs. 1,242 crores, which marked a growth of 40% compared to Rs. 890 crores in the pandemic impacted 2Q 2021. This

40%

financial performance. Our revenue from operations was Rs. 1,242 crores, which marked a growth of 40% compared to Rs. 890 crores in the pandemic impacted 2Q 2021. This was higher by half a percent, f

Rs. 890 crore

mance. Our revenue from operations was Rs. 1,242 crores, which marked a growth of 40% compared to Rs. 890 crores in the pandemic impacted 2Q 2021. This was higher by half a percent, from Rs. 1.236 crores compa

Rs. 1.236 crore

pared to Rs. 890 crores in the pandemic impacted 2Q 2021. This was higher by half a percent, from Rs. 1.236 crores compared to the sequential quarter 1Q 2022. Our profit before tax was Rs. 280 crores. And this w

47%

ared to the sequential quarter 1Q 2022. Our profit before tax was Rs. 280 crores. And this was up 47% from Rs. 190 crores into Q2 2021, a drop of 11% from Rs. 311 crores in the sequential q

Rs. 190 crore

ial quarter 1Q 2022. Our profit before tax was Rs. 280 crores. And this was up 47% from Rs. 190 crores into Q2 2021, a drop of 11% from Rs. 311 crores in the sequential quarter 1Q 2022. With our 2Q

11%

tax was Rs. 280 crores. And this was up 47% from Rs. 190 crores into Q2 2021, a drop of 11% from Rs. 311 crores in the sequential quarter 1Q 2022. With our 2Q Results, our 1H performance

Rs. 311 crore

s. 280 crores. And this was up 47% from Rs. 190 crores into Q2 2021, a drop of 11% from Rs. 311 crores in the sequential quarter 1Q 2022. With our 2Q Results, our 1H performance looks good, with ha

Rs. 2,477 crore

With our 2Q Results, our 1H performance looks good, with half yearly revenue from operations of Rs. 2,477 crores, about 22% growth and profit before tax of Rs. 591 crores and profit after tax of Rs. 435 crores

22%

ur 1H performance looks good, with half yearly revenue from operations of Rs. 2,477 crores, about 22% growth and profit before tax of Rs. 591 crores and profit after tax of Rs. 435 crores so that's u

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Guidance — 20 items

Sandeep Sangwan

opening

“This is of strategic importance to Castrol as the new facility will be housed at Castrol's global headquarters in Pangbourne, Berkshire in UK.”

Parthiv Jhonsa

“My third question is, how do you perceive this entire EV, because you gave a quite a good description at the start, but just want to understand in detail, how do you perceive the entire EV space and the lubricants in the EV space going forward?”

Sandeep Sangwan

“So, while we expect growth to continue, it may not be at the same level in the 3rd and the 4th Quarter, but our intent is to continue driving growth.”

Sandeep Sangwan

“I think I would just like to remind everyone on the call that we foresee based on our projections, given the low penetrations of four-wheelers in India, specially cars in India, we expect the lubricants market to continue to grow well into 2035, 2040.”

Sandeep Sangwan

“So, going forward, our intent is not only to focus on realization per liter, but also drive volume growth and top-line growth through a combination of volume and turnover.”

Deepesh Baxi

“And then going forward, clearly there is a focus on areas that Sandeep had initially explained in his opening remarks around, we have got into the Service and Maintenance space, we have got these outlets, which is growing month-on- month.”

Sandeep Sangwan

“And if you would allow me to say, I think battery technology will be a key driver of future EV adoption, because the issues such as range anxiety, the issue such as thermal management for fast charging.”

Sabri Hazarika

“Are you in any way suggesting that battery manufacturing for E-Vehicles is something which might be looked into, in the medium term.”

Sabri Hazarika

“So, do you have a certain sort of revenue or EBITDA target, EBITDA share target to be more specific, say 5 years or 10 years down the line?”

Sandeep Sangwan

“So, responding to first part of your question, we have not set any target for EBITDA anything like that for next 5 years, or 10 years.”

Risks & concerns — 13 flagged

Our 2nd Quarter performance was in the backdrop of a volatile market environment where we had to balance rising input costs, while maintaining an optimal price and volume mix.

— Sandeep Sangwan

Though, we felt a bit of pressure on volumes and margins, as compared to the 1st Quarter of 2022, which is a sequential previous quarter.

— Sandeep Sangwan

There are some segments which are under pressure, due to all the rising cost inputs and the pricing pressures and the premiums.

— Sandeep Sangwan

And how difficult is to get back the customers, if they do downtrading?

— Himanshu Upadhyay

And one more thing on B2C, we are making a lot of efforts to grow that business and which may have eventual challenge, very long dated challenge.

— Himanshu Upadhyay

But on the B2B segment on industrial and marine, where the challenge is not going to be there, at least in the foreseeable future.

— Himanshu Upadhyay

And I think we just felt a bit of a slowdown in the second half in the overall kind of environment.

— Sandeep Sangwan

But having said that, from the projections that we are sort of looking at, it feels like in 3rd Quarter, our 3rd Quarter, the pressure on the base oil price will continue.

— Deepesh Baxi

And with rupee at all-time high, that definitely puts a bit of pressure on the margins, but we have a hedge strategy, we have covered in 3Q.

— Deepesh Baxi

For example, we took price increases, but somewhere on two- wheeler segment, we felt a bit more pressure.

— Sandeep Sangwan

And we will continue monitoring the situation as we go forward into second half of this year, and the situation is going to stay volatile.

— Sandeep Sangwan

It is very difficult to predict, see, I mean, because there is an element of FOREX as well.

— Deepesh Baxi

But our sense is the second half will also continue to be very volatile, but we have good capable team, as in the Management team and the people that we have in our business, to face those challenges.

— Sandeep Sangwan

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Q&A — 11 exchanges

My questions are quite simple, the first question is will the growth momentum continue for the next two quarters, that is till December of this year, considering the vehicle sales have been improved and the overall scenario as far as the four-wheelers are concerned, it is showing some kind of an improvement. Point number two, with you entering into this new agri space of lubricants, what is the potential there? My third question is, how do you perceive this entire EV, because you gave a quite a good description at the start, but just want to understand in detail, how do you perceive the entire

Sandeep Sangwan

So, kind of, let me try and answer all the questions that you asked. The first question is, do we continue foreseeing the growth in the balance two quarters, I would just like to remind that this quarter, the 2nd Quarter Results should also be looked at in relation to the 2nd Quarter of last year which during April, if you remember the nation went through the horrible thing of COVID second wave or the pandemic second wave. So, April in last quarter was a bit subdued. So, while we expect growth to continue, it may not be at the same level in the 3rd and the 4th Quarter, but our intent is to con

Firstly, if you could help me out with the volume numbers for the quarter?

Deepesh Baxi

So, volume this quarter was around 56 million liters. And just wanted to understand, on a long-term basis, my first question is like, in the last five years, if I see your revenue growth of say around 4.5%, most of it has come from realization, and very few was around volume growth. So, I just wanted to understand the future trend, how is the growth likely to come from and if you could just give an idea of how the realization will tend to move and the volume would tend in the future. Would it be on the same lines or you are expecting something different. So, maybe I will take that at a very to

So, I have two questions. Firstly, regarding this, this global, this UK center of BP. So, how important is it? Or how substantial is it versus what BP has done so far in the battery and EV space?

Sandeep Sangwan

So, I think it's a significant investment, it's a quite a significant investment because so far, we were researching on fluids. And as I said earlier, we have already launched a range of E-Fluids based on our current kind of technological capabilities, but £50 million investment or Rs. 500 crore investment will definitely give us much more muscle to work with OEMs because a lot of European OEMs like the VW, BMW, Mercedes, they are all based out of Europe, and it gives us much more robust capability to work with them as EV technology advances. And if you would allow me to say, I think battery t

I had two question, first was on the consumer behavior, whenever we have seen such a steep price hikes are customers doing or prone to go to lower price points or downtrading or people differ the change or engine oil change? And how difficult is to get back the customers, if they do downtrading? Can you elaborate historically how the mindset of people have behaved?

Sandeep Sangwan

So, I think you will see a multiplicity of behaviors, Himanshu. As you said, some consumers would postpone the servicing of their vehicles. And some consumers would potentially look at cheaper options. I think the way we address that market is, first of all, we believe in giving the right value to our consumers from a product performance perspective. And it's not only our category which is inflationary. I think there is inflation all across. I think as long as you give customers the assurance of a good product that protects their asset, in this case, it could be a car or a motorcycle, and help

I would like to know about what are your future plans regarding EV, how much capital allocation towards on the EV research space? Can you throw some color on that?

Deepesh Baxi

So, I mean, as Sandeep mentioned earlier, EV is front and foremost as part of our strategy, right. And the way we are investing in EV is on from twofold. Firstly, the investment is happening at a global level. And the benefits of those investments is also taken by growth countries like India where the advent of EV is going to be much faster than what it has been in the past, so that's one. And building up this Technology Center is clearly an example of that. On the other side, we are constantly in conversations with the OEMs and bases that whatever investments we need to make in the plant or i

I have two questions. My first question is based on EV lubricant, like EV transition is very much visible, though still on a small scale, but with rapid growth. In this reference, can you please tell me how much rupee worth of various oils like engine brakes, gear oil etc. used in ICE against EV in a year?

Sandeep Sangwan

Well, I don't have those numbers because the market is still evolving. And I think depending on the kind of technology the EVs will evolve to, will determine the number of fluids because you could have in future, let's say liquid-immersed batteries for better thermal management. So, right now what I can say is in the dry battery spaces, the requirement of E-fluids is much lower than what you use in an internal combustion engine because these vehicles don't use engine oil. But I don't have any rupee comparison or rupee numbers to share at the moment. My second question is also on EV, like assum

My question is what percentage of turnover right now we are getting from EV related products like E-fluid and etc. And where do you see it five years from now?

Sandeep Sangwan

I think just to put things in perspective, last year, only 0.2% of total vehicle sales were EV. So, currently, we supply EV fluids to two of the larger car manufacturers, which is in India. But in terms of numbers, it's still very small. It's insignificant to our total business. And where do you see five years from now that number, any guess? It will still be pretty small. And my second question is base oil prices must be coming down with crude oil prices. So, benefit of that, which quarter will it get reflected? So, firstly, I just wanted to clarify that not always do you find, crude linkage

I have one question only. Can you share the split of revenue among the two-wheeler, three- wheeler, or like four-wheelers, EV and commercial retail space? How much revenue you generate?

Deepesh Baxi

So, I will probably talk about the core business breakup we will keep EV separate, EV as Sandeep mentioned, it's early days, so that's a small part of our revenue portfolio. But in terms of the turnover, almost 50% comes from personal mobility which is cars and bikes. And then commercial vehicles is roughly around 35% to 40%, it ranges depending, and then the balance is the industry portfolio.

I have a couple of them. So, you all just spoke about base oil prices, so just to get a more sense on that. Towards the previous quarter, we had indicated base oil prices being about $900, which had increased to about $1,000 per ton, or $1,100 rather. Could you please help with what base oil prices have averaged roughly for this quarter? And when we look at base oil prices easing out towards 4Q, in the previous year, base oil prices averaged about $1,200 to $1,300 per ton I understand you can't give an exact number on that. But what would your sense be, where would that number is settle around

Sandeep Sangwan

So, I think I will answer the second part of your question on pricing, demand, elasticity, I think we monitor the situation very closely. And I think as I have always maintained, it's a fine balance between volume expectation and margin protection. And we will continue doing that. And we will continue taking action. For example, we took price increases, but somewhere on two- wheeler segment, we felt a bit more pressure. So, we gave a consumer price or promotion, which is in public domain, nothing secret about it. So, we gave Rs. 15 off per liter on Activ, which is one of the largest brands. An

I actually have two questions actually; other expenses increased a lot this quarter-on- quarter. What was the reason for that? And if you can share where you believe, like how much of a rise you think the base oil will have in Quarter 3, like $50 to $60 or even higher than that?

Deepesh Baxi

So, other expenses includes the various elements, it includes trade, it includes insurance, travel. So, when you look at previous quarter, clearly, there are variable costs, which are dependent on volume increase. And freight is one such, which has actually been a double-whammy, with of course volume freight goes up, but then there is a (Inaudible 00:43:42) cost increase. So, freight is one element of that. Then, last year, not everybody was traveling, both from the sales side, and we are all in the market. So, from that point of view, although this is within our plan, so we don't see a reason

Thanks to all the people who asked questions, and thanks for your interest in Castrol. And I think, as Management of this Company, we will continue to focus on top-line growth, which has been one of the areas where we are putting in some programs and initiatives, which are beginning to bear fruit. So, top-line growth will continue to be a focus and it will be a combination of volume and realization. And I think we are committed to also protecting our margins, but giving fair value to our consumers and customers and keeping that balance right. And have a good day, and hope to speak to at the en

Management

Speaking time

Sandeep Sangwan

Moderator

Deepesh Baxi

Sabri Hazarika

Girish Shetty

Himanshu Upadhyay

Vipul Kumar

Hemal

Parthiv Jhonsa

SM Kumar

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Opening remarks

Sandeep Sangwan

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 are pleased to share that Castrol India Limited has delivered strong performance in the 2nd Quarter and half-year ended 30th June, 2022. I would like to highlight once again that we follow the Jan to December period for our reporting. In 2nd Quarter 2022, Castrol India registered revenue from operations of Rs. 1,242 crores and profit before tax of Rs. 280 crores. Our 2nd Quarter performance was in the backdrop of a volatile market environment where we had to balance rising input costs, while maintaining an optimal price and volume mix. And I am sure all of you kind of been reading the news and the volatility that the businesses are seeing in the first half, and it's likely to possibly continue in the second half also. So, to take care of the rising input costs, we affected two price increases in the first half of the year, which enabled us to deliver a re

Deepesh Baxi

And good afternoon to all, hope everyone is doing good. Let me share key highlights from our 2nd Quarter and 1H 2022 Results which we declared yesterday. In 2Q 2022, we reported a strong financial performance. Our revenue from operations was Rs. 1,242 crores, which marked a growth of 40% compared to Rs. 890 crores in the pandemic impacted 2Q 2021. This was higher by half a percent, from Rs. 1.236 crores compared to the sequential quarter 1Q 2022. Our profit before tax was Rs. 280 crores. And this was up 47% from Rs. 190 crores into Q2 2021, a drop of 11% from Rs. 311 crores in the sequential quarter 1Q 2022. With our 2Q Results, our 1H performance looks good, with half yearly revenue from operations of Rs. 2,477 crores, about 22% growth and profit before tax of Rs. 591 crores and profit after tax of Rs. 435 crores so that's up 13%. The Board of Directors of the Company have declared an interim dividend of Rs. 3 per share. Overall, we remain confident of our strong business fundamentals

Sandeep Sangwan

Besides the financial performance, I would like to draw your attention to some key business developments at our end. First of all, building on our strategy to be future-ready, we are foraying into service and maintenance with new formats such as Castrol Auto Service and Castor Express Oil Change outlets. In 2nd Quarter we expanded our Castrol Auto Service reach to 163 multi brand passenger car workshops and 90 plus cities across India. And our Castrol Express Oil Change outlets, which are present at Jio-BP mobility stations across India, expanded to 39 and the plan is to further grow both these formats. The outlets offer two-wheeler consumers swift and reliable oil change on the go, and this is the Castrol Express Oil Change outlets. In addition, we are also exploring collaborations with electric vehicle OEMs to help advance electric mobility in India, while continuing to launch new superior performing products in the traditional lubricant space. We strengthened our product portfolio w

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