CASTROLINDNSE4 November 2022

Castrol India Limited

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80turns

11analyst exchanges

2executives

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Management on call

Sandeep Sangwan

MANAGING DIRECTOR – CASTROL INDIA LIMITED

Deepesh Baxi

CHIEF FINANCIAL OFFICER &

Key numbers — 37 extracted

sterday. In third quarter 2022, we reported strong financial performance. Our revenues were up by 4%. The total revenues were INR 1,121 crores compared to last quarter of INR 1,073 crores. Profit

INR 1,121 crore

22, we reported strong financial performance. Our revenues were up by 4%. The total revenues were INR 1,121 crores compared to last quarter of INR 1,073 crores. Profit before tax was INR 254 crores, up 2% from I

INR 1,073 crore

Our revenues were up by 4%. The total revenues were INR 1,121 crores compared to last quarter of INR 1,073 crores. Profit before tax was INR 254 crores, up 2% from INR 250 crores in 3Q 2021. With our 3Q 2022

INR 254 crore

evenues were INR 1,121 crores compared to last quarter of INR 1,073 crores. Profit before tax was INR 254 crores, up 2% from INR 250 crores in 3Q 2021. With our 3Q 2022 results, nine month revenue from operati

121 crores compared to last quarter of INR 1,073 crores. Profit before tax was INR 254 crores, up 2% from INR 250 crores in 3Q 2021. With our 3Q 2022 results, nine month revenue from operations stan

INR 250 crore

es compared to last quarter of INR 1,073 crores. Profit before tax was INR 254 crores, up 2% from INR 250 crores in 3Q 2021. With our 3Q 2022 results, nine month revenue from operations stands at INR 3,598 cro

INR 3,598 crore

INR 250 crores in 3Q 2021. With our 3Q 2022 results, nine month revenue from operations stands at INR 3,598 crores and this was a growth of 16% compared to INR 3,102 crores in nine month 2021. Our profit befor

16%

results, nine month revenue from operations stands at INR 3,598 crores and this was a growth of 16% compared to INR 3,102 crores in nine month 2021. Our profit before tax for nine month 2022 was IN

INR 3,102 crore

month revenue from operations stands at INR 3,598 crores and this was a growth of 16% compared to INR 3,102 crores in nine month 2021. Our profit before tax for nine month 2022 was INR 845 crores, 9% higher than

INR 845 crore

6% compared to INR 3,102 crores in nine month 2021. Our profit before tax for nine month 2022 was INR 845 crores, 9% higher than nine months 2021, which stood at INR 772 crores. Overall, we remain confident of

NR 3,102 crores in nine month 2021. Our profit before tax for nine month 2022 was INR 845 crores, 9% higher than nine months 2021, which stood at INR 772 crores. Overall, we remain confident of our

INR 772 crore

efore tax for nine month 2022 was INR 845 crores, 9% higher than nine months 2021, which stood at INR 772 crores. Overall, we remain confident of our strong business fundamentals and long-term profitable growt

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Guidance — 20 items

Sandeep Sangwan

opening

“The inflationary and ForEx pressures will most likely continue in fourth quarter '22 and our top most priority will be to continue driving growth in line with our strategy and serving our customers' needs while protecting our margins.”

Chetan Shah

“How do you see that reflecting into Castrol India's operation and opportunity going forward?”

Chetan Shah

“So when you spoke about the service center, will this all be owned by Castrol or it will be owned by somebody else and we'll be certifying that?”

Nitin Tiwari

“And secondly like continuing on the other expenses bit so are these the levels that we should like continue to look ahead as well in the coming quarters or there will be changes in that or is there any one-off in the other expense in this quarter, which might not be in the fourth quarter or subsequent quarters?”

Deepesh Baxi

“But there will be that 4%, 5% inflation, which any business will go through.”

Sandeep Sangwan

“So I think there will be future value streams which we keep testing and piloting, which will help us generate additional sources of revenue.”

Sandeep Sangwan

“So I think it's more a balancing act in this quarter and foreseeably into the next quarter and we get back on our growth trajectory in 2023.”

Faisal Hawa

“How will we really price our products and what will be our USP to really gain volumes there?”

Viraj Kacharia

“And the related question is through the Castrol Auto Service centers, which we're trying to scale up and eventually turn them into consumption for the product, what is the value proposition we intend to offer?”

Viraj Kacharia

“Just trying to understand when you talk about the EV value landscape, what activities or areas we will be looking to enter into and what areas we would not be looking to enter into.”

Risks & concerns — 8 flagged

Our third quarter performance was in the backdrop of extreme ForEx and inflationary pressures arising from volatile crude oil prices, leading to rising cost of additives and base oil.

— Sandeep Sangwan

But on an overall basis, as Sandeep had mentioned at the beginning, we're making sure that in highly volatile environment where there are different inputs, whether it's base oil, whether it's ForEx, whether it's the chemical inputs; all of them which are rising disproportionately, we are able to balance our pricing recovery versus our overall profitability and margins.

— Deepesh Baxi

The other question is on the inventory which we keep for base oils, going forward -- what would be the inventory like if going forward the prices decline, then when can we see positive effect from that?

— Yogesh Tiwari

In terms of the quantum of price increase, I mean that will be difficult for me to share at this moment because it's a mix, as I said, of various factors.

— Sandeep Sangwan

Sir, in terms of freight cost, just wanted to understand at the end of September and currently approximately what would be the decline like, single-digit decline, in the freight cost for the company?

— Yogesh Tiwari

I mean given that the freight cost is single digit, I think it's more answered appropriately in terms of the percentage decline, but it has declined.

— Sandeep Sangwan

So would it be correct to say that all the three segments; which is personal mobility, CVO and industrial; did they also decline in broadly similar fashion and did also industry also decline broadly, similarly?

— Shalabh Agarwal

Very difficult for me to kind of segregate, but our franchise, our B2B business where we supply to franchise workshops is about 10% of our overall volume.

— Sandeep Sangwan

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Q&A — 11 exchanges

Sir, congratulation on a good set of number.

Management

Actually I'm on a hand phone. Just a second. Now is it okay? Castro!

Sandeep Sangwan

Continue, Chetan, we can hear you. Two quick questions. First question from my side in terms of understanding the new business opportunity specifically into services and services side of the business, which you kind of partly elaborated in your previous call. But if you can give us some sense that what are we looking at in this business for next three years to five year time horizon and how do you see this business switch to our existing core business? One is that. And second, to extend your opening comment about BP investing into EV R&D facility on Castrol Global. How do you see that reflecti

My questions are book-keeping ones. So what was the volume for the third quarter and for the nine month period?

Sandeep Sangwan

So I'll let Deepesh take that. Right. Nitin, the volume for third quarter was in the range of 47 million to 48 million liters. And for the 9M period? Yes. And for the 9M period, it was 162 million liter in that range. And secondly, I noticed that there is a sharp drop in your other expenses in this quarter vis-a-vis previous quarter and also same quarter last year, so what could be the possible reason for that? And related to that only, if you can elaborate a little bit on how does ForEx impact our business and where it is accounted for? Sure. So the other expenses have dropped mainly because

No, I'm continuing on the same question. I'm not asking a new question. I just wanted to get a breakup of the ad expense in this quarter and previous quarter, which is a part of other expense. So I will like to just ask that. That would be my last query.

Deepesh Baxi

I'll just quickly answer. Our advertisement expenses generally are in the range of 3%, 4% of our revenues so we operate within that range. You can do the calculation...

Congratulations on a good set of numbers. I have two questions. Firstly, could you elaborate on the changes made to the AOA and the MOA? How exactly is it going to impact us in terms of what possible business opportunities were outside our scope of MOA, which have now been incorporated and what are we looking at? And the second question is with regard to something that you mentioned on the call of exploring the certified workshops in the aftermarket. So you mentioned that these won't be owned by Castrol, these would be owned by the entrepreneurs who are running them. So apart from the certific

Sandeep Sangwan

So first of all, let me take the MOA and Articles of Association question. I think there's a huge transformation happening in the automotive sector. Castrol legacy-wise has been a lubricants brand and we just wanted to open up the opportunity for Castrol to participate in future value streams, which today we don't know all the exact answers. But I think we just wanted to kind of make sure that we are not left behind because of our MOA and Articles of Association, which limit our presence in the lubricants category. So the intent is to open our participation to future value pools that may come

Just one question. So currently, how is the mix in terms of automotive versus industrial and also personal mobility versus CVs and industrials?

Sandeep Sangwan

So I'll let Deepesh take that question. So Deepesh, if you want to take the answer. Yes. So in terms of volumes, typically I mean, we said we've done about 47 million to 48 million liters so roughly 40 million liters out of that is automotive, the rest is the industrial. Sorry, what was the other question you had? Within automotive, the breakup between personal mobility and CVs? Yes. So roughly about 50% of our volume comes from personal mobility and I would say about 30% volume comes from CV. The rest is industrial. Okay. Fair enough. And your volumes have been little bit like I think below e

So sir, this plan of getting into actually managing workshops and having just co-branding with the existing authority. So how many such workshops have we added in the last three quarters quarter-on-quarter? Is there some growth in that? And you will also appreciate that business as usual or the same culture or the same management, who has sold a very, very well-entrenched oil brand may not be able to make a lot of headway in an industry, which is very largely unorganized. So are we making key management personnel changes to really make this a reality and to really go after that? And what is th

Sandeep Sangwan

Thanks for your question. I think you've asked too many questions and I may not remember all of them in the order that you asked them, but let me kind of share. First of all, Castrol's strongest asset is the brand. It's a brand that consumers and customers trust for providing them quality products and what we are trying to do is we're trying to leverage the strength of the brand and step into adjacencies and more service-oriented offerings in the future that can create future value for the company. Point number one. Second is I'd like to clarify we are not running these workshops. All we are p

Congratulations for a good set of numbers. Sir, firstly wanted to understand so do we have lubricants for even CNG engine vehicles? And if so, then is there a change in the content per vehicle or it remains same as compared to ICE vehicles?

Sandeep Sangwan

So we have product offerings for CNG vehicles. In fact we just launched this year an offering for CNG vehicles. And each of our product is made and formulated to cater to the needs of the vehicle. So it's not that just we brand something for CNG and it's the same product which goes into other vehicles. We definitely work on what is the most efficient product for that kind of engine. So currently how is our value proposition for the CNG vehicle lubricants in terms of 2-wheeler passenger vehicles and CVs, because there is lot of transition happening from ICE vehicles to CNG, then only we are exp

Just have three broader questions. First is on the service and maintenance business. So if you can just give some update in terms of how has the learning been. We had a tie-up with 3M for the vehicle care products and it's been quite a fairly long time in terms of the trials and the pilots we have been doing. So what has been the learning? And the related question is through the Castrol Auto Service centers, which we're trying to scale up and eventually turn them into consumption for the product, what is the value proposition we intend to offer? And I'm asking this is because if you see the ma

Sandeep Sangwan

Viraj, I think that's four questions rolled into kind of one or two questions because I just want to be fair to all the participants on the call, but let me try and answer since you asked the questions. Castro! I think on the 3M car care range, auto car care range, we have very strong learnings. We scaled it up to 10 plus cities this year. I think it has helped us refine the product range that we can offer to workshops and what sells more. So we have a core portfolio of about I think five or six SKUs or products that we sell in this range and our intent is now getting into '23 to expand this r

My first question is basically since we import raw materials, if you can give a sense of what would be the freight rates compared to end of September and currently; maybe single digit, double digit. If you can help with that. The other question is on the inventory which we keep for base oils, going forward -- what would be the inventory like if going forward the prices decline, then when can we see positive effect from that? And lastly, a small one. If we can quantify the price rise which we took. Out of the three price rises, what would be the approximate quantum?

Sandeep Sangwan

So let me see how I can answer that question. I mean freight obviously is a factor of again multiple elements. How much you import, from where you import, which type of base oil you import, which type of additives you import. But freight cost per liter is generally in single digit and we do very well on that. Our supply chain colleagues, we have global contracts that we leverage on. We have the opportunity to optimize both from where our manufacturing happens and the way the CFAs and warehouses have been structured. In terms of the quantum of price increase, I mean that will be difficult for m

Sir firstly, we had a volume decrease of around 5%, 6% year-on-year if you look at the volumes. So would it be correct to say that all the three segments; which is personal mobility, CVO and industrial; did they also decline in broadly similar fashion and did also industry also decline broadly, similarly? That's the first question. And secondly, going forward given whatever macro conditions that we are seeing or whatever market interventions we are making across each of these segments, which segments would you think would grow the fastest or grow the least because we do expect CY '23 for us to

Sandeep Sangwan

So let me try and answer the question. I think we've seen the various segments behave differently versus last year. I think our passenger car volumes are still up versus last year. I think the biggest impact we've seen is on commercial vehicles driven by the agri sector also, because if you look at new vehicle sales also, the trend in tractors is not so positive as it was last year. Overall the tractor sales have declined this year. So I think that's different. So declines have been more in agri commercial vehicle segment, less so in bikes. Even bikes, new bike sales are slightly muted as comp

Speaking time

Sandeep Sangwan

Moderator

Deepesh Baxi

Shalabh Agarwal

Nitin Tiwari

Chetan Shah

Deepan Shankar

Yogesh Tiwari

Sabri Hazarika

Faisal Hawa

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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 are pleased to share that Castrol India Limited has delivered a resilient performance in the third quarter and nine months ended 30th September 2022. Our third quarter performance was in the backdrop of extreme ForEx and inflationary pressures arising from volatile crude oil prices, leading to rising cost of additives and base oil. To safeguard our margins and deliver bottom line growth, we employed rigorous pricing and cost management. The inflationary and ForEx pressures will most likely continue in fourth quarter '22 and our top most priority will be to continue driving growth in line with our strategy and serving our customers' needs while protecting our margins. The balancing act in our view will need to continue at least for a couple of quarters. I now invite Deepesh to take you through our numbers and financial performance in detail.

Deepesh Baxi

Thank you, Sandeep, and good afternoon to everyone. Let me share with you some key financial highlights from our third quarter and nine month 2022 results, which we announced yesterday. In third quarter 2022, we reported strong financial performance. Our revenues were up by 4%. The total revenues were INR 1,121 crores compared to last quarter of INR 1,073 crores. Profit before tax was INR 254 crores, up 2% from INR 250 crores in 3Q 2021. With our 3Q 2022 results, nine month revenue from operations stands at INR 3,598 crores and this was a growth of 16% compared to INR 3,102 crores in nine month 2021. Our profit before tax for nine month 2022 was INR 845 crores, 9% higher than nine months 2021, which stood at INR 772 crores. Overall, we remain confident of our strong business fundamentals and long-term profitable growth in India. I would now like to hand the call back to Sandeep.

Sandeep Sangwan

Thanks, Deepesh, for sharing those numbers. Besides the financial performance, I'd like to draw your attention to some key business developments at our end. First, as part of Castrol's ongoing sustainability initiatives, we introduced a new more sustainable packaging for our premium engine oil brand POWER1 ULTIMATE for two-wheelers, in line with our Global Path 360 sustainability agenda. The brand will now be available in a 100% post-consumer recycled or PCR bottle made from reprocessed plastic waste instead of virgin plastic. Plastic waste management is an important aspect of Castrol's sustainability roadmap for India. In '21, we had introduced new lightweight bottle designs for our medium packs, which is 3 liters Castro! to 5 liters, that reduced our plastic use on average by about 20% per liter. Our new Castrol POWER1 ULTIMATE bottles are the first 100% PCR plastic lubricant bottles in India. An integral element of our future-ready strategy is our foray into the automotive aftercare

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