"Castrol India Limited
2Q 2023 Earnings Conference Call"
August 01, 2023
MANAGEMENT: MR. SANDEEP SANGWAN - MANAGING DIRECTOR - CASTROL INDIA LIMITED
MR. DEEPESH BAXI - CHIEF FINANCIAL OFFICER AND
WHOLE TIME DIRECTOR - CASTROL INDIA LIMITED
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CONFIDENTIAL
Castrol India Limited
August 01, 2023
Moderator: Ladies and gentlemen, welcome to our 2Q 2023 Earnings Conference Call for Castrol India Limited. Please note that, all participant lines will be in the listen-only mode. And you can ask your questions after the presentation. If you need assistance during the call, please press star then zero on your touchtone phone to reach the operator.
We have with us, Mr. Sandeep Sangwan, Managing Director, Castrol India Limited; and Mr. Deepesh Baxi, CFO and Whole-Time Director, Castrol India Limited.
I now hand over the conference to Mr. Sangwan. Thank you, and over to you.
Sandeep Sangwan: Hi, thanks. Good afternoon, everyone, and thank you for attending Castrol India's Second Quarter 2023 Earnings Call. I hope you and your family are doing well. We're pleased to share that Castrol India Limited delivered strong growth in the second quarter of '23. I'd also like to remind you that we follow the Jan to December calendar year for our reporting. We focused on achieving growth both through volume and top line revenue growth. And despite challenges, I think we've done a good job and we're very happy with the second quarter performance showing resilience and innovation in products and services, and we'll cover that a bit later in the call.
To begin with, let me invite Deepesh, our CFO to take you through second quarter numbers and financial performance in detail. And he will also then take the opportunity to share with you how the first half of this year has been. So, Deepesh, over to you.
Deepesh Baxi: Thank you, Sandeep. Good afternoon all of you. We announced our 2Q results this -- yesterday afternoon, and here are some key financial highlights. In the second quarter of 2023, we reported strong financial performance. Our revenue from operation was INR1,334 crores, which is up 7% compared to 2Q 2022, and it's also up 3% compared to the sequential quarter of 1Q 2023. Profit before tax was INR305 crores, a gain of 9% compared to INR280 crores in 2Q 2022 and 6% higher than 1Q 2023 sequential quarter.
This resulted in delivering a strong performance in 1H also ending 30th June 2023. During this period, we registered revenue from operations of INR2,628 crores, achieving a growth of 6% compared to 1H 2022. And PBT for the first half of 2023 stood at INR593 crores, marking a growth of 0.4% versus INR591 crores in 1H of 2022.
The Board of Directors have declared an interim dividend of INR3 per share, which will be paid on or before 31st August 2023. With confidence, we move ahead, expecting continued growth and impact into the end of the year 2023. I would now like to handover to Sandeep.
Sandeep Sangwan: Yes. Thanks Deepesh. I think apart from the financial performance, I'd like to draw your attention to some of the key business developments at CIL. First is, we expanded our portfolio by entering the Auto Care segment with a variety of products in May. This reaffirms our promise to offer superior service satisfaction to vehicle owners. And this quarter, we plan to leverage our extensive network of distributors, modern trade partners, e-commerce channels and Castrol Auto Service outlets and Bike Points to reach consumers with this offering.
We also successfully launched Castrol CRB ESSENTIAL, a 5 product variant range of affordable commercial vehicle engine oils to cater to different specifications. To win in the SUV
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CONFIDENTIAL
Castrol India Limited
August 01, 2023
market, which is almost kind of 50% of the new car sales, we launched MAGNATEC SUV 5W30, a premium full synthetic offering, which has gained a great response from our customers
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? |
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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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Castrol India Ltd. published this content on 02 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 August 2023 07:38:01 UTC.