Castrol India : Analyst/Investor Call Transcript – 10 May 2023

"Castrol India Limited

Post Earnings Call for 1Q FY 2023"

10 May 2023

MANAGEMENT: MR. SANDEEP SANGWAN - MANAGING DIRECTOR - CASTROL INDIA LIMITED

MR. DEEPESH BAXI - CHIEF FINANCIAL OFFICER &

WHOLE TIME DIRECTOR - CASTROL INDIA LIMITED

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Castrol India Limited

10 May 2023

Moderator:	Ladies and gentlemen, welcome to our Analyst Call for Castrol India Limited 1Q 2023 Financial
	Results. Please note that all participant lines will be in the listen-only mode and you can ask
	your questions after the opening statement. If you need assistance during the call please press
	star then zero on your touch-tone 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 of Castrol India Limited. I now hand over the
	conference to Mr. Sangwan. Thank you. And over to you, sir.
Sandeep Sangwan:	Thank you very much. Good afternoon, everyone and thank you for attending Castrol India's
	First Quarter '23 Earnings Call. I hope you and your family are doing well. And just to remind
	you that we have our financial year from Jan to December, and that's why we call this our quarter
	1 earnings call.
	And I'm very pleased to share that Castrol India Limited delivered resilient performance in the
	first quarter of '23. And through our kind of session today, we'll talk more in detail. We built
	good growth momentum from fourth quarter '22 and registered quarter-on-quarter growth in first
	quarter of '23. Our performance versus the first quarter of last year was impacted due to
	inflationary pressures, high input costs and fluctuating forex. But I'm very positive as we go
	through rest of the year and with the momentum that we're seeing.
	And to begin, I'll invite Deepesh, our CFO, to talk you through our first quarter numbers and our
	financial performance in detail.
Deepesh Baxi:	Thanks, Sandeep, and good afternoon to all of you. We announced our first quarter 2023 results
	last evening, and here are some of the key financial highlights. In 1Q 2023, we reported a strong
	financial performance. Our revenue from operations was INR1,294 crores, and this is up by 10%
	compared to INR1,176 crores in 4Q of 2022. That number is also when we compare to 1Q 2022
	last year's first quarter is up by 5% from INR1,236 crores.
	Profit before tax was INR288 crores, which is higher by 16% compared to the sequential quarter
	of 4Q 2022 and lower by 7%, INR311 crores versus 1Q 2022. Overall, we remain confident of
	our strong business fundamentals and long-term profitable growth in India. I would now like to
	hand over back to Sandeep.
Sandeep Sangwan:	Yes. Thanks, Deepesh. Apart from the financial performance, I'd like to draw your attention to
	some key business developments at Castrol India. First, we expanded our presence in service
	and maintenance space, increasing our Castrol Auto Service outlets to over 300 across -- about
	100 cities in India. And we have 5,000 Castrol Bike Points across India. We will continue to
	drive consistent growth in the subsequent quarters and enhance our industry partnerships to ramp
	up our service and maintenance offerings and in new strategic segments such as automotive
	aftercare.

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Castrol India Limited

10 May 2023

On 28th of February, Castrol also unveiled its refreshed brand identity globally, including an updated look and feel. The brand refresh with the theme of onward, upward and forward is aimed at better reflecting its unique positioning in the market and the opportunities it sees in meeting

	the changing needs of customers.
	Castrol India also collaborated with JioCinema for streaming the 2023 Tata Indian Premier
	League, IPL, as an associate sponsor. The partnership aimed to engage with cricket fans across
	India and leverage the platform to showcase, Castrol's refreshed brand identity. With this
	association, Castrol continued its long legacy of sponsoring some of the world's largest and most
	significant sporting events over the years.
	Castrol Super Mechanic Contest won the Best Branded Content Category Award at the
	prestigious Asia Pacific Festival of Media Awards. Please note, Castrol India Limited will hold
	its 45th Annual General Meeting for shareholders on 11th May of 2023. We've also taken actions
	on sustainability, especially around plastic waste reduction.
	So, for example, by March of this year, we've collected 100% of our plastic that goes into the
	market, which is ahead of the regulatory requirements and we're very seriously looking at other
	opportunities to reduce plastic in our packaging using renewable energy in our plants. So, a lot
	of initiatives around sustainability as well to make sure that we stick in line with our overall
	objective of reducing waste, improving energy efficiency and reducing plastic.
	With that, I'd like to thank you for your attention and would like to open the session for your
	questions, feedback and views, please. Faizan, over to you for -- we can start the questions.
Moderator:	The first question is from the line of Bhagyesh Kagalkar from HDFC Mutual Fund.
Bhagyesh Kagalkar:	This is Bhagyesh. So, a couple of queries on the new initiative area. First of all, the Annual
	Report has come out, and the good thing is there is substantial backing to us from BP Group,
	which is also far ahead in the charging or even in other EV areas. And we should benefit from
	this thing logically.
	But the whole issue is company needs to lay a roadmap for next 3 years to 5 years basically.
	Where are the revenue potential, as well as the profitability potential for the future areas? I'll just
	give an example of charging. So, most of the charging facilities in India are very underutilized,
	hardly 3% in the EV space. So one needs to be slightly cautious and yet lay a roadmap for the
	future, for next 3 years to 5 years?
Sandeep Sangwan:	So Bhagyesh, thanks. Excellent question. Very insightful. We have a very clear roadmap for the
	next 3 years to 5 years. And the first point I'd like to say is our core business, which is built
	around lubricants will continue to stay very robust for the next 3 years to 5 years.
	We're beginning -- we're seeing more than 20% growth in the car category given the low
	penetration in India of passenger cars. And I'm talking internal combustion engine, ICE cars
	here, EVs. Two-wheelers still continue to grow, although the electrification will come much
	faster in two-wheelers and commercial vehicle and agricultural sector continue to grow.
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Castrol India Limited

10 May 2023

So the underlying lubricants business and related fluids will continue to stay very robust for the next -- in fact, going well into the 2040s, okay? So that's one thing I'd like to say. And Castrol

	always strives to grow slightly ahead of the market in this space. That's point number one.
	The second is, as I said, the second building block is our service and maintenance or the
	workshop business, okay, where we're making a headway in growth with our own network,
	which is 300-plus strong of Castrol Auto Service which service cars and 5,000 bike points, so
	giving a trusted quality service to consumers, okay? Last year, we had announced our investment
	in Ki Mobility Solutions, which is a unique digital business model, again, playing in the
	aftermarket. So that's the second leg of our growth.
	And the third leg of our growth is we are entering into adjacencies. For example, over the last 2
	years, we've piloted auto care range. And this year, within this quarter, in fact, we'll be making
	that as a national launch going forward. So, I think our next 3 years to 5 years roadmap as you're
	requesting is very clear in terms of where we want to grow and how we want to grow.
	EV charging, you rightly said, it's still a very nascent area. And BP is partner company, which
	Jio-bp is looking at that opportunity. And if we can add any value, we will add value to that with
	our large network of 100,000 outlets that we have across the country. So, that's the broad shape
	of where we are headed.
Moderator:	The next question is from the line of Nalin Shah from NVS Brokerage.
Nalin Shah:	At the outset, let me just say the kind of confidence, sir, you have expressed in the future of
	Castrol is very, very, I think, welcome and we really feel very confident about the performance
	of the company.
	My question is also more or less similar that where do we see the company from here on for next
	3 years to 5 years in terms of whatever we may say, top line or like kind of a growth, which is
	expected in terms of volume, in terms of value, etcetera? And where do we see the company
	from here in terms of this kind of growth, which you outlined for 3 years to 5 years because we
	need to have some kind of, I mean, understanding in terms of the investment point of view?
Sandeep Sangwan:	Okay. So thank you, Mr. Shah for your question. I think at the outset, let me say, we typically
	don't give any guidance in terms of growth numbers, etcetera. But I'll give you a broad shape,
	and then I'll request Deepesh to join in, okay?
Nalin Shah:	Yes.
Sandeep Sangwan:	Category, if you look at the total lubricants category, that grows at about 3% to 5% in that broad
	range. And we don't see that changing significantly in the next 5 years or even longer at least,
	okay? But our endeavor is to grow our volumes and top line ahead of the category by a few
	points, okay? The second is, we will continue investing in our brand, okay? One of the strengths
	is our brand, because we are a premium brand, and we'll continue to be a premium brand. So
	investment behind our brands and you would have seen in the numbers.

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	Castrol India Limited
	10 May 2023
	We will continue at a level that we've historically invested in, okay? And we have capital
	investments that also go to support some of our initiatives, whether it is service and maintenance,
	independent workshops, etcetera. And then through cost efficiencies, if we can add another
	percentage or so, if you look at our -- this quarter's EBITDA, which is, again, back to 23%,
	which was 21% in quarter 4 last year. And I think we've said we'll operate in a band of 23% to
	26%. So EBITDA margins will also continue to be operating in that frame. So hopefully, that
	gives you a view of how we're looking at the next 3 years to 5 years.
Nalin Shah:	Yes. Perfectly okay. But since these new initiatives are there, can we have some guidance, as
	you mentioned about the 3% to 5% growth in the lubricant business? So similarly, just -- can we
	have some idea about what kind of a -- considering the other new initiatives, what kind of a top
	line growth we can sort of project?
Sandeep Sangwan:	So, I think on the new initiatives, to be honest, Mr. Shah, it's still early days, okay? We have
	certain projections that I don't want to share on a call. But hopefully, once we have 6 months to
	12 months of kind of performance under our belt, we'll be able to have a better view on how
	much that can add to the top line. But as you said, we are committed to kind of auto care category,
	okay, as one area. And the second is expanding our presence in independent workshops to begin
	with.
Moderator:	We'll take the next question from the line of Pranay Gandhi from Green Portfolio.
Pranay Gandhi:	I have a question regarding your after-sales service that we got into community building
	initiative sales the company is taking. But I would like to know what proportion of our sales
	come through these tie-ups in comparison to our conventional business?
Sandeep Sangwan:	So Pranay, thanks for asking that question. I think what I would say is almost about 80% of our
	revenue comes from automotive space. And primarily, we are an aftermarket company. Our
	OEM business component is small as compared to the overall business. And we play in the
	aftermarket because that's the strength of the brand where we can get the premiums and the
	pricing that we can demand.
	Now from the tie-ups, I think Ki Mobility is just getting into execution phase, okay? But they
	have a good coverage of garages, retailers, and I think we'll start seeing the momentum on that
	area. Independent workshops is another big component in our mobility space, okay, which
	accounts for a good percentage of our sales in 2-wheelers and 4-wheelers category.
	So overall, I would say, just keep the frame of automotive, about 80% of our business and
	primarily coming from the aftermarket. That's how we kind of -- more than that, I don't want to
	be very granular. And Deepesh, if you want to add anything, please comment.
Pranay Gandhi:	Thank you for answering that, sir. My only concern here was that since we are tying up with
	independent workshops and training them, so does it add on to the margin or probably our sales
	volume exponentially? Or we are still somewhat in a similar range as we were previously done
	taking this initiative?

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