Rupee fall, high crude oil price adding to cost pressure: Castrol India MD

Castrol India Managing director Omer Dormen
Lubricants manufacturer Castrol India is betting high on the personal mobility space. Managing director Omer Dormen talks to Shine Jacob about the challenges from electric vehicles, pricing pressure and the company's road map. Edited excerpts:

How important is India as a market for Castrol India? How do you see the growth?  

The Indian market is (our) third largest, of about 2.4 billion litres. Half of this is the industrial segment, and then there is commercial vehicle oil and personal mobility oils. The exciting piece is that the personal mobility space has been growing. It is a rapid space for the past 10 years. 

With electric vehicles (EVs) gaining momentum, what are the changes required for players like Castrol?

It is not a fight. First, we welcome the change. It is exciting to be going through this transformation. Three things are happening. One is, globally, there is demand for more energy, from transportation to power generation. Second, a demand for lower emissions, lower carbons. Third, there is decent demand from the consumer for easier access to mobility. If I look at the next 10 to 20 years, globally, we are going to see a doubling of the vehicle park. We estimate there are about 900 million cars. That's going to go to 1.8 billion. The share of EVs is going to increase but still only around 300 million out of 1.8-1.9 billion. Therefore, there is still huge growth in terms of internal combustion engines. This growth is going to be in China, India, and Africa, wherever people have access to mobility.

With crude oil prices on a high, are you facing a pinch?

We had three price increases this year. It’s been a huge pressure in terms of input cost increase. First, driven by crude oil increase driving base oil increases. Also, the impact of additive increases and on top of that, the rupee depreciation, adding to our cost pressure. You get a hit, you respond by increasing prices but, then, there is a lag. This quarter, we are going through that input challenge and we tried to beat that input cost (rise) by increasing prices. But, there are always these cycles, where you dip and then you recover in the next one. Base oil has its own supply and demand but the input is crude, where there is direct impact. The first half saw a base oil (price) increase, nothing to do with crude but more of a supply disruption because there refineries were down and there were fires and all that. This year, we are seeing that, the correlation with crude oil prices, and on top of that, pressure on the rupee. 

In India, public sector firms have about 40 per cent in the lubricants space. How are you planning to tackle this?

We are leading in the private sector. When you say the public sector, it is three companies (IOC, BP, HP) put together. The majority of our sales is from the industrial sector; we choose to play in different sectors. If you look at the 50 per cent of the remaining business pitches, automotive and consumer, we are clearly the leader. If we look at retail markets, we are 20 per cent. But, then, if I look at the total 2.4 billion litres, we would be less than 10 per cent. 

Are you going slowly on the industrial segment? 

We do have penetration in terms of where we selectively play. For example, metal working and rust preventives. We have an 18 per cent market share in metal working, so we do play in the areas where you can make a difference. If you look at the total market of 1.2 billion litres of industry, ours will be negligible. However, we do want to increase our share, especially the sectors we want to focus on. We see that industrial (oils) will continue to grow and we aim to grow our share. Especially, in sectors where we can add value or quality products. We aim to increase our share in the personal mobility and industrial sector and grow with the market in commercial (oils). And, in India, the market is moving towards lower emissions, to engines in line with modern technology.

Both China and India are giving a lot of subsidies for EVs.

Internal combustion engines are driving the change to lower carbon emissions. It will be driven by fuel-efficient products and we will work on thinner oils and all. The second piece is in terms of what we do, how we enable consumers to have access to mobility. So, we were looking at advance mobility solutions, digitisation —we are testing models. There is a global team, also an India team, looking on how we monitor, how we play into this new era, which is going to come in the next 10-15 years.