Castrol India Ltd Management Discussions.

Pursuant to Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Management Discussion and Analysis Report covering business performance and outlook (within limits set by Companys competitive position) is given below:


The Coronavirus disease 2019 (COVID-19) was declared a global pandemic by the World Health Organisation in March 2020. Following which, the Government of India then announced a nationwide lockdown for six weeks and thereafter, a partial lock down in certain parts of the country, based on their risk profile.

The initial lockdown meant a complete slowdown of the economy and very limited demand for the Companys products and services. The Company has made committed efforts to support its business stakeholders, employees and service providers, along with communities through its CSR initiatives in this difficult time. It has geared itself to serve markets in different locations as the country re-opens, as per central and local government advisories. The Company is also working on various options to ensure that it effectively navigates through the crisis and emerges stronger.

This is an unprecedented worldwide event, which is currently ongoing, and has also led to the delay in publishing of this Management Discussion and Analysis Report. The content hereon is for the financial year January to December 2019.


Industry Structure

India is the worlds third largest lubricants market1 after US and China with approximately 2.7 billion litres of annual consumption2. The lubricants market in India is highly competitive and fragmented comprising national oil companies, several international majors and a large number of local companies. While the Company operates in all major categories such as automotive, industrial and marine & energy applications, it is the leading international player with a well- entrenched position in retail automotive lubricants and a significant presence in specialized industrial lubricants.

Demand drivers

Lubricants play a major role in reducing friction generated by metal to metal contact. They also help in reducing noise and heat generation of metal parts - such as engines in automotive industry and cutting or honing parts in industrial applications. Detergents and dispersants in a lubricant help cleaning, while anti-wear agents help protect the metal surface from wear and tear as well as corrosion.Automotive vehicles require engine oils, transmission fluids, brake fluids, hydraulic oils and greases, while industrial and manufacturing applications require lubricants for metal working, rust preventives and coolants.

Demand for automotive lubricants is driven by the expansion of vehicle population as well as the usage of vehicles in the country. Industrial lubricants demand is observed to have a strong co-relation with the Index of Industrial Production (IIP), which is largely driven by economic activity. In case of marine & energy lubricants, the demand drivers include global and local ship movements, which facilitate large scale movement of cargo as well as the installed base of offshore rigs and their uptime.

Supply drivers

Lubricants are manufactured by blending base oils with additives. This blending involves highly advanced formulations as per the specific purpose the lubricant serves, and are in line with the OEM specifications and industry norms.

India is a net base oil deficit market leading to large scale import of base oil and additives. This exposes the lubricants business to fluctuations in foreign exchange rates.

Major industry developments

Overall lubricants market

2019 has been a tough year for vehicle sales with overall vehicle sales declining by 14% for the full year compared to the same period last year.3 GDP growth rate for India reduced to 4.7% for 2019 on account of investment led slowdown leading to lower consumption; driven by weak job creation and financial stress amongst rural households. Industrial output for 2019 grew marginally with declining trends in the last two quarters of 2019.4 The overall automotive lubricant demand grew marginally at less than 1% in 2019 compared to 2018.5 This growth is driven by personal mobility, however commercial segment demand reduced in the year due to several macroeconomic factors.

Impact of foreign exchange, crude oil and raw material prices

2019 was no different to the year before in terms of volatility in both Brent crude and foreign exchange. Within a span of the first four months, crude rose by almost 20% and touched a year high of $71 bbl in April and settling at around $60 bbl from August. Amid challenging economic conditions in India and overseas, the rupee lost its value by almost 1.5% over this year.

These difficult market factors continued to put pressure on input prices but subdued demand kept it in check.

The below graph indicates the trend of crude prices and Rupee/USD for 2019.

In base oil, price decline was a constant feature primarily due to ample supplies as a result of capacity additions across Asia & Pacific and Europe coupled with lacklustre demand throughout this year.

Despite this highly uncertain and challenging business environment, the Company continued to generate value for its investors through strategic sourcing, leveraging term contracts, value improvement initiatives, extensive focus on service and quality as well as continuous monitoring of costs.

The Company worked on a best value purchase model and value-based inventory management, keeping a close watch on cash costs and working capital.


(i) Opportunities

Despite slowdown in vehicle sales, vehicle population in India has grown by nearly 6% with growth in two wheelers, commercial vehicles as well as cars.6

a. Personal mobility: With multiple opportunities in personal mobility driven by increase in first time users, growing number of women riders, as well as a continuing shift towards higher quality formulations and lighter viscosity grades, the Company is well placed to tap this potential.

b. Original Equipment Manufacturer (OEM) partnerships: The Company works with leading OEMs in India and has built enduring partnerships with them. It works closely with them on product development with new technologies to address the environmental needs of lower emission and fuel efficiency.

c. Medium / light commercial vehicles (MLCV): The MLCV segment is likely to continue growing due to the last mile connectivity offered, enabling the Company to continue its focus on this category.

d. Improving technology in trucks:

With the advent of stricter emission norms resulting in newer technologies for trucks, the CI4+ segment is the fastest growing segment in the commercial vehicle category, in which the Company enjoys a strong position with an improved portfolio.

e. BS VI compliance: The Company is poised to take advantage of further enhanced technologies becoming the first Company in the industry to have BS VI compliant products across all categories of automotive lubricants.

f. Distribution: Continued focus on the strong and wide distribution network in retail and independent workshops will enable future growth. The Company has begun selling its products online as an additional channel.

g. Adjacencies: The Company is exploring different business models through adjacent businesses, moving beyond lubricants. It announced a strategic collaboration with 3M India to introduce a range of quality vehicle care products to be made available in the automotive after-market.

h. Digital initiatives: The Company continues to build on its digitization strategy and has launched numerous digital initiatives to offer a premium experience to customers and consumers. These have been developed keeping in mind customer requirements as well as ease of use, and to bring in efficiencies of time and effort. For instance, the Company has announced Castrol

Fast Scan - a unique digital incentive platform for stakeholders including mechanics and retailers which also offers several possibilities to enable sustained and customised engagement programmes. Similarly, it launched Castrol Fast Lane - an online portal for retailers.

i. Advance mobility solutions:

Today the world faces a challenge of providing more energy with fewer emissions. In transport, this means keeping the world moving while reducing overall emissions from fuels. As part of this transition, the Company is experimenting with improved ICE technology, hybridisation and e-fluids for all engines including diesel, to decarbonize transport now and in the future.

j. Access to new channels: The partnership between BP and Reliance Industries in India for their new fuels and mobility joint venture gives the Company an opportunity to market its lubricants across the ventures retailing network which is expected to be scaled up to 5,500 fueling stations in the next five years.

(ii) Threats

a. Economic uncertainty: Based on the current and future market environment estimates, the base oil and forex trends are expected to continue to be volatile. Published GDP estimates signal possibilities of a slowdown in the growth rates.

b. Competitive activity: Competition in the lubricants market is intense and competitive activity is likely to remain high in the foreseeable future. There is also a trend of OEMs introducing lubricants under their own brand name, further impacting the competitive landscape.


Automotive lubricants: The Company continued to deliver strong performance with top line growth in personal mobility while continuing to drive premiumization of the category to drive better performing and environment-friendly products.

The Company further strengthened its position in the mid-price segment in key categories to drive growth as well as its close association with key OEM customers. Commercial vehicle performance has been impacted by several macro-economic factors.

The Company sustained its focus on innovation and new product launches across segments. With the imminent introduction of BS VI norms, the Company is well poised to manage this transition with a BS VI ready portfolio.

Purpose-led unique marketing campaigns like Castrol Activ Non-Stop Democracy campaign built around protecting what you love and Castrol CRB PLUS Khet Aasana campaign were used to engage with and strengthen the brand equity within the community.

The Company continued to engage and grow advocacy with mechanics in the automotive segment through the very popular Castrol Super Mechanic programme for car and bike mechanics.

Industrial lubricants: The Company drove the Industrial business through acquisition of new customers and introduction of new products, despite a tough external environment.

Marine & energy lubricants: The Company focuses on providing best- in-class products and services and offering value-added services, along with best practices from its marine businesses globally, strengthening customer confidence.

Quality: The Company maintained its rigour on strengthening quality standards by delivering global quality standard requirements and auditing the same. The programme of Quality Observations and Conversations was utilized to strengthen quality inputs. A supplier quality assessment programme was also rolled out. The Company was recognized externally for Quality when it received an international award - the Asia Pacific Quality Organisations Global Performance Excellence Award 2019 in the Best in Class category.


The outlook for 2020 has been examined closely by the Company through the broad dimensions of demand drivers and distribution channels.

Demand drivers

The key drivers of demand growth in each segment where the Company operates are explained below:

Automotive lubricants

Personal mobility: With increasing vehicle parc of two-wheelers and four wheelers, this category of engine oils will continue to see an upward trend. With its wide distribution reach and strong brands, the Company is expected to capitalize on the opportunity. Synthetic oils will continue to lead the growth for passenger cars and the Company is well placed to take advantage of the same with its well- rounded portfolio of synthetic products.

Commercial vehicles: Despite short term challenges in the lubricants demand for commercial vehicles, this segment is expected to grow once economic activities pick up with a strong and growing vehicle parc. Growth in construction and off-highway sectors due to investment in infrastructure is likely to lead to lubricants demand growth in this category.

The Company is also investing in plant capacity expansion to cater to increasing demand. An expansion plan for its Silvassa plant was approved to scale up installed capacity at the facility by 50%.

Industrial lubricants

The demand for Industrial lubricants saw a significant slowdown due to the decline in IIP seen in the second half of 2019.7 However, the long term industrial lubricants demand is likely to grow with economic reforms gaining momentum as Indias long-term prospects for growth remain optimistic. As global OEMs continue their focus in India, growth prospects are likely to get bolstered further.

Marine & energy lubricants

With the imminent implementation of IMO global sulphur cap effective January 2020, the Company recently launched Cyltech 40 SX - a fully miscible, compatible, OEM approved and Marpol 2020 compliant lubricant to help adhere to this compliance requirement.

With cargo traffic in ports of India continuing to see an increase and with distributors for all segments of customers (including spot market), new product introduction and better availability, the Company has increased its outreach and intends to leverage its brand equity to penetrate untapped markets.

Channels of distribution

The Companys products are distributed through over 350 distributors who service over one lakh customers and sub-distributors who reach out to additional outlets in semi-urban and rural markets. It also leverages its distribution channels to reach a wider network of independent workshops. The Company also serves close to 3,000 key institutional accounts directly, and in some cases through its distributors. Over the last few years, the focus on priority channels has contributed to growth in the Companys business.

Leveraging digital technology, in December 2019, Castrol Fast Scan - the Companys unique digital incentive platform for key stakeholders, including mechanics and retailers, crossed 1.75 lakh users. Castrol Fast Scan offers numerous possibilities to enable sustained and customised engagement programmes. Early in the year, the Company also launched Castrol Fast Lane - a customer portal for retailers to explore the product range, place orders and view trade offers. The Company also explored a new channel of distribution and its products are now sold online via major e-commerce portals in the country.

Aligned to the long-term strategic direction and on the back of continued investments in technology and brands, aggressive growth plans, innovative marketing programmes and delivery of premium customer experience at multiple touch points, the Company is confident of continuing to deliver robust business performance.


Volatility in input costs and foreign exchange continues to remain a risk coupled with general slowdown in the economy. Changes in the market including introduction of genuine oils as well as change in route to market strategies by OEMs add to the challenge. The Company has appropriate mitigation plans in place to deal with such risks and protect margins. During 2019, appropriate strategic and pricing interventions were taken in the market keeping in mind input costs, competitive positioning and product brand strategy.

The Company is actively managing its cyber security risk by promoting the right behaviours and using the right tools and processes to protect its information, systems, assets and people against current and emerging cyber security threats. The Companys Risk Management Committee actively monitors and reviews cyber security risks.

With India being a growth market, opportunities for employability and for commensurate roles are higher. The Companys strong capability offer which nurtures and develops its talent, makes its employees more relevant to the market, thereby increasing the risk of attrition for the Company.

Health, Safety, Security and Environment (HSSE) are critical focus areas for the Company. Road safety is an area of particular focus given that its frontline team and transporters drive across the country on business. Similarly, product quality and integrity continue to be another focus area for the Company.

Its vision for Quality, right quality first time every time, is a key enabler to help provide a premium customer experience.

The Company has a robust risk mitigation plan to minimize identified risks through continuous monitoring and mitigating actions.


The Company maintains an adequate and effective Internal Control System commensurate with its size and complexity. It believes that these systems provide, among other things, a reasonable assurance that transactions are executed with management authorization. It also ensures that they are recorded in all material respects to permit preparation of financial statements in conformity with established accounting principles, along with the assets of the Company being adequately safeguarded against significant misuse or loss. An independent Internal Audit function is an important element of the Companys Internal Control System. This is supplemented through an extensive internal audit programme and periodic review by the management and the Audit Committee.


The Company delivered a strong Gross Profit growth of 7% in 2019 over 2018, driven by lower cost of sales.

Cost of sales decreased during 2019 by 8% over the previous year, primarily due to lower input costs as a result of efficiency & procurement savings during the year.

Operating and other expenses increased by Rs. 49 crores as compared to 2018 due to investment in safety, people, brands and business growth opportunities. Profit After Tax (PAT) increased by Rs. 119 crores and is at Rs. 827 crores, compared to 2018 due to higher profit and lower statutory tax rate.

The Company has delivered a resilient performance for the year despite the challenging external environment with declining industrial production levels and muted consumer offtake.


In accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended till 2019, the Company is required to give details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios.

Key Financial Ratios

Particulars Unit 2019 2018 % change
Debtors Turnover Times 8.87 11.54 -23%
Inventory Turnover Times 10.18 10.06 1%
Current Ratio Times 2.18 1.87 17%
Operating Profit Margin % 30% 28% 5%
Net Profit Margin % 21% 18% 18%
Return on Net Worth % 65% 65% 0%

Interest coverage and debt equity ratio are not applicable to the Company since there are no borrowings

Debtors Turnover Ratio indicates a companys effectiveness in collecting its receivables from customers. It is computed by dividing the revenue from operations by average trade receivables.

Inventory Turnover Ratio indicates the number of times a company sells and replaces its inventory during the period. It is calculated by dividing the revenue from operations by the average inventory.

Current ratio is a liquidity ratio that measures a companys ability to pay obligations that are due within twelve months. It is calculated by dividing the current assets by current liabilities.

Operating Profit Margin is a profitability or performance ratio used to calculate the percentage of profit a company produces from its operations. It is calculated by dividing the Earnings Before Interest & Taxes (EBIT) by revenue from operations.

Net Profit Margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing the profit for the year by revenue from operations.

Return on Net Worth is a measure of profitability of a company expressed in percentage. It is calculated by dividing profit for the year by average capital employed during the year.


People are the Companys key assets and the focus in 2019 continued to be development, enhancing capabilities and employee engagement, aimed towards driving performance excellence in changing times. The Companys people agenda focuses on building distinctive capabilities which allows it to deliver in the short term and develop new capabilities for the future.

The Company continued to invest in leadership development through leadership offers for all team leaders and managers. It also drove the agenda of continuous conversations as a part of the performance cycle, aimed at creating better relations between managers and their team members by encouraging regular check-ins and feedback. The Company is happy to inform that internal candidates continue to be successfully hired for vacancies with 42% positions filled internally.

The Company has continued its efforts in building a diverse and inclusive workforce. Hiring practices continue to ensure recruitment of diverse candidates without compromising on meritocracy. This year saw the Company hire its first ever woman technician in the Patalganga plant and there are plans to hire across other plants in similar capacity.

The Company has also onboarded women engineers at Patalganga and Silvassa plants in the management category. The overall number of women in the managerial population is 18% in 2019 and overall at 19%.

There has been a continued and focused engagement with workmen and contractors at plants by the senior leaderships through town halls, offsite team meetings, regular sharing of business and safety updates, plant performance reviews and recognition of exemplary performance on safety and quality consciousness. The strength of the employee relations at the plants is also indicated by the absence of unionization of contractual labour. There has been no loss of man-days due to labour unrest or indiscipline. We have successfully completed the long- term settlement negotiations at the Paharpur plant in 2019.

The total number of people employed in the Company as on 31 December 2019, including factory workmen, was 720.

Health, Safety, Security and Environment (HSSE)

The Company continues to accord the highest priority to health and safety of the workforce and the communities it operates in. The Company has been fully committed to comply with all applicable laws and regulations and maintains the highest standards of Occupational Health, Safety and Environment. The Company has a HSSE policy which applies uniformly to every member of the workforce, including contractors.

The Company has implemented best in-class internal standards - Operating

Management System (OMS) to ensure safe, systematic, reliable and environmental-friendly operations.

The effectiveness of implementation and compliance of OMS is checked through a systematic process called field inspection led by the leadership team.

All plants are certified to the Environment Management System (ISO 14001:2004), Occupational Health & Safety Management System (OHSAS 18001: 2007) and Quality Management System Standard (ISO 9001:2008). The Company is periodically certified by internationally recognized and accredited bodies against these standard requirements.

All manufacturing plants have won several external recognitions for their exemplary HSSE performance and practices.

The Company is also undertaking environment management programmes and projects to minimize environment footprint, energy and water consumption as well as waste generation from manufacturing operations. This involves optimizing the manufacturing batch sizes, maximizing the use of natural lighting, use of LED and energy efficient lighting as well as regular water monitoring and audits.

Safety and environmental performance have been integral to the Companys business performance which is reviewed every month by the leadership team. The Company continues to focus on its goal of no accidents, no harm to people and no damage to the environment with the primary objective that everyone goes home safely, every single day.

On behalf of the Board of Directors

Sandeep Sangwan
Managing Director
Rashmi Joshi
Chief Financial Officer & Wholetime Director
DIN: 06641898
Place: Mumbai
Date: 12 June 2020