Castrol India Ltd Management Discussions.

Pursuant to Schedule V to 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), declared a global pandemic by the World Health Organisation in March 2020, was an unprecedented worldwide crisis leading to over 2 million deaths and continuing to affect millions globally. Countries went into long periods of complete or partial lockdown which brought about an overall slowdown in the global economy.

The Government of India also announced a nation-wide lockdown for a little over two months in March and thereafter restricted it to containment zones based on their risk profile. This saw an economic slowdown and very limited demand for the Companys products and services. The second half of the year saw the economy opening up gradually resulting in the revival of demand.

The Company managed this unprecedented situation with three clear objectives – protecting its employees including contract workers, supporting communities and protecting the financial health of the business.

Employees: All employees excepting critical ones operated from home, despite lockdown restrictions being eased till the end of the year. The Company created safe operating guidelines for its sales teams and standard operating procedures for its manufacturing plants to operate, following government regulatory protocols and guidelines. The plants safely resumed operations in May and continued to operate thereon to fulfil customer demand.

The Company kept teams informed and well engaged, and offered them psychological, ergonomic and IT support to work comfortably from home.

Customers: The Company fulfilled customer demands during this period despite several logistic challenges. Teams were in touch with them virtually and also conducted several virtual technical training programmes for them. Sanitization services were offered complimentary to franchise and independent workshops nationally which prepared them to restart their business.

The Company managed this unprecedented situation of the pandemic with three clear objectives – protecting its employees including contract workers, supporting communities and protecting the financial health of the business.

Communities: As a responsible corporate citizen, the Company committed its support to actions as part of the country-wide response. It allocated Rs 11.5 crores from its CSR budget and worked with various non-governmental organisations to provide medical support and emergency supplies to hospitals nation-wide, groceries and dry rations to migrant daily wage earners, food for stranded truck drivers, protective gear to policemen and garbage collectors. It also made small monetary contribution to over 62,000 mechanics and their families to support them during this crisis and complimentary lubricants for vehicles belonging to essential service workers.

Social interest campaigns: The Company launched purpose-led campaigns applauding the efforts of people who helped communities during these testing times.

The Castrol Activ #HangUpYourKeys consumer awareness campaign showcased real-life stories of young Indians making a difference during the pandemic even while at home.

The Company started an appreciation campaign for truckers through the Castrol CRB #SaluteTruckers campaign which highlighted truckers efforts and contribution in keeping India moving.

The Company also launched Castrol Activ #ProtectIndiasEngine campaign to salute selfless mechanics who serviced vehicles at no charge. Developed in collaboration with Network18 and Mindshare, the initiative urged Indias bikers to pledge support to mechanic upskilling programmes to help them prepare for business in the new normal.

Business continuity plans: The Company activated business continuity plans to respond effectively to the constantly evolving situation. Response plans were developed and continually monitored to protect the health and long-term sustainability of the company.


India is the worlds third largest lubricants market1 after US and China with approximately 2.8 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. The Company operates in all major categories such as automotive, industrial and marine & energy applications. It is a well-entrenched leading international player in retail automotive lubricants and has a significant presence in specialized industrial lubricants.

Demand drivers

Lubricants play a major role in reducing friction generated by metal to metal contact. It also helps in reducing noise and heat generation of metal

As a responsible corporate citizen, the Company committed its support to various countrywide Covid-19 response activities and allocated Rs 11.5 crores from its CSR budget 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. This demand is also linked to economic growth and performance of the manufacturing and agricultural sector. 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 and 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, as well as 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

Overall vehicle sales declined severely compared to the previous year by ~24% ytd November 20203. This was largely due to the tough operating environment and restricted activity in the first half of 2020 which showed subsequent signs of recovery in the latter half.

On the regulatory front, compliance with BS VI emission norms for all new vehicles sold from April 2020 has been a significant development within the year.

Industrial production, measured by the IIP, contracted sharply within the second quarter of 2020. It gradually recovered in October growing by 4.2% over the same month in 20194 with a phased re-opening of activities.

Globally, the shipping industry continued to face challenges with changes in fuel landscape, falling freight rates, Covid-19 induced slowdown and increasing lubricants and bunker prices.

Impact of foreign exchange, crude oil and raw material prices

2020 has witnessed huge volatility across forex, crude and base oil prices due to the unprecedented situation caused by the pandemic. The lockdowns in the first half of 2020 saw the Indian economy plummeting to one of its lowest levels in decades and crude prices crashed to a multi-year low of ~ $20bbl.

The Indian rupee experienced a sharp fall in the immediate aftermath of global lockdowns but showed a gradual recovery since May on the back of strong foreign fund inflows.

The Indian economy started to recover from 3Q 2020 but encountered multiple challenges around lower refinery operating levels, inland and sea logistics, and imbalance between demand and supply across several raw materials.

Lower fuel demand forced refiners to either shut their operations or operate at lower levels which in turn impacted base oil availability globally with the highest impact seen in Asia Pacific region. Base oil supply market and prices have been extremely volatile with prices dipping to historic lows in 2Q 2020 to highest levels in relation to crude in 4Q 2020.

The following graph indicates the trend of crude prices and INR/USD for 2020.

With the growth of first-time users, increase in usage in smaller towns and rural areas, emerging new vehicle segments such as SUVs, premium bikes and gearless scooters, the Company is tapping these segments

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.


a. Personal mobility: With the growth of opportunities including the growth of first-time users, increase in usage in smaller towns and rural areas, emerging new vehicle segments such as SUVs, premium bikes and gearless scooters, the Company is tapping these segments through new introductions and sustained brand building campaigns.

b. Medium / light commercial vehicles (MLCV): As last mile connectivity improves further, the MLCV segment is expected to grow, enabling the Company to continue its focus on this category.

c. Improving technology in trucks:

With stricter emission norms resulting in newer technologies for trucks, the CI4+ segment is the fastest growing segment in the commercial vehicle category. The Company focused on this segment with an improved portfolio and sustained brand building efforts.

d. Growth in agricultural sector: With the farming sector witnessing an uptick, the Company ensured augmented availability of its heavy duty lubricants and tractor oils, along with increased farmer connects through rural activations.

e. Original Equipment

Manufacturer (OEM) partnerships: The Company has built enduring associations such as with leading heavy duty equipment manufacturers and passenger vehicle OEMs. It also worked with OEMs on new technologies for critical electric vehicle fluids as well as BS VI ready engine oils.

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

g. Distribution: While the Company focused on the strong and wide distribution network in retail and independent workshops which are enablers for future growth, it began selling its products online as an additional channel.

h. Adjacencies: Moving beyond lubricants the Company continued to explore different business models through adjacencies. It entered into a strategic collaboration with 3M India Limited for a range of quality vehicle care products for the automotive after-market.

i. Digital initiatives: Building on its digitization strategy, the Company launched numerous digital initiatives, including training programmes to offer a premium experience to customers and consumers. For instance, Castrol Fast Scan - a unique digital incentive platform for mechanics and retailers, Castrol Fast Lane - an online portal for retailers and the Castrol SUPER MECHANIC online academy which offered mechanics on demand digital access to technical and skill building training.

j. Advance mobility solutions: The Company is working on different solutions including improved lubricants for ICE technology, hybridization and biofuels. Globally, Castrol has developed e-fluids, transmission coolants and greases for electric vehicles as the space continues to evolve. In India, the Company already has supply agreements for e-fluids with two of the leading electric vehicle OEMs.

k. Access to new channels: In the newly launched Jio-bp retail network, the Companys lubricants were available across over 1,350

In the newly launched Jio-bp retail network, the Companys lubricants were available across over 1,350 Jio-bp sites within just six months of the alliance Jio-bp sites within just six months of the alliance and saw good uptake, which ensured a much wider reach of its lubricants.

(ii) Threats

a. Economic uncertainty: Based on the current and future market environment estimates, the base oil trends are expected to continue to be volatile. GDP witnessed contraction in the second and third quarter of 2020 pushing the economy in a recession and estimates signal possibilities of a contraction early into 1Q 2021 as well before recovering in the latter part of the year.5

b. Competitive activity: Competition in the lubricants market is intense and 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.

c. Covid-19 pandemic: With the threat of the pandemic continuing globally, several countries still in lockdown, the resultant economic slowdown, a large part of the Indian populace yet to be covered by the national vaccination programme and with no finite timeline to its end, the pandemic continues to be a risk.

d. Electrification: Growth of electric vehicles in future is likely to impact demand for lubricants in the long term. The company is keeping a close watch on developments in this area and preparing response plans to address these for the long term.


Automotive lubricants: The Company continued to drive premiumization and synthetization in the personal mobility segment, despite a challenging operating context.

The Company pursued growth opportunities and launched new products for cruiser bikes (Castrol Activ Cruise) and full synthetic performance oils in the premium segment for two-wheelers (Castrol POWER1 ULTIMATE).

In car oils, the Company drove synthetic products across mass and premium segments and launched Castrol GTX SUV oils for sports utility vehicles. It also ran a digital brand campaign for Castrol MAGNATEC SUV supplemented through on-ground mechanic engagements.

In commercial vehicle oils, the Company promoted Castrol CRB TURBOMAX with presence in mass media and engagement with mechanics virtually as well as through ground activations. It also stayed connected with farmers through local rural activations.

While the Company continued working in close association with its strategic OEM partners, it leveraged new channels like the Jio-bp retail network and the independent workshop channel, further increasing its footprint nationally.

Industrial lubricants: The Company worked closely with its customers in the industrial lubricants segment as operations slowly scaled up to build momentum, while aiding learning through virtual technical sessions, to support restart of their operations smoothly.

Marine and energy lubricants: The Company focused on providing best-in-class products and services, and offered value-added services, along with best practices from its marine businesses globally, which strengthened customer confidence.

Quality: The Company focused on building a zero defect mindset across the organization through state-of-the-art testing facilities, application of international standards and concepts, as well as skill development and awareness programmes. The company successfully ended the year without any major quality incidents despite disruptions in operations due to the pandemic and natural calamities like cyclones Amphan and Nisarga.

The company completed the re-certification audit of ISO 9001: 2015 and IATF 16949:2016 standards, and the Silvassa plant was the proud recipient of the Ford Q1 re-certification, a recognition of the plants focus and delivery of quality excellence.


The outlook for 2021 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: The two-wheeler and passenger car lubricants category which saw a demand drop in 2020, is now seeing a demand resurrection as the economy is slowly opening up.

The Silvassa plant was the proud recipient of the Ford Q1 re-certification, a recognition of the plants focus and delivery of quality excellence.

While the long term outlook is positive, the Company will continue to drive growth in this segment backed by wide distribution reach, strong brand building and leveraging growth of synthetic oils.

Commercial vehicles: Despite short term challenges, 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. With the farming sector performing well, strong lubricant demand is expected from the agricultural sector also.

Industrial lubricants

The demand for industrial lubricants saw a marginal slowdown due to the decline in IIP in the year. However, the 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 and energy lubricants

World trade shows signs of bouncing back from a deep, Covid-19 induced slump, but World Trade Organization economists caution that any recovery could be disrupted by the ongoing pandemic effects. Trade volume growth should rebound to 7.2% in 20216 but will remain well below the pre-crisis trend.

Channels of distribution

The Companys products are distributed through over 350 distributors who service close to 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.

The Company continued to drive simplification in systems and processes to bring in more speed and efficiency in various back-end operations. It has also leveraged digitization to create a superior and premium experience for customers in their interaction with the Company.

The Company invested in training and development to build distributor staff capability to compete and excel in the marketplace.

Aligned to the long-term strategic direction and on the back of continued investments in technology and brands, robust growth plans, innovative marketing programmes and delivery of premium customer experience at

The Company continued to drive simplification in systems and processes to bring in more speed and efficiency in various back-end operations. multiple touch points, the Company is confident of continuing to deliver robust business performance.


Covid-19 highlighted the need to proactively define and implement strategies to address pandemic risk as one of the key business risks facing the Company. The Risk Committee maintains an active oversight of this risk and the effectiveness of the risk mitigation strategies and plans put in place by the Company.

The general slowdown of the economy due to disruptions caused by the pandemic as well as continued volatility in input costs and foreign exchange remains a risk. The Company has appropriate mitigation plans to protect margins while continuing to grow and transform the business. While the Companys focus on long term strategic drivers and brand building continues, during 2020 appropriate strategic and pricing interventions as well as cost and efficiency management programmes were undertaken keeping in mind input costs, competitive positioning and product brand strategy.

The Company actively managed its cyber security risk including the impact of greater remote working required during the pandemic by promoting the right behaviors and using 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 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; though this year the frontline team has largely stayed off the roads and worked from home. Similarly, product quality and integrity continue to be another focus area. Its vision for Quality, ‘right quality first time every time, and ‘zero defect 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 as may be required.


The Company maintains adequate and effective internal control systems 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 systems. This is supplemented through an extensive internal audit programme and periodic review by the management and the Audit Committee.


The Companys Gross Profit declined by 19% in 2020 over 2019. This was due to lower volume owing to disruptions caused by the pandemic and a slowdown in the economy.

Operating and other expenses decreased by INR 60 crores as compared to the previous year on account of judicious cost management and efficiency programmes leading to robust working capital management. This generated healthy cash flow from operations for FY 2020 of INR 893 crores which is 1.5 times of Profit after Tax.

Profit before Tax decreased by about 32% over previous year to INR 785 crores.

Overall the Company delivered a resilient performance for the year despite the challenging external environment with declining IIP 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 2020 2019 % change
Debtors turnover Times 9.05 8.87 2%
Inventory turnover Times 3.77 4.59 -18%
Current ratio Times 2.05 2.18 -6%
Operating profit margin % 26% 30% -11%
Net profit margin % 19% 21% -9%
Return on net worth* % 42% 65% -35%

* 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. The decline in current year is on account of lower PBT. This was due to lower volume owing to disruptions caused by the pandemic and a slowdown in the economy.

Interest coverage ratio and debt equity ratio are not applicable to the Company since there are no borrowings. However, there is some finance cost in financial statements that wholly relates to the finance lease of corporate office (IND AS 116) which commenced in the financial year 2020.

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 cost of goods sold 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.


People are the Companys key assets and the focus in 2020 was their safety and well-being during the pandemic.

The Company used every opportunity to turn this crisis into a learning and help employees emerge stronger and ready for the new normal. This was achieved through skill building and capability enhancement as employees spent ~6,700 hours on various technical, behavioral, safety and leadership trainings.

Judicious cost management and efficiency programmes led to robust working capital management thus generating healthy cash flow from operations for FY 2020

Employees spent ~6,700 hours on various technical, behavioral, safety and leadership trainings.

It drove the agenda of creating better manager – subordinate relations by encouraging regular check-ins and feedback during the performance cycle. Internal candidates continued to be successfully hired for vacancies with 43% positions being filled internally.

Hiring practices continued to ensure recruitment of diverse candidates with no compromise on meritocracy. The overall number of women in the managerial population is 20% in 2020 and overall at 19%.

In 2020, as part of a review of internal controls over financial reporting, key controls in human resources and payroll processes were reviewed by the internal audit team to provide assertions to the management on design and operating effectiveness of these key controls.

The Company enjoyed cordial relations at plants with internal and external stakeholders. There was focused engagement with workmen and contractors at plants by senior leadership through townhalls, team meetings, plant performance reviews and recognition of exemplary safety and quality performance.

The Company supported employees and their families during the pandemic through help with hospitalization, medical facilities and an on-call health manager. It also focused on mental health initiatives along with physical well-being to focus on holistic employee wellness.

An organisation transformation and restructuring took place during the year as part of a global programme to reinvent bp. The total number of people employed in the Company as on 31 December 2020, including factory workmen, was 690.

Health, Safety, Security and Environment (HSSE)

The Company accorded the highest priority to health and safety of the workforce with a commitment to comply with all applicable laws and regulations. The Company has a HSSE policy applicable to every member of the workforce including contractors. It maintained the highest standards of occupational HSSE with the leadership team reviewing business safety performance on a monthly basis.

The Company implemented best-in-class internal standards and an Operating Management System (OMS) to ensure safe, systematic, reliable and environment-friendly operations. The leadership team of the company frequently checked the effectiveness of implementation and compliance of OMS and demonstrated visible safety leadership through field inspection programmes.

All manufacturing plants are certified to the Environment Management

The plants won several external recognitions for their exemplary HSSE performance and practices during 2020.

System (ISO 14001:2015), Occupational Health and Safety Management System (OHSAS 18001: 2007) and Quality Management System Standard (ISO 9001:2015), with two of the plants certified against Automotive Quality Management System IATF 16949:2016.

The plants won several external recognitions for their exemplary HSSE performance and practices during 2020.

As a part of resource optimization, the Company focused on reducing energy, water and waste contributing towards minimizing its environmental footprint. The Company is also undertaking several programmes under the sustainability agenda.

The Companys top priority is safety first with the primary objective that everyone goes home safely, every single day.

On behalf of the Board of Directors

Sandeep Sangwan
Managing director
DIN: 08617717
Deepesh Baxi
Chief financial officer
& wholetime director
DIN: 02509800
Place: Mumbai
Date: 23 March 2021