bl interview: Castrol India sees value segments pushing topline growth

Our stakeholders tell us we have a strong brand and deliver consistent profits, but top-line growth is lacking. In the last one year we have been trying to make that shift. While we’ve managed margins and costs well, we’ve been focusing on the premium segment. One of the shifts we’re making is to cater to all consumer segments, not just the premium market. We launched a range of products called Castrol Essential last year, starting with the two-wheeler segment with Active Essential. We’ve introduced CRB Essential for commercial vehicles and GTX Essential for cars. It is not commodity segment but value-for-money portfolios that are performing well. The second big shift we’re making is rural penetration. Two-wheeler sales are strong in rural India, with almost 50 per cent of new two-wheelers sold there. We began this push a year ago. We cover about 150,000 retail outlets in India, out of that 33,500 outlets are in rural areas. We also have a network of almost 900 sub-distributors serviced by mainline distributors, and we’re expanding that network. We have an interesting format called Service Express, where rural consumers can get quality products because fake products are a major issue in rural India. At the same time, we’re continuing to innovate at the top of the line. Last year, we launched Magnetic SUV because almost half of cars sold now are SUVs. We’re also preparing for the Edge relaunch. Edge is a top-tier brand in the car portfolio, globally recognized for its performance. It’s a billion-dollar-plus brand, but it’s very small in India. We want to bring it to the Indian market with attractive product propositions. We have also invested in partnerships. We’ve invested in a company called Key Mobility Solutions, which is part of the TVS family. We have a 7 per cent stake in that company and they specialize in digitizing the aftermarket and creating an aftermarket service network. Their network of workshops uses Castrol lubricants, and consumers get good quality service. We don’t have a spare parts portfolio, but they do, so we can leverage their portfolio in our workshops. We cover about 9,000 car workshops, independent workshops, and the two wheeler workshops is closer to 18,000 to 20,000 bike points. We’re also exploring adjacency opportunities. Last year, we launched a range of products in the Castrol Auto Care set. We have five products now and will keep adding more and we are planning to add one more this month. So, these products are all-purpose polish, chain lube, and chain cleaner. These products are used directly by consumers or workshops. We’re launching a range of products specifically formulated for premium European cars. They’ll meet all the specifications required by brands like BMW, VW, and Audi. Additionally, we’ll be launching a product for hybrids. There’s a growing sentiment that hybrids aren’t just a transitional technology, but a key part of the future. Major car companies like Toyota, Ford and Honda are emphasizing this, and even some engine manufacturers are coming on board.

Our top-line and volume growth was about 4 per cent. We did take one pricing action in November last year and another in May this year because the cost of input materials has gone up significantly. We make our pricing decisions based on what we see in the market, and we adhere to a pricing framework to maintain certain premiums. The increase was around 2-2.5 per cent, across all our brands. The initial softness has eased, and we’re seeing the volume growth profile we were aiming for, which is around 6-7 per cent. The category itself grows at about 4 per cent. I do not want to speculate on the future; however we want to maintain this. Our historical margin was around 25 per cent. We’re now comfortable operating in a band of 22 to 25 per cent. Demand seems to be coming back. Overall, I’m quite positive. We’ve seen about 4-5 per cent growth in the category, and that should continue for the rest of the year.

The rural push is already having an effect. We’re taking a measured approach, focusing on a few states initially. Our differentiated rural go-to-market model is currently operating in about 5-6 states, and we’ll be expanding that. In these markets, we’ve seen significant growth, exceeding 12-13 per cent. We’re focusing on states with large rural populations, such as Uttar Pradesh, Jharkhand, Bihar, and Rajasthan. This approach is yielding positive results.

I think it will still be premium. A large part of our gross margin, profit, or volume will still be premium. Now, because we’ve introduced essential products, we’ve added significant volumes. Similarly, on commercial vehicles, we sell sizeable volumes. Overall, it’s not that we’ll completely lose our premium positioning. But if the category is growing at about 4 per cent, the premium segment could continue growing maybe half a point more than that, and then you add another 2 or so points through the lower portfolio, with some additional growth from rural expansion.

Industrial is about 10 per cent of our business. The core industrial business is stable with growing volumes. We focus on areas like automotive manufacturing, steel, wind, and metalworking globally. We also focus on aerospace and metals mining globally. Our building and construction business is doing well, particularly in data centre thermal management. This is a new global diversification effort for us. It’s still early days though, as a lot of work is in the proof-of-concept stage. We set up a facility in our global R&D headquarters in UK around data centre, thermal management, the basic idea being data centres are huge consumers of energy.