Castrol India has cash of Rs 1,300 crore in the balance sheet: Deepesh Baxi, CFO & Wholetime Director

Deepesh Baxi, CFO and Wholetime Director, Castrol India Limited, talks about Q3FY22 numbers, margins, supply chain, partnership with 3M, companies services with BP, EV Fluids, segmental performance, the current cash position of the company and product launch pipeline among others during an exclusive interview with Zee Business. 

Edited Excerpts:

Q: Please summarise the number of the third quarter and do you think that the visible trends in terms of profitability are likely to improve further from here?

A: Castrol India follows January to December financial year and the results we have declared now are the fourth-quarter results. On a full-year basis, there has been a good performance in both top line and bottom line. The full year's turnover has increased by 40% and PBT by 31%. The board has also declared a dividend of Rs 3 per share and this is the final dividend over the dividend of Rs 2.50 per share which was declared in the past. This means we have declared a total dividend of Rs 5.50 per share. As far as the fourth year is concerned, the turnover has increased 17% and from the third quarter also sequentially the turnover has increased by 17%. It has been a strong financial performance and the business growth has been good and a good momentum is visible. As far as the future is concerned, I can see some headwinds regarding crude oil and as usual, we take strategic pricing in the market and respond accordingly to the environment. Even last year, the COGS (Cost of Goods Sold) went up by 60% COGS including base oil and FOREX and we took three price increases in the market in January, April and June, through which we were able to recover the input cost.

Q: What is the reason for the decline in the margins despite three price increases in tune with the increase in the input cost? Also, what is your outlook on the margin trajectory from here?

A: If we will have a look at the margin then we have a frame for the margin. In terms of our EBITDA margin, our history has been that we operate between 25-27% range and we hope to operate in the same range. The cost increase depends on the pricing of the input cost. There has been a slowness in demand in the quarter that we are talking about. At the same time, you would have seen the results that have been declared and the growth numbers and volumes of the four-wheelers and two-wheelers then there has been softness in those. So, the softness has also impacted us. In the industrial business, we have been impacted a bit by the chip shortage. These are the reasons sue to which the overall margin growth has been flattish compared to the fourth quarter of the last year.

Q: Supply chain has been a big issue for companies across the globe. How is the situation now and has there been any improvement in it and how your industry has been impacted by it?

A: There has been a lot of challenges in the supply chain in 2021. You are right that there have been force measures with the additive manufacturers globally. At the time of COVID, in the second quarter, there was also a shortage. Now, we have seen that in the situation of supply has improved in the third and the fourth quarters. However, the increasing crude prices are again putting pressure on the supply situation. We enter into medium-term contracts with supply contracts, so we are largely covered from the price point of view. But, we have to manage the unprecedented price increase through price interventions.

Q: In the context of the business update, last time you said that your company has started services with BP and you also business partnership with 3M. How is this doing and any more in the pipeline?

A: Our partnership with the 3M was started in 2020-21, but we paused it due to the COVID and we have started in again. Now, we are piloting it in 10 cities and are getting a good response to it. We have launched four to five products, which comes to the market through our channel and it is a co-branded product. So, we are getting a good response for it. The partnership with GOBP is a strategic long-term partnership. GOBP has opened more than 1,400 petrol pumps and we supply our lubricant oils on these petrol pumps. In addition, we are also launching our Castrol Lube service centres at these petrol stations and we have already opened 25 centres and are getting a good response for those. The deal we have with ki Mobility, which also has a portal of the bumper, we exclusively supply lube and we will also see progress here by the next year.

Q: Earlier there was news that the company is exploring options with EV manufacturers for the development of EV Fluids. Currently, also the company supplies EV Fluids for some companies. What is an update on the front?

A: The government has provided a provided for EV, I think, it is commendable. It will just not only increase the economy and infrastructure but it is also good news for sustainable agenda. We are fully involved in this and want to participate in it. First of all, I would like to provide a global perspective for it, globally, we supply Castrol's EV Fluids to 50% of the EV manufacturers. As far as India is concerned, we have a tie-up with Tata Motors and MG Motor. Tata Motors and MG Motor have 80% of the market share in whatever the EV four-wheeler 

is being sold at present and we have an arrangement with them, where we supply EV Fluids to them. In the case of two-wheelers, we are in talks with the leading OEM manufacturers and we are into active discussions. The third idea where we want to play in EV is battery charging swapping stations, maybe it is the site of GOBP or our workshops, we wish to set up the charging stations there. Our pilot has been launched and have installed them at one to two places and are getting a good response there. With the global support and the support of our team, a lot of work is being done on the front of technology. As you know that EV technology is changing day-by-day for instance, how to charge faster and it needs a different types of fluids. So in this, technologically, we are researching on a lot of products and are completely ready to respond to it.

Q: How the lubricants and segmental performance has been and how the calendar year 2022 is likely to be for you and is significant shifts are visible in terms of segmental performance where the growth can be better compared to other segments?

A: Our products go into the automotive segment as well as the industrial segment. The automotive portfolio is a big portfolio for us, almost 80% of sales happen in the automotive segment and its sales are more in personal mobility, i.e., in cars and bikes. New technology is coming in cars and bikes, thin viscosity oils are coming, which are environmentally friendly and provide greater mileage as well as good wear and tear of the engine. So, we are launching new products in it, which will be BS-VI compliant. I expect that we will get a chance to see good momentum in the industrial sector once this chip shortage scenario is settled down. We also want to take forward our partnerships with the OEMs. If seen an overall perspective, we have registered a 30% volume growth in 2021 compared to 2020 and it has been in all the four sectors, namely, personal mobility, commercial vehicle and industrial. I expect that once the action of pricing is managed in terms of the crude headwind that is coming then the growth momentum will be also seen in volumes.

Q: What is the current cash position of the company and how it will be used? Also, what are the CapEx and expansion plans for the year? 

A: We are a cash-rich company and have cash of Rs 1,300 crore on the balance sheet at present. We have also been managing working capital well. Our CapEx normally lies between Rs 100 crore and Rs 150 crore. We are always in a continuous discussion on whether to invest in assets or should outsource processing. So, this makes or buy decision is always there. CapEx is not for expansion but will invest the CapEx in the workshops that I have talked about earlier including the battery charging workshops for the electric vehicles, availability of quick lube at the sites of GOBP or our independent workshops. We have also launched a model of Castrol Auto Service Workshop, wherein association with the independent workshops, the multimodal workshops, do service and our CapEx investment will continue on this as well. Overall, definitely, we have plans for cash utilisation on organic and we are also thinking on the ways to reward the shareholders. Our dividend payout ratio is almost 72%, which is a good ratio and we have been declaring dividends with consistency.

Q: Do you have any acquisition on the radar and do you are about to close that close it? Also, name the segment or area where you are interested more?

A: Organic is one way of deploying your cash and inorganic is another way to deploy your cash. I think we want to be very strategic in what we do, we don't want to jump an investment in the short term. Service and maintenance is definitely an area where we would want to do as I explained that the service and maintenance area is our strategic move from product to service and maintenance. We are also thinking about how can we reduce our COGS, the cost of the base oil should be reduced. So, there are many options and a lot of discussions happens 

and it will be very difficult to talk about the discussions at this point, as it is a board matter, when the board will inform and approve it, we will definitely share it. But at this stage, we want to make sure that we grow as an organisation not only on the core business but in the new businesses as well.

Q: Update us on your product launch pipeline?

A: The product pipeline is quite good. We are focusing on two things

(i) We are launching such products where the viscosity is thin and should be sustainable.

(ii) How can we add value to the consumer and they should get the value for their money.

So, we have product launch plans in all three segments, whether it is a commercial vehicle, motorcycle oil or personal mobility cars. These products will be launched at the right time after the research is completed.

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