The Hindu Business Line : Fall in crude rates: Castrol India cuts prices

Mumbai Feb. 2 After a period of over six years, automotive and industrial lubricants maker Castrol India, which has a nearly 20 per cent share in the domestic automotive lubricants market, has cut prices of its products across its portfolio from this month in the wake of falling crude prices.

Castrol India, in which 70 per cent paid-up capital is held by Castrol Ltd of UK, part of the British Petroleum Group, has cut prices on an average of Rs 10-12 a litre.

Other global lubricant makers in India, such as Shell, Elf and Exxon, have also cut or are in the process of cutting prices of their products.

Castrol is aware that the market demand for lubricants is expected to remain sluggish at least during the first half of 2009, which may negatively impact its volumes in the short-term. In the quarter ended December 31, 2008, it reported a 17 per cent dip in net profit at Rs 47 crore (Rs 57 crore in year-ago quarter), due to spiralling raw material prices and slowdown in demand. While its net sales increased 13 per cent for the quarter to Rs 536 crore (Rs 475 crore), its expenditure bill shot up to Rs 472 crore from Rs 399 crore.

Slow growth

In fact, the sharp decline in crude and commodity prices actually had an impact, as these caused uncertainties in market sentiment. “This uncertainty triggered trade de-stocking and this resulted in significant market volume contraction that impacted our volumes and gross profit during the quarter,” Mr Naveen Kshatriya, Chief Executive and Managing Director of Castrol India, said.

The domestic lubricants market is estimated to be 1.4 billion litres a year, with the automotive segment accounting for about 900 million litres. Despite the growth in the automotive sectors for the last few years (before the economic downturn), the lubricants market had been growing at barely 2-3 per cent.

“This is because new technology (in vehicles) and better quality lubricants have brought down the frequency of change of lubricants in vehicles. About ten years ago, a truck needed about 200 litres of lubricants every year, but today it has come down to about 75-80 litres,” Mr Kshatriya told Business Line.

Overall, the oil drain interval (or frequency of change of lubricants) has fallen globally. For example, in India a truck would change lubricants for every 6,000 to 8,000 km some years ago, but today the oil drain interval ranges from 18,000 to 36,000 km for the same vehicle. “Therefore we are focussing on value of products,” Mr Kshatriya said.

Brand spend

Castrol will however continue to spend on brand advertisement and promotion, despite tougher market conditions. “Our advertisement spend was about Rs 97 crore in 2008 and we expect to maintain the same level this year,” he said.

Castrol India, which has Bollywood star John Abraham as brand ambassador, plans to have another brand ambassador from among the football stars, as the game also reflected ‘speed’.

Globally, British Petroleum is in the process of re-organising its lubricant business to simply business structure. The new structure will bring down the business units from seven to four and have three geographical regions — Europe/Africa, Americas and Asia Pacific.

More Stories on : Announcements | Petroleum | Advertising

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page