‘It’s no doomsday for lubricants, robust growth likely till 2040s’

That said, BP is also exploring inorganic growth opportunities to expand beyond traditional lubricants, into new categories like auto care products and thermal management fluids for electric vehicle (EV) batteries.

EV fluids constitute a small fraction of Castrol’s revenues due to the limited penetration of EVs. Additionally, EVs need 60-70% of the expenses compared to a comparable internal combustion engine (ICE) vehicle. To capitalize on the potential of this segment, it is working on developing new product categories, supported by the investments by parent, BP at a global scale, Sandeep Sangwan, Castrol’s managing director, and Deepesh Baxi, its chief financial officer, told Mint.

Castrol India posted 9.22% rise in net profit in Q2 (April-June) from ₹206.3 crore over a year earlier to ₹225.8 crore. Its volumes rose 4% from a year ago and 5% sequentially to 58 million litres in the quarter.

However, despite the recent rise in its stock price, the company’s performance over the broader five-year horizon has been relatively stagnant. “We have a solid balance sheet. We have zero debt, our return on capital employed is just short of 50%. Our return on sales is 18%, and Ebitda is at 23-25%. We are clearly wanting to use the balance sheet to ensure the growth aspects are reflected. The market can see quite a few initiatives such as our investment in Ki mobility, expansion of workshops,” Baxi added.

“The result of the initiatives will take time to show. There’s a capital framework in place, we are cash-rich, and we are thinking what is the right way to deploy that capital, through dividends, inorganic and organic expansion.”

“Besides, electrification is the right step, and we will play in that space. We are also fully prepared for supplying fluids needed for EVs. We have launched the Castrol On brand, which offers transmission fluid, grease and coolants. EVs do not need engine oil, but we have the products and supply to three of the biggest players in India manufacturing electric cars. So, it’s not a doomsday scenario. Lubricants have enough growth opportunities till 2030s-40s. The core business is still very robust,” Sangwan said.

“We are also now entering new spaces beyond lubricants. Castrol Auto Care, for example, is an entry into a category which is beyond lubricants. We are looking at adjacency any opportunities that where we can leverage the Castrol brand because consumers trust the brand and we have the largest scale in terms of distribution, and we will look where we can leverage those synergies”.

“Typically, EVs use less fluid as compared to IC-engine vehicles, that’s definitely the case. However, they still have service requirements and based on some of the things that we’ve seen in the market, EVs still need 60 to 70% of the spend broadly, and because the bodywork still stays and other service needs still stays. And that’s why we’re also building an independent workshop network to make the aftermarket EV ecosystem ready. So, while the fluids requirement may be lesser in EVs, but I think as technology progresses, there will be other opportunities that’ll come into play”, Sangwan told Mint.

Updated: 02 Aug 2023, 11:41 PM IST