"Castrol India Limited

Q3 FY '23 Earnings Conference Call"

01 November 2022

MANAGEMENT: MR. SANDEEP SANGWAN - MANAGING DIRECTOR - CASTROL INDIA LIMITED

MR. DEEPESH BAXI - CHIEF FINANCIAL OFFICER &

WHOLE TIME DIRECTOR - CASTROL INDIA LIMITED

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Castrol India Limited

November 01, 2022

Moderator:Ladies and gentlemen, welcome to our 3Q 2022 Earnings Conference Call for Castrol India Limited. Please note that all participant lines will be in the listen-only mode. And you can ask your questions after the remarks. If you need assistance during the conference call, please press star then zero on your touchtone phone to reach the operator. We have with us Sandeep Sangwan, Managing Director, Castrol India Limited, and Deepesh Baxi, CFO and Whole-time Director, Castrol India Limited.

I now hand the conference over to Sandeep. Thank you and over to you, sir.

Sandeep Sangwan: Thanks. Good afternoon, everyone, and thank you for joining us today. I hope you and your family are doing well and are safe and healthy. We are pleased to share that Castrol India Limited has delivered a resilient performance in the third quarter and nine months ended 30th September 2022. Our third quarter performance was in the backdrop of extreme ForEx and inflationary pressures arising from volatile crude oil prices, leading to rising cost of additives and base oil.

To safeguard our margins and deliver bottom line growth, we employed rigorous pricing and cost management. The inflationary and ForEx pressures will most likely continue in fourth quarter '22 and our top most priority will be to continue driving growth in line with our strategy and serving our customers' needs while protecting our margins. The balancing act in our view will need to continue at least for a couple of quarters.

I now invite Deepesh to take you through our numbers and financial performance in detail.

Deepesh Baxi:Thank you, Sandeep, and good afternoon to everyone. Let me share with you some key financial highlights from our third quarter and nine month 2022 results, which we announced yesterday. In third quarter 2022, we reported strong financial performance. Our revenues were up by 4%. The total revenues were INR 1,121 crores compared to last quarter of INR 1,073 crores. Profit before tax was INR 254 crores, up 2% from INR 250 crores in 3Q 2021. With our 3Q 2022 results, nine month revenue from operations stands at INR 3,598 crores and this was a growth of 16% compared to INR 3,102 crores in nine month 2021.

Our profit before tax for nine month 2022 was INR 845 crores, 9% higher than nine months 2021, which stood at INR 772 crores. Overall, we remain confident of our strong business fundamentals and long-term profitable growth in India.

I would now like to hand the call back to Sandeep.

Sandeep Sangwan: Thanks, Deepesh, for sharing those numbers. Besides the financial performance, I'd like to draw your attention to some key business developments at our end. First, as part of Castrol's ongoing sustainability initiatives, we introduced a new more sustainable packaging for our premium engine oil brand POWER1 ULTIMATE for two-wheelers, in line with our Global Path 360 sustainability agenda. The brand will now be available in a 100% post-consumer recycled or PCR bottle made from reprocessed plastic waste instead of virgin plastic.

Plastic waste management is an important aspect of Castrol's sustainability roadmap for India. In '21, we had introduced new lightweight bottle designs for our medium packs, which is 3 liters

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Castrol India Limited

November 01, 2022

to 5 liters, that reduced our plastic use on average by about 20% per liter. Our new Castrol

POWER1 ULTIMATE bottles are the first 100% PCR plastic lubricant bottles in India.

An integral element of our future-ready strategy is our foray into the automotive aftercare market

and into service, maintenance and repair. We're making good progress in this segment with our

Castrol Auto Service workshops and Castrol Express Oil Change centers. In third quarter, we

expanded our Castrol Auto Service network reached to 210 multi brand passenger car workshops

in 110 cities across India. Our CAS workshops are equipped to serve both EV and non-EV

segments.

Our Castrol Express oil change outlets, which are present in GOBP mobility stations across India

expanded to 42. The outlets offer two-wheeler consumers swift and reliable oil change on the

go. To continue supporting mechanic upskilling and contribute towards the transition to greener

and more sustainable mobility, Castrol India introduced a unique EV readiness training program

for mechanics. Over 100 top tier car and bike mechanics underwent the ASDC endorsed training

in New Delhi and also previewed the Castrol ON range of advanced EV fluids, which will soon

be launched in India.

In addition to our current EV partnerships with Tata Motors and MG Motors, we are also

exploring further collaborations with electric vehicle OEMs to help advance electric mobility in

India and supporting mechanics to get EV ready while continuing to launch new superior

performing products in the traditional lubricant space.

Earlier in the second quarter, we'd also shared about BP's plans to invest GBP 50 million or

roughly about INR 500 crores in a global battery research and development center at Castrol's

global headquarters. This technology center is planned to be operational in 2024, which will help

us find solutions for our customers on thermal management of batteries, which is a key pain

point as far as EVs are concerned.

So we continue exploring opportunities in the EV space to create value and solutions for our

customers. And on that note, I'd like to open the session for your questions.

Moderator:

Thank you, very much. We will now begin the question-and-answer-session. If you wish to ask

a question, please press star and one on your touchtone telephone. If you wish to withdraw your

questions from the question queue, please press star and two. Participants are requested to use

handsets while asking a question. Also in lieu of time, will stick to two questions per person. If

you have any further questions, kindly rejoin the question queue. Ladies and gentlemen, let us

wait for a moment while the questions come in.

The first question is from the line of Chetan Shah from Jeet Capital. Please go ahead.

Chetan Shah:

Sir, congratulation on a good set of number.

Moderator:

Sir, if you can take the phone off speaker, please? The audio is a bit muffled, sir.

Chetan Shah:

Actually I'm on a hand phone. Just a second. Now is it okay?

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Castrol India Limited

November 01, 2022

Sandeep Sangwan: Continue, Chetan, we can hear you.

Chetan Shah:Two quick questions. First question from my side in terms of understanding the new business opportunity specifically into services and services side of the business, which you kind of partly elaborated in your previous call. But if you can give us some sense that what are we looking at in this business for next three years to five year time horizon and how do you see this business switch to our existing core business? One is that.

And second, to extend your opening comment about BP investing into EV R&D facility on Castrol Global. How do you see that reflecting into Castrol India's operation and opportunity going forward? These are the two very specific questions from my side, sir.

Sandeep Sangwan: Chetan, let me first kind of respond to your question on service and maintenance. So if you look at Castrol in India has a legacy of about 100 years and consumers trust Castrol as a brand. Consumers have a huge trust on Castrol as a brand for providing quality products. We want to take that trust into the service area by working with premium workshops across India in providing service and maintenance solutions to consumers and that offering is based on a concept of a certified workshop in the aftermarket. Because one of the pain points consumers have is in the independent aftermarket, they don't know which work shop to trust the quality and the service offered unlike a franchise dealership.

So what we are creating is a network of workshops where consumers can get quality service from a trusted certified workshop. When I say certified, these workshops are certified by a certification agency which in this case is TUV as they call it in Germany. And our intent is as the service and maintenance ecosystem develops and gets more, if you say, consolidated, we play into that opportunity. So while we provide lubricants in future, we will continue adding more services to serve our consumers and customers. So that's the first one.

The second is Castrol India has always leveraged the R&D and technology support available from our global headquarters, which is located in United Kingdom. Just to give you a very small example. When BS VI specifications came in India, Castrol was the first company to have a BS VI ready portfolio for our customers because in Europe that had happened quite a few years ago. So similarly as EV technology develops by having a technology center based out of UK and working with a large number of European and global OEMs and when I say global OEMs; it's European OEMs, we have very strong relationships with some of the big Chinese OEMs which are becoming big names in EV space. So Castrol India will get the advantage of products and technologies, which have been proven in developed markets for electric vehicles, and we'll be able to leverage that to serve the needs of consumers and customers in India.

Chetan Shah:Just a small clarification. No, just a clarification on the previous question. So when you spoke about the service center, will this all be owned by Castrol or it will be owned by somebody else and we'll be certifying that? Just that clarification, sir.

Sandeep Sangwan: Yes. So these are not owned by Castrol. These are certified by Castrol to provide quality services. These are entrepreneur owners who run these workshops and we're not going to change that

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Castrol India Limited

November 01, 2022

model. I think our intent is to support these people in professionalizing their workshops,

professionalizing their services and give better services to the consumers.

Moderator:

Thank you. Reminder to the participants, please limit your questions to two per participant. The

next question is from the line of Nitin Tiwari from YES Securities. Please go ahead.

Nitin Tiwari:

My questions are book-keeping ones. So what was the volume for the third quarter and for the

nine month period?

Sandeep Sangwan:

So I'll let Deepesh take that.

Deepesh Baxi:

Right. Nitin, the volume for third quarter was in the range of 47 million to 48 million liters.

Nitin Tiwari:

And for the 9M period?

Deepesh Baxi:

Yes. And for the 9M period, it was 162 million liter in that range.

Nitin Tiwari:

And secondly, I noticed that there is a sharp drop in your other expenses in this quarter vis-a-vis

previous quarter and also same quarter last year, so what could be the possible reason for that?

And related to that only, if you can elaborate a little bit on how does ForEx impact our business

and where it is accounted for?

Deepesh Baxi:

Sure. So the other expenses have dropped mainly because of our aggressive cost management

initiatives. We are looking at costs into efficiencies and effectiveness on different fronts, right?

So there have been various cost buckets in which we've been able to pull levers and have some

sustainable cost savings. By the way, we do this as a regular exercise, so there have been

initiatives which have yielded cost savings.

As far as your question on ForEx is concerned, we do get impacted by ForEx and as Sandeep

had mentioned in his opening statement, because we import almost 60% to 70% of our raw

materials, ForEx does impact us. However, we do have a hedging strategy and this year we've

been able to do very well on that hedging strategy as well. ForEx gets accounted in two parts.

The ForEx loss or gain related to the time that you import the material and book the invoice, all

that goes into the cost of materials. And ForEx gain or loss, which is really the difference

between the accounting on the date of when you book the invoice to the time you made the

payment which by the way can be hedged, goes in other expenses.

Nitin Tiwari:

So that's why I'm asking question because you had mentioned that ForEx movement has

impacted you in this quarter, but other expenses have actually gone down. So I was also under

the impression that typically ForEx related movement is captured in the other expenses. And

secondly like continuing on the other expenses bit so are these the levels that we should like

continue to look ahead as well in the coming quarters or there will be changes in that or is there

any one-off in the other expense in this quarter, which might not be in the fourth quarter or

subsequent quarters?

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Castrol India Ltd. published this content on 03 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 November 2022 05:44:00 UTC.