Synopsis of

Survey on various lubricant companies in India

A Dissertation

to be submitted by

Rajdeep Rawat

for the award of the degree of

Bachelor of Business Administration in

Oil and Gas Management

Dissertation Guide

Mr. I. Krishna Murthy

College of Management & Economics Studies

University of Petroleum & Energy Studies
November 20, 2010
INTRODUCTION

The Indian automotive lubricant market is the sixth largest market in the world with
revenues of approximately $1.30 billion in 2002. It is also one of the fastest growing
retail markets in India. Until 1993, it was a highly regulated market with a clear
dominance of the public sector. Companies like Bharat Petroleum (BPCL),
Hindustan Petroleum (HPCL), and Indian Oil Corporation (IOC) held more than 75
percent of the market share. In recent years, with the advent of the increasing
number of multinationals in the Indian market there is a growing presence of private
companies. Companies like Castrol, Elf ,Total-Fina, Gulf, and Shell Oil have made
their presence felt in the market.

Total production of automotive lubricants in India is approximately 8 to 10 percent of

global lube production. Unlike other countries where lubricant demand has witnessed
stagnation, the Indian market has been growing at approximately 7 percent per
annum for the past 2 years. The public sector contributes to over 60 percent of the
revenues for this market. MNC’s have 5 percent market share and the remaining
share is held by the unorganized sector. Automotive lubricants are further divided
into diesel lubes and petrol lubes. Diesel lubes comprise 70 percent of the market
and petrol based lubricants cover the rest. As diesel lubes are used by commercial
vehicles, which have to cover greater distances, their market share is higher. Engine
oil constitutes around 83 percent of total sales volumes. Gear oils, transmission
fluids, hydraulic brake fluids, and engine coolants contribute to the balance.

The first seeds of competition were sown in the early 1990’s when following the
liberalization of the Indian economy, the government decided to open the Indian
market to foreign competition. Import of base oil, the key raw material, was de-
canalized with IOC losing its status as the sole canalizing agent. Pricing of base oil
was deregulated in a phased manner and currently it is market determined. Basic
custom duty on base oil stock was also reduced from a peak of 85 percent to a level
of 25 percent. All quantitative restrictions were also removed. These developments
naturally encouraged the entry of foreign players on Indian shores who were already
facing a slowdown in demand in their local markets. The coming in of foreign
participants created an excess supply situation in the Indian automotive lubes
market, which made it more difficult for the Indian lube manufacturers to survive.
OBJECTIVE

 To increase the sale of lubricant and to know the problem of lub industry..

 An Analysis of Competitiveness of Indian lubricant industry..

 To have comparative analysis of various companies in lube industry. And To

study the market of lube industry in 2010

LIMITATION

 Poor Infrastructure and Low Labour Productivity

 Low Labour Productivity and Less attention on man power training

 Lack of professionalism and integration of supply chain

LITERATURE REVIEW

 There are two key markets for lubricants in India. Given high levels of competition
original equipment, linkages are gaining importance. The original equipment market
contributes almost 70 percent and 30 percent of the market is comprised by the retail
sales segment. The channel for replacement market or the retail segment is petrol
pumps or retail stores. Almost 70 percent of the lubricants in India are sold through
petrol pumps. Most of the MNC’s have tied up with oil majors for marketing their
lubricants like Castrol with Escorts and Tata BP with Telco. After the deregulation of
the petrol pumps companies are keenly watching the developments in the lubes
market.

In the recent past, the Indian lubricant market has witnessed a phase of consolidation.
Multinationals with better technology, brand name and finances have the power to launch
themselves on their own in the market. However, with increasing number of competitors it is
not possible for every one to carve a nich in the market. This sector has witnessed
considerable amount of mergers and acquisitions. British Petroleum’s not so recent
acquisition of Castrol is one example. The Indian lubes market is a combative market place
and lubricant companies find themselves fighting a tough battle for survival. In the OE sector
also lubricant manufacturing, companies are entering into collaborations with vehicle
manufactures. Maruti Udyog, Hyundai Motors, Hindustan Motors, TAFE, Toyota, and Skoda
have entered into collaboration with IOC and Castrol for some of their models

In the future, growth in the automotive lubricants industry will largely depend on the overall
performance of the economy. In the past one and a half years, the scenario has improved with
higher sales of commercial vehicles and two-wheelers. However, in the future volume growth
will be affected because of use of better quality, long drain lubes. This will increase the
replacement cycle for lubes. In the shorter term, one will witness intense competition in a
slow growing market marked by a consolidation activity, which has the potential to change
the face of the lubricant industry. Given the rising competition, success of a product would
largely depend how well it is branded and distributed.

 
Various Lubricant Companies in India….

1 Bharat Petroleum Corporation Limited (BPCL)

Large, state-owned petroleum company headquartered in Mumbai; figures in the Fortune 500
list of companies; activities include refining, retailing (petrol pumps etc), LPG, lubricants,
industrial fuels & petrochemicals, aviation fuel etc.
2 Hindustan Petroleum Corporation Ltd (HPCL)
State-owned company which is the second-largest integrated oil refining & marketing
enterprise in India; corporate office is in Mumbai; activities: LPG, international operations,
bulk fuel & specialities, lubricants, retail, aviation etc
Petroleum   Gas   Lubricants  

3 Tide Water Oil Co (India) Ltd

8, Dr Rajendra Prasad Sarani, Kolkata 700001, West Bengal, India   
Manufacturers of automotive & industrial lubricants under the brands Veedol & Eneos; based
in Kolkata; products include engine oils, gear & transmission oils, greases, etc; has a
technical tieup with Nippon Oil Corp, Japan; part of Andrew Yule
Lubricants  

4 Balmer Lawrie & Co Ltd

Netaji Subash Road, Kolkata, West Bengal 700001, India   
Public sector diversified company based in Kolkata; has interests in industrial packaging,
greases & lubricants, leather chemicals, turnkey projects, tea, travel & tours, cargo &
logistics, container freight stations & IT services
Packaging   Lubricants   Chemicals   Agricultural Companies  

5 Castrol India Ltd

Second largest lubricant company in India, manufacturing & marketing automotive (two
brands - Castrol and BP) and industrial lubricants; has 5 manufacturing units in India, and
registered office in Mumbai; part of global BP Group
Lubricants  

6 Total Group, India

Global oil and gas company based in France; in India its product range covers lubricants
(under the Elf brandname) for cars and utility vehicles, motorbikes, commercial vehicles,
farm equipment, and industrial purposes, as well as LPG
Lubricants   Gas  

7 Apar Industries Ltd

Manufacturers of transformer oil & specialty oils, overhead power transmission &
distribution aluminium conductors & specialty polymer; corporate office is in Mumbai;
products include industrial & automotive oils, nitrile rubber, latices etc
Lubricants   Aluminium   Miscellaneous Supplies  

8 IPOL
Brand of industrial & automotive lubricants, speciality & process oils made by Sah
Petroleums Ltd; the company is Mumbai-based and has a production capacity of 40,000 KL;
other products: industrial greases, rubber process oils, transformer oils etc
Lubricants  

9 Savita Group
Mumbai-based group comprising Savita Chemicals & Savita Polymers; product range
includes liquid paraffin, optic fibre filling compounds, transformer oils, pour point
depressants, white oil, petroleum sulfonates, auto lubricants etc
Petrochemicals   Lubricants  

10 Valvoline Cummins Ltd (VCL)

Manufacturers of automotive & industrial lubricants; joint venture between Valvoline &
Cummins; products incude engine oils, gear oils, cutting oils, greases, transmission oils, gas
engine oils, anti rust & anti-corrosion products; based in New Delhi
Lubricants  

11 Fuchs Lubricants (India) Pvt Ltd

An ISO 9001 wholly owned Indian subsidiary of Fuchs Petrolub AG Germany;
manufacturers of automotive oils, industrial lubricants, corrosion-prevention products,
metalworking fluids etc; corporate head office in Mumbai and factory at Navi Mumbai
Lubricants  

12 Gagan Gases Ltd

Indore-based organization with diverse business interests; is a leading distributor of LPG in
the private sector in Madhya Pradesh having its own LPG bottling plant at Pithampur and an
authorised distributor for ESSO and Mobil branded lubricants
Lubricants   Gas  

13 Ganesh Benzoplast Ltd

Multi-division, multi-location flagship company of the Ganesh Group located in Mumbai;
divisions include chemical division, lube division, infrastructure division etc; produces and
supplies sodium benzoate, a food preservative Chemicals   Lubricants  
Research

An overview of Lubricants Market in India

The current market for lubricants in India is characterised by stiff competition,

following the entry of number of private players after the deregulation in 1993.
Further the industry also suffers from considerable overcapacity. The lubricants
market in India is estimated at around 1.05 million Kl (Kilo litre) per annum (Rs 5500
crores) as against an installed capacity of 1.60 million Kl per annum. However, the
consumption of lubes in India is very low compared to the rest of the world because
of high population and low penetration of automobiles.

TABLE SHOWING PER CAPITA CONSUMPTION OF LUBES

Country Kg.
P.a.
In the world market the consumption growth of lubes has
India 1 almost stagnated due to saturation in industrial activity
and stagnation in the sale of automobiles. Thus, India
China 2 remains the target market for most of the MNCs in the
lubes industry because of its potential for future growth,
Western 14 given its large industrial base and booming vehicle
Europe market.

America 31 The lubes market in India can be broadly classified into

two main segments viz, Automotive segment and
Industrial segment. We expect the market for both
industrial and automotive lube segment to post a growth of more than 4-5% in the
current year, given the recovery in the industrial activities and increase in sale of
automobiles.

TABLE SHOWING SALE OF AUTOMOBILES IN INDIA

1999 1998 %
Change

Heavy and Medium commercial 108814 78746 38.18

 Vehicles

Light Commercial Vehicles 57706 55631 3.73

Passenger Cars 574287 403719 42.25

We believe, given the severe competition and overcapacity prevailing within the
sector as mentioned earlier, the scenario for lubricant market in India does not seem
attractive in the medium to short term. However given Castrol’s excellent brand
value, strong distribution channels, technology and R & D backup of the parent and
management initiatives in increasing its market share, Castrol would remain the best
investment option within the industry.

Developments & Impact

 Rising Base Oil Prices

Typically, Base Oil constitutes more than 50% of the total material costs for
Castrol. The prices of base oil have been rising in consonance with rising
crude oil prices, which may have considerable impact on the profitability of
Castrol in the current financial year.

GLOBAL PRICE TRENDS IN BASE OIL PRICES

Month Price per

tonne

(In US $)

March’99 180

September’99 240

January’2000 325

However we believe that given Castrol’s brand leadership, it would be in a

position to partially pass on this increase in cost. In fact Castrol increased,
prices of its products twice in the last 6 months. Further, we believe that with
the recent rollback of production cuts by OPEC would bring base oil prices at
realistic levels.

 Castrol: Identifying Strategies for Future Growth

Consumer Business Segment:

 This segment accounts for more than three fourth of Castrol India’s total
sales. Given the high level of competition in this segment, linkages with
OEM’s (Original Equipment Manufacturer) is becoming increasingly important
to add value to brand positioning. Castrol recently entered into strategic
alliances with Telco, LML and Apollo Tyres in a bid to provide customised
products. On one hand these; OEM’s would endorse Castrol’s range of
lubricants, while on the other hand Castrol would increase its market
presence through its increasing availability at their workshops. Castrol hopes
to push its product availability in Telco’s workshop from the present 40% to
75%. Besides, with Castrol adopting new distribution policy of selling through
distributors, the distribution reach has increased from 6000 retailers to 35000
retailers at present. Further, the new distribution system will also help Castrol
increase focus on two wheeler segment for future growth, which was hitherto
controlled by PSU’s.

Industrial Business Segment

industrial segment achieved a sales growth of more than 20% in 99,mainly

due to realignment in the distribution network, which helped in providing
customised solutions to particular business segments and thus further
increasing penetration into several potentially lucrative market segments. The
company also entered into strategic alliances with number of OEM’s. Further,
under its new Castrol+plus programme Castrol introduced Chemical
Management Services (CMS) and Lube Management Programme (LMP),
whereby Castrol would assume responsibility for managing the processes and
facilities covering all chemicals including lubricants. We believe this help will
heThlp the company in maintaining direct contacts with large customers. The
company has already signed contracts to manage these processes at Delphi
Automotive, Cummins India and Timken India and many other such contracts
under the Programme are under negotiation.

 Fate of things to come

Though it would be very early to comment, we believe that the company’s

business model might undergo a change with the global takeover of business
by BP-Amoco. Over the years, Castrol has concentrated only on the lubes
industry, whereas BP-Amoco business interests varies from up-stream Oil
Exploration to downstream production and refining. Castrol India had already
evinced interest in taking over smaller companies within the industry. Further
with government aggressively considering increasing the FDI Limit in refining
to 100% as well as strategic sale of PSU Oil companies, chances exist that
Castrol India might venture into other downstream activities, though the
management has not indicated any intention of doing so. Further Castrol India
Limited can also be considered for global sourcing point by BP-Amoco for catering
to the International markets.
 In light of the above, we believe the fate of things to happen at Castrol India
seems quite interesting in time to come.

% %
Particular Chang Chang
s 1999 1998 e 1999 1998 e
  Q4 Q4   FY FY  
Gross 372.4 314.6 1195.5 1079.2
Sales 1 7 18.35 5 1 10.78
Other Inc. 3.67 4.78 -23.22 23.09 20.2 14.31
375.2 319.4 1218.6 1099.4
Total Inc. 1 5 17.46 4 1 10.84
299.7 255.6
Total Exp. 1 4 17.24 949.86 869.34 9.26
Op.Profit 75.44 63.81 18.23 268.78 230.07 16.83
Interest 0.65 0.66 -1.52 2.62 2.53 3.56
Gross
Profit 74.83 63.15 18.50 266.16 227.54 16.97
Depreciati
on 3.76 2.79 34.77 10.08 8.43 19.57
PBT 71.14 60.36 17.86 256.08 219.11 16.87
Financials
Tax 10.6 8.72 21.56 51.7 40.75 26.87
PAT 60.37 51.64 16.91 204.38 178.36 14.59 Castrol declared a strong
Equity 123.5 61.75   123.5 61.75   result in for the year ended
Financial Ratios  31/12/99. While the Net Sales
OPM (excl for the Year ended 31/12/99
O.I.) % 19.50 18.80 _ 20.60 19.40 _ increased by 10.78% to
1195.55 crores operating
OPM (incl.
Profit increased more than
O.I) % 19.90 19.80 _ 21.80 20.70 _
proportionately by 16.83% to
Int/Sales Rs. 268.78 crores, however
% 0.17 0.21 _ 0.22 0.23 _ higher depreciation and
GPM % 19.90 19.80 _ 21.80 20.70 _ corporate taxes resulted in Net
NPM % 16.10 16.20 _ 16.80 16.20 _ Profit growth of 14.59%.
Tax/PBT
% 14.90 14.40 _ 20.20 18.60 _ 
Cash EPS 20.77 35.26 _ 17.37 30.25 _ Growth
EPS 19.55 33.45 _ 16.55 28.88 _
 Castrol continues to
enjoy excellent brand image in the Indian Lube industry. In fact it ranked 17 th
in the list of Most Admired FMCG Marketing Company in the annual survey
conducted by ORG-MARG. It also scored better on most of the important
parameters on Marketing Dimensions as shown below.
  
Marketing Dimensions Rank’99 Rank’98

Better than average success rate at new 9 13  

product launches
Though the
Brand Provides Long Term Stability 10 13 market for
lubricants in
Company has superior distribution network 13 12 India grew at
a rate of 4%
in 99,
Castrol’s sales increased by more than 9%, in spite of stiff competition and its
product being priced at least 10% above the industry average which goes a long way
in suggesting its brand value. We believe that though the lube industry would grow at
an average rate of 4-5%, Castrol would continue to outperform the industry growth
rate.

 We believe that given Castrol India’s Cash rich position and the backing of
strong parentage of Global Oil Giant BP-Amoco, various possibilities arise for
future growth of the company. As explained earlier, Castrol India has already
evinced interest for local acquisitions. Further, Castrol India can also be
considered as a sourcing point for various projects and products
Internationally. We believe that valuations of Castrol India would depend upon
these developments in time to come.

Comparative Valuations

Comparative Valuations with Other FMCG companies

Particulars Castrol Cadbury Britannia Nestle HLL

Market Price (Rs.) 312 904 638 374 2500
Price/Earnings Ratio (x) 18.85 55.9 29.94 33.97 51.42
Market
Capitalisation/Sales (x) 3.22 4.3 1.73 2.34 5.41
Sales Growth (YOY) 10.78 19.32 21.49 -0.04 6.97

Currently, Castrol is available at a P/E of just more than 19 times its 99 earnings. It is
available at just 17.08 and 14.85 times its KRC Research estimated earnings for
2000 and 2001 respectively.

 
 Abstract

The Indian automotive lubricants market is largely price sensitive and volume growth is
stagnating due to longer lasting lubricants. The market is fragmented with over 22 big and
small manufacturers and with the spate of mergers and acquisitions (M&A), only a handful of
big companies enjoy a major market share.

Companies are adopting a more customer-oriented approach where they are likely to focus on
creating brand awareness through print and visual media. For example promotional
campaigns and trade shows offering gifts to their customers are methods of driving sales of
automotive lubricants.

The original equipment segment and retail trade are the two major marketing channels in the
Indian automotive lubricants market. Due to the growing competition, tie-ups with original
equipment manufacturers (OEM) are becoming important as they reinforce the value
proposition of a particular brand.

Petrol pumps form a major distribution channel in retail trade, however sales of lubricants
through retail outlets (also called ‘the bazaar trade’) has transformed the Indian automotive
lubricants market into a fast moving consumer goods (FMCG) sector. The other marketing
channels are authorized service stations, garages, rural and agricultural dealers, super
markets, and wholesale distributors

Public sector unit (PSU) companies, that manufacture their own base oil, follow different
distribution strategies as compared to private participants that solely dependent on imports.
While PSUs sell through their own wide spread network of petrol stations private
manufacturers prefer retail outlets.

Engine oil, which accounted for over 70.0 percent market share in 2004 in the Indian
automotive lubricants market, plays the most crucial role in deciding the market share of
manufacturers. Increase in demand for four stroke motorcycles, tie ups with original
equipment manufacturers, and implementation of new pollution norms are just some of the
key drivers of the engine oil segment.

The brake oil and coolant is the next largest segment in the Indian automotive lubricants
market. Demand for coolants is increasing due to continuous growth in heavy commercial
vehicles, increasing awareness among the customers, new cooling system technologies, and
OEM tie-ups.
In brake oil segment, increasing growth in light commercial vehicles, introduction of new
brake systems, consumption of lubes by commercial passenger vehicles, and changing
customer mindset regarding specialty lubricants are expected to push demand further.

The market for gear oils is also growing rapidly and has a high potential due to the increasing
number of vehicles on the road. New generation vehicles with advanced gear system
technologies and automatic transmission systems require special type of lubricants resulting
in greater demand for multi axel gear oil and API synthetic gear oil, API GL-5, API MT-1,
and ultra-Matic, which reduce the oil changing intervals.

In the long term, the overall outlook for the automotive lubricants market is expected to be
positive due to the growing Indian economy along with the increased purchasing power of
consumers.

RESEARCH DESIGN

 Descriptive Research

Descriptive research, also known as statistical research, describes data and

characteristics about the population or phenomenon being studied. Although the
data description is factual, accurate and systematic, the research cannot
describe what caused a situation. The description is used
for frequencies, averages and other statistical calculations. Often the best
approach, prior to writing descriptive research, is to conduct a survey
investigation. Qualitative often has the aim of description and researchers may
follow-up with examinations of why the observations exist and what the
implications of the findings are.

DATA COLLECTION DESIGN

 Secondary Data

Secondary data is data collected by someone other than the user. Common

sources of secondary data for social science include censuses, surveys,
organizational records and data collected through qualitative methodologies
or qualitative research. Secondary data analysis saves time that would otherwise
be spent collecting data and, particularly in the case of quantitative data,
 provides larger and higher-quality databases than would be unfeasible for any
individual researcher to collect on their own. In addition to that, analysts of social
and economic change consider secondary data essential, since it is impossible
to conduct a new survey that can adequately capture past change and/or
developments.

METHODOLOGY

 Theoretical Framework: In this I would include the existing theories which

are closely related to the topic of consideration. This will cover the data from
past research and studies and articles from relevant journals, books,
newspapers, etc.

 Sources of data: The three main sources of secondary information relating to

social and economic development programmes are:
 Programme management documents.
 Statistical sources.
 Past evaluations and research.

 References: References would be provided for further clarifications and

studies.