Lubricants mainly find usage in automotive, industrial and marine and energy applications.
India is world’s third largest lubricants market, next only to US and China, with a total consumption of approximately 2.6 billion litres in 2016. The industry in India is made up of over 30 established players, viz Public Sector Undertaking – Oil Marketing Companies (IOCL, BPCL, HPCL) as well as the other players in the private sector (Total-Elf, Shell, Gulf Oil, Mobil, Valvoline, Motul, etc) on tenterhooks.
Break-up of Lubricants consumption in India:
•1.2 billion litres would be automotive lubricants,
•770 million litres would be industrial oils,
•with the remaining being process oils.
The overall India lubricants market is expected to register a CAGR of 4.64%, during 2018-2023. The major factors driving the growth of the market is undeniably the increasing vehicular production.
Overall vehicle sales grew by ~7% during 2017, compared to the previous year. In 2017, commercial vehicle sales increased by 9% overall, while heavy commercial vehicle sales grew by 2%, medium / light commercial vehicle sales (MLCV) by 14% and tractor sales moved up by 15%. Passenger car sales (including utility vehicles) also increased by 9% and two-wheeler sales moved up by ~7%.
Developments in the Automotive sector in 2017-18 FY has been a healthy year for the Indian Automotive industry in spite of a volatile regulatory environment. Total industry volumes grew by around 11.3% over April-December 2017 on a year-on-year basis. The Passenger Vehicle segment went up by around 8.1% and the Commercial Vehicle segment by around 15.2%. The total two- wheeler market grew by 11.8% and its exports at a healthy 13%.
The lubricants market growth (other than industrial and marine & energy) was 3% for 2017 post a recovery in the second half of the year. Other longer term macro-trends in the industry remained largely unchanged.
With Indian households generating higher disposable incomes, there has been a significant boost in vehicle sales for personal mobility, both for two and four-wheelers. First time users of personal mobility vehicles, along with growth in usage of two-wheelers in small towns and the emergence of gearless scooters driven by increasing number of women riders, has also led to a growth in two-wheeler sales.
Mineral oils hold the largest share among all the automotive lubricants used in the country, synthetic and semi-synthetic lubricants are expected to grow at a rapid pace during the period 2018-23.
Problems and prospects in the Automotive Lubricants sector:
Problems: Imports and supply of base oil are primarily controlled by the PSU-OMCs. This has a direct bearing on the pricing of the end product, timely supply and distribution.
With focus on marketing and zero red tapeism, Castrol India has its distinct advantage.
Prospects: The market opportunity across the Automotive Lubricants segments in India:
• Heavy duty automotive diesel engine oils 420 million litres per year,
• 125 million litres per year for passenger cars,
• 235 million litres per year for motorcycle oils and
• 280 million litres per year for transmission & axle oils, across the vehicle segments.
Demand for Automotive Lubricants is driven by the usage of vehicles in the country, while the growth in the market in recent years has been due to the rapid expansion of vehicle population.
OPPORTUNITIES AND THREATS
(i) Opportunities
a. Personal mobility: With multiple opportunities in personal mobility, including the growth of first time users, increase in usage in smaller towns and rural areas, as well as a growing number of women riders, the Company is tapping these segments for growth.
b. Original Equipment Manufacturer (OEM) partnerships: The Company works with OEMs to build enduring partnerships, such as its recent tie-up with Maruti for their premium Nexa channel and Piaggio for two-wheelers. It also works with OEMs on product development with new technologies as well as addressing the environmental needs of lower emission and fuel efficiency.
c. Medium / light commercial vehicles (MLCV): While the MLCV segment was moderately impacted by the economic slowdown in the first half of 2017, it is poised for growth due to the last-mile connectivity offered, which enables the Company to continue to focus on this category.
d. Improving technology in trucks: With the advent of stricter emission norms resulting in newer technologies
for trucks, the CI4+ segment is the fastest growing segment in the commercial vehicle category, in which the Castrol India enjoys a strong position.
e. Distribution: The Company has a large distribution network in the retail market. Renewed focus on distribution and customer reach in different market segments will enable future growth.
(ii) Threats
a. Economic uncertainty: After relative stability of low crude prices in the first half of 2016, the Company has seen an upward trend of base oil costs from late 2016, which rose further in 2017. This is likely to continue throughout 2018, based on the current and future market environment estimates.
b. GST: With GST rollout in 2017, there was very low inventory and stocking, and hence, overall production.
The effect started diminishing gradually in the second half of 2017. Also, the Company has been one of the first among lubricant players to transition smoothly to GST and bill customers immediately, post its introduction.
While some uncertainty around GST implementation currently exists, and measures are being taken to iron out these issues, this uncertainty is likely to continue in 2018.
c. Competitive activity: Competition in the lubricants market is intense and most international players have identified India as a focus market. Competitive activity is likely to remain high in the foreseeable future. There is also a trend of some OEMs introducing lubricants under their own brand name, further impacting the competitive landscape.
OPPORTUNITIES AND THREATS
(i) Opportunities
a. Personal mobility: With multiple opportunities in personal mobility, including the growth of first time users, increase in usage in smaller towns and rural areas, as well as a growing number of women riders, the Company is tapping these segments for growth.
b. Original Equipment Manufacturer (OEM) partnerships: The Company works with OEMs to build enduring partnerships, such as its recent tie-up with Maruti for their premium Nexa channel and Piaggio for two-wheelers. It also works with OEMs on product development with new technologies as well as addressing the environmental needs of lower emission and fuel efficiency.
c. Medium / light commercial vehicles (MLCV): While the MLCV segment was moderately impacted by the economic slowdown in the first half of 2017, it is poised for growth due to the last-mile connectivity offered, which enables the Company to continue to focus on this category.
d. Improving technology in trucks: With the advent of stricter emission norms resulting in newer technologies
for trucks, the CI4+ segment is the fastest growing segment in the commercial vehicle category, in which the Castrol India enjoys a strong position.
e. Distribution: The Company has a large distribution network in the retail market. Renewed focus on distribution and customer reach in different market segments will enable future growth.
(ii) Threats
a. Economic uncertainty: After relative stability of low crude prices in the first half of 2016, the Company has seen an upward trend of base oil costs from late 2016, which rose further in 2017. This is likely to continue throughout 2018, based on the current and future market environment estimates.
b. GST: With GST rollout in 2017, there was very low inventory and stocking, and hence, overall production.
The effect started diminishing gradually in the second half of 2017. Also, the Company has been one of the first among lubricant players to transition smoothly to GST and bill customers immediately, post its introduction.
While some uncertainty around GST implementation currently exists, and measures are being taken to iron out these issues, this uncertainty is likely to continue in 2018.
c. Competitive activity: Competition in the lubricants market is intense and most international players have identified India as a focus market. Competitive activity is likely to remain high in the foreseeable future. There is also a trend of some OEMs introducing lubricants under their own brand name, further impacting the competitive landscape.
