Meet the CFO. How are lubricant firms dealing with oil price rise?

We have chosen our pockets of strength and backed them up with resources to get the extra volume growth over the industry.

Our growth has been at least three times the industry’s over the last seven to eight years.

We have been focussing on distribution and our effort is to create a deeper network in the rural areas as well. There have been innovative measures such as car-stops, bike-stops and such, on the bazaar side. We have been pioneers in introducing technologically-advanced products.

On the brand side, our marketing has been innovative and consistent over the last seven to eight years. We have a lot of consumer interactions and initiatives. All these factors have helped us on the bazaar retail side.

With regard to the B2B original equipment manufacturers, service has become a key differentiator for us. Today, this business brings about 7-8 per cent of our volume.

First, economies of scale due to increasing volumes have helped lower unit input costs. Next, our brand power recall has gone up and, with that, our pricing power too has improved. Third is the evolving product mix; the share of personal mobility lubricants in our overall product mix is now 23-24 per cent. Personal mobility is usually a high-margin segment. These three things put together have aided our margin profile.

In the short term, higher costs do impact margins. But as an industry, we have been disciplined in the bazaar segment. We have taken price increases to pass on the input costs to the customers.

In the B2B side, price adjustments are largely formula-driven. So, every quarter, companies change prices based on global base oil indices.

Yes, there are periods of one or two months when the impact is felt, but over the long term, margin maintenance is possible.

We have been studying the electric vehicles space and the developments in this market, not only in India but globally as well. Our internal estimates are that for at least 10-15 years, the lubricant industry will continue to grow.

Certain segments, such as buses, could transition early to electric vehicles. But in Gulf Oil’s addressable market, for example in commercial vehicles, the impact is likely to take effect only towards the end of the cycle of electric vehicles. We are quite confident that at least for the next 10-15 years, the lubricant industry will grow.

We think that even when the EV cycle happens, say, around 2035, a good portion — maybe about 60 per cent — of the vehicles will run on ICE (internal combustion engine), especially in economies such as India. And by then, the lubricants market in India will be more than double the size of what it is today.

Gulf Oil, with a market share of less than 10 per cent currently, will still have a lot of headroom in terms of overall market to grow further. At the ground level, there are a lot of challenges on the infrastructure front to cater to EVs; we will have to see how it evolves.

GST has had a very positive impact on the supply and distribution side. One-tax, one-nation concept can bring in economies in the business. With our focus on volume growth, distribution is key in the lubricants business and GST helps us in that pursuit.

The prior combined rate was close to 28 per cent. When GST was rolled out, the rate was 18 per cent on lubricants. That helped all the branded lubricant players to be more competitive in the market versus the unorganised players and increased the market size for the branded players.

Over the last few years, we have been focusing more on the passenger car segment, where we had a relatively low share. We now have a complete range of passenger car oils in our portfolio, right up to synthetic oils. Also, there is a lot of investment in brands. We are using our global tie-up with Manchester United to back up the passenger car products segment. We had a big campaign last year — Pressure Moves You. More such initiatives will be taken to increase market share.

Distribution is key to our business. We are going the extra mile in terms of rural distribution. We have appointed more than 550 Gulf Oil rural stockists over the last two years.

In addition, we have been converting several garages into Gulf Oil bike-stops and car-stops. There are 1,000-plus bike-stops and 1,300-plus car-stops that have the Gulf Oil brand. We have also put in many digital applications to connect us to our distribution channels — up to retailers, mechanics and consumers. Emphasis is also being laid on social media campaigns and digital marketing.

On technology, we have been the pioneers in long drain products as a global company and we have products going up to Bharat VI.

We are focusing on synthetic products using new-age technology. The more the high-end and synthetic products in the mix, the higher the realisations and margins. The increase in prices has offset the impact on volume growth due to long drain intervals.

We are not foreseeing any major capex over the next three to four years.

Our Chennai plant capacity will be sufficient to take care of growth during that period. With minor investments, we can ramp up the Chennai capacity up to 70,000-80,000 kilolitre from 50,000 kl currently.

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