Description
It describes about Industry Trends in lubricant industry, PEST Analysis of lubricant Industry, Competitor Analysis, SWOT analysis, Company Description, General Information about Castrol, it's Finance performance, SWOT analysis of Castrol and Various Strategies employed by Castrol.
Industry Analysis:
A. Industry trends: Indian Perspectives:
1. With a GDP growth of 7.5-8% expected in 2012 vs approximately 7% in 2011, there
should be a mild improvement in the category consumption of lubricants. Thus, lubricant consumption is projected to grow, led by growth in passenger cars and four stroke motorcycles. 2. The monsoon in 2011 was substantial. Given good monsoon and extended winters, it is expected that better ground levels of water would facilitate a good summer agriculture season. Overall in 2012, the lubricant market is projected to grow around 3-4% in volume terms. 3. The old generation truck market and the two stroke motorcycle lubricant market are projected to continue declining. 4. Industrial production, measured by the IIp (Index of Industrial production), has slowed down and is projected to grow within a range of 5-6% during 2012 compared to 8.2% in the same period a year ago. 5. The Indian Manufacturing Industry is poised to revive and projected to grow at 7-8% during the next two years. 6. Likely rise in income of urban and rural consumers, anticipated correction in the interest rates and launch of new models of vehicles by automotive sector is likely to improve consumer sentiment and drive automotive sales. 7. Rural markets are expected to contribute 50% to the overall sale of vehicles by 2015.
Global Perspectives:
1. The global automotive industry is back on the growth path after the setback caused by the financial crisis of 2009. The industry is now actively pursuing innovative new technologies, production and business techniques. Although it is on a growth path, the fact remains that it will take a long time for it to recover. 2. Asia has recovered well as compared to the West, and this is reflected in the growing automobile numbers. China, the world’s largest automotive market, showed a more than 20% growth in December 2010.
3. China and India seem to have weathered the financial crisis storm, compensating for the decline in lubricant demand in the rest of the world. 4. These countries took over the automotive production leadership position, with over 14 million units – a surge of more than 48%– and well over 10 million more than the total production of the US, Canada, and Mexico combined. In India, the production growth was less dramatic.
Major industry developments:
1. Crown Oil, is celebrating the HazardEx Award for Environmental Contribution to
Industry. Without any spillage, Crown Oil removed and recycled 6.4 million litres of gas oil from Derwent Power Station in a carefully managed operation needing over 200 tanker movements. 2. In the year 2011, Crude prices reflected the volatile trends and reached a high of US Dollar 123 in April 2011. 3. The supply market situation tightened with a number of planned and unplanned shutdowns by refineries and natural calamities like earth quake, floods and the tsunami causing disruption to life. 4. The rising crude prices coupled with the tight supply market in the Asia and Pacific region impacted base oil prices adversely for most part of the year. 5. The performance additives and chemicals category also witnessed more than a double digit (15%) hike in prices on account of growing demand and supply market uncertainties, including force majeure declared by major chemical suppliers.
B. PEST Analysis: Political, economic, social and technical aspects related to the industry: Political Factors: 1. Lubricant demand growth is expected to be slow owing political uncertainties. 2. Hydrocarbon vision 2025 implemented with a goal in mind. 3. Some energy plateaus are past their prime and out of resources. New resources are to be found quickly. Economic Factors:
1. Lower industrial production growth is mainly on account of the high input costs, sustained inflation and steady hike in domestic interest rates as well as the slower than expected global demand. 2. India is 5th largest consumer of energy in the world. 3. Most of this consumption (about 65-70 %) has to be imported and in the present scenario of continuous depreciation of Rupee, these imports are very costly. 4. Economic uncertainties and depressed economic activity will cause problems to the lubricant industry.
Social Factors : 1. Population growth in India is very high and hence, demand will increase further. 2. With the government’s increased focus on emission control measures and any future growth in technology being subject to the requirements of lower carbon footprint and emission control, global technological leadership and techniques are implemented. Technological Factors: 1. Automotive and Industrial advances and the demand for reduction in harmful emissions and fuel used are placing greater challenges on lubricant technology. 2. Developing strategic storage facilities at identified locations. 3. Exploring alternate sources of Energy, including Coal Bed Methane, gas hydrates, etc 4. Improving the recovery of oil from existing fields through methods such as Enhanced Oil Recovery (EOR) and Increased Oil Recovery (IOR) 5. Construction of Major Pipelines. C. Competitor Analysis: Analyze pricing, quality, distribution and partnerships of the nearest competitor of the company: The lubricant industry is led by four major players (Castrol India Limited, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited) who contribute to approximately 50% of the market in terms of volumes. Another 25% of the market is accounted for by multinational companies such as Totalfinaelf, Shell, Gulf oil and Tidewater oil, amongst others. Numerous smaller players, including global players, operate in the balance 25% of the market, leading to an extremely competitive market scenario.
SERVO brand, from IndianOil, is the brand leader among lubricants and greases in India and has been conferred the “Consumer Superbrand” status by the Superbrands Council of India. Recognised for its brand leadership by the World Brand Congress and as a Master Brand by CMO, Asia, SERVO has now carved a significant niche in over 20 countries across the globe. With over 1000 commercial grades and over 1,500 formulations encompassing literally every conceivable application, SERVO serves as a one-stop shop for complete lubrication solutions in the automotive, industrial and marine segments. Recognized for cutting-edge technology and high-quality products, SERVO is backed by Indian Oil's world-class R&D and an extensive blending and distribution network. The recent top-end offerings in the segment are all-new engine oils on a differentiated synthetic platform—SERVO Futura Synth, a 100% synthetic premium lubricant for diesel & petrol cars and SERVO 4T Synth, engine oil with advanced synthetic chemistry for 4-stroke twowheelers—represent a big leap in bringing technologically advanced motor oils of global standards to the Indian market. Both the products offer outstanding engine protection and performance that far surpasses the benefits offered by conventional mineral-oil based lubricants. In the retailing segment, besides IndianOil petrol stations, SERVO range of lubricants is available through a network of a unique SERVO Stockist Management System (SSMS) across the country. The products are available in every corner of the country through various retailing initiatives likeSERVOXPRESS stations, bazaar outlets and thousands of auto spare parts shops across the country along with a unique concept of Gramin SERVO Stockists to reach the rural hinterland. SERVOXPRESS vehicle servicing centres are one-stop shops for quick, easy and convenient auto care, offering a refreshing experience to motorists. Opened in convenient locations like malls, petrol pumps or as stand-alone units, SERVOXPRESS stations have facilities for engine oil change, tyre & battery check-ups, air-conditioner service, vacuum cleaning, perfuming, upholstery cleaning, polishing, lamination installation, etc., besides replacement of minor parts for two and four-wheeler vehicles. D. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry: Strengths: 1. Negotiating better credit terms with suppliers, Implementing cost competitive bought out model for sourcing, developing new substitutes and suppliers, value focused inventory management and better planning, have helped improve service and cash release to a great extent.
2. In a difficult and unpredictable environment, the lubricant industry ensured that there was no outage in product supply despite many challenges on input materials, by smart planning processes and good execution. Weaknesses: 1. The year 2011 was a year of average market growth for the automotive lubricant market, especially in the commercial vehicle sector, given the slowing GDP. 2. Economic and political uncertainties and depressed economic activity have led to slow growth of the industry.
Opportunities: 1. The competitive situation remains largely unchanged with all major international lubricant players having been present in the market for several years now. 2. Demand from rural markets is a rising trend due to an increase in farm and non-farm income and will be about 50 % of the demand by 2015. 3. The Indian industry is expected to complete projects worth Rs. 5 lakh crores in 20112012. The value of project completion remains healthy. The commissioning of fresh capacities in industrial sectors will enhance production and would increase the demand for lubricants and allied services. 4. The Industrial output growth is likely to be broad based with Automotive, Machinery Manufacturing, Metals, Electricity, Chemicals and Apparels being some of the segments expected to grow in double digits. Threats: 1. Volatility in input costs has a direct impact on our cost of goods. Crude oil prices are expected to remain firm in 2012. 2. Adverse foreign exchange situation has further aggregated inflation on input cost of raw material for importers. 3. The smaller players have been competing aggressively with lower prices and higher sales promotion to gain market share. 4. The Indian lubricants market is highly competitive. Most international players have identified India as a focus market and competition is likely to intensify further.
Company Analysis: 1. Company description (a brief introduction regarding what businesses the company is into):
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Castrol is mainly into engine oils and Lubricants. It manufactures diesel engine oils, two wheeler oils, Passenger Car Oils and lubricants for Heavy Duty Channel (Transport fleets, Building & Construction and Mining). It is also in the Industrial Lubricants and Services Business, Marine & Energy Lubricants Business. Castrol’s track record in this segment and its foray into mining, the overall performance of this business segment will continue to be strong in the future. Continuing its focus to remain ahead of the curve as the market transitions from Shop to Workshop, Castrol launched its Castrol Professional range of products and service support to its key OEM partners like Maruti Suzuki, TATA , Ford, VW, Skoda, BMW, Audi and Jaguar Land Rover. This has resulted in further strengthening of our partnerships and significant volume growth in the premium end of the lubricants segment. Castrol is leading supplier of metal working fluids and high performance lubricants. Castrol has also recently launched new generation grinding fluids based on the latest generation of EHVI hydrocracked oils and technology performance additives. The product is designed for high speed, creep feed grinding, especially gear grinding of ferrous and yellow metals with CBN and carborundum wheels and gear cutting operations. Castrol also commenced marketing of Aviation lubricants in India during the fourth quarter of 2011 and its focus will be to nurture and grow this business going forward. Castrol has launched products such as Subsea solutions, to further consolidate its market share in the offshore drilling segment.
2. General information about the company: location of the headquarters, year of founding, shareholding pattern, number of employees, top management, etc. Headquarters: Technopolis Knowledge Park Mahakali Caves Road, Andheri (East) Mumbai 400 093. ShareHolding Pattern: Stock Code Physical – BSE : 500870 NSE : CASTROL Demat ISIN : Number for NSDL & CDSL : INE 172A01019 97.45% of the paid-up capital has been dematerialized as on 31 st December, 2011. Entire shareholdings of Foreign Collaborator has been dematerialized.
Top management: The Board of Directors had 8 members comprising of 3 Executive Directors and 5 NonExecutive Directors. The Non-Executive Directors included 2 members who were Independent Directors and 3 members who had been nominated by Castrol Ltd., U.K. as provided in the Articles of Association of the Company. The Chairman of the Board is a Non-Executive Independent Director. Mr. D. S. Parekh, Independent Non-Executive Director resigned as a
member of the Board with effect from 20th December, 2011. Mr. Uday Khanna was appointed with effect from 3rd January, 2012 as a Non-Executive Independent Director of the Company. 4 Board Meetings were held during the financial year from 1st January, 2011 to 31st December, 2011. Location of plants: The Company’s plants are located at Patalganga, Paharpur & Silvassa. In 2011, Castrol decided to phase out manufacturing activities at its Tondiarpet plant since it was not commercially viable. Number of Employees: The total number of people employed in Castrol as on 31st December 2011 was 769. Year of Founding:
3. Financial performance of the company: Sales, net profit, segment wise performance of the past 1 year: Sales realizations have increased by 9% over the previous year to Rs. 3428 crores mainly due to an increase in unit sales realizations. However, the sales volumes have declined by 5% over the previous year. Costs of materials have increased by 22% over the previous year to Rs. 1694 crores due to an increase in base oil prices and Indian Rupee devaluation against US Dollar. Despite increasing cost pressures, pro-active Margin Management strategy helped Castrol to maintain its Unit Gross Profits. Driven largely by lower Volumes, the Gross Profits have declined by 5% over the previous year. Operating & other expenses increased by Rs. 4 crores as compared to 2010. Advertisement& Sales Promotion expenses reduced 9% over the previous year through judicious control over spends. Profit before tax decreased by 3% over previous year to Rs. 716 crores. Tax rate for the current year has remained at nearly the same level as that of the previous year. Profit after tax decreased by 2% over the previous year to Rs. 481 crores. The management team is confident that Castrol, with its strong brands, enduring relationships with key stakeholders and continued commitment of its staff, has the ability to deliver a sustainable performance going forward.
4. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the company Strengths:
1. Despite rising inflation, increasing interest rates and fuel prices, as well as a slow down in overall economic growth, the commercial vehicle industry witnessed a growth of around 18% in 2011. 2. Castrol continues to be a major player in the automotive lubricant market and holds a volume market share of approximately 22%, according to internal estimates. 3. Castrol continues to be the leading brand in the retail sector, followed by the public sector brands. 4. Castrol has strong and enduring partnerships with leading automotive OEMs and key offroad equipment manufacturers, globally and locally. This is mainly because of the superior technology and high service levels provided. Weaknesses: 1. Steep rise in raw material and fuel prices, high interest rates and sharp depreciation of the Indian Rupee since September 2011, continue to impact the performance and profitability of industrial companies. 2. Macro economic risk caused by policy freeze and global financial turmoil leading to slower GDP growth and depressed economic activity. This could negatively impact lubricant consumption and demand. Oppurtunities: 1. Growth in economy and a good monsoon will positively impact lubricant demand growth 2. While overall GDP growth forecast has been tempered downward, the outlook for sale of passenger cars and two-wheelers continues to be positive. Between two-wheelers and passenger cars, the country may see sales in the range of 15 million units in the next four years. Castrol, with its ‘Olympic’ status brands, has a strong position in these segments and hence growth in personal mobility would have a positive impact on your Company’s performance. 3. A large part of the increase in demand is also likely to come from the smaller towns and rural areas (especially in the case of two-wheelers) where your Company with its vast distribution network has a distinct advantage. Threats: 1. Numerous smaller players, including global players, have started operating in the market, leading to an extremely competitive market scenario. 2. Volatility in input costs has a direct impact on the cost of goods. Crude oil prices are expected to remain firm in 2012. Of late, adverse foreign exchange situation has further aggregated inflation on input cost of raw material for Castrol. This has created uncertainty with regard to medium-term outlook on cost of goods and pressure on margins. 3. Longer oil–drain intervals can significantly impact volume growth in the market, especially in the commercial vehicle segment. 5. Various strategies employed by the company in the course of conducting business (in the form of alliances, joint ventures, product innovation/ expansion strategies, acquisitions/ divestitures and any such strategies that you think may affect the business of the company) in past 2 years.
(Make intelligent use of above points while trying to understand the strategies used by the company) a. Hierarchical: At the corporate level, business unit level and functional or department level of the firm. • • • • • • • Castrol launched its Professional Product series exclusively its for OEM Franchise Workshop. This was for product demonstration and awareness amongst all its employees. It launched a ‘Castrol ke Anmol Ratan’ campaign and felicitated its leading dealers in order to maintain a healthy and strategic partnership with them. It promotes its rural outlets with special bonuses and hence reaches out to its rural customers effectively. The ‘I love my Car’ campaign at all dealers and retail outlets across India enhanced brand visibility. It recently awarded its Patalganga plant employees a double salary bonus on account of its high productivity. Castrol’s Industrial Business team was recognized as ‘Best Supplier’ by John Deere for a commendable performance in the indirect material and services category in 2011. Castrol’s Heavy Duty Mining team offered its Lubenet service to L&T at their customer’s mining site. Castrol provides Total Lube Management service, oil condition monitoring and training on safe practices at the site. The two-wheeler team continued to strengthen its strong relationship with mechanics. More than 50,000 mechanics were contacted during the year through various mechanic meets and launches, resulting in stronger ties and better brand advocacy. The Castrol Golden Spanner Awards instituted in 2009, continued this year and top mechanics from 18 cities across the country participated in the grand finals held in Mumbai. Over 19,000 mechanics were contacted during the course of this program which significantly strengthened our relationship with this key influencer group.
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b. Business Division: According to various products, divisions, markets.
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Castrol has various innovative products like the Castrol Activ Scooter, India’s first gearless scooter engine oil. A direct consumer contact program launched by Castrol attracted 6000 dealers and many Castrol Bikepoints across 63 cities. It keeps relaunching its products with the latest technologies to compete in the market. The Castrol Professional proposition of ‘performance innovations developed by, with and for experts,’ is a complete package of products and services exclusively created for and in partnership with the world’s leading car manufacturers. The year 2011 was key for the PCO category with a series of initiatives to strengthen the lead brands – Castrol GTX, Castrol Magnatec and Castrol Edge. A new television commercial (TVC) was launched to promote Castrol GTX, co-inciding with the ICC Cricket World Cup 2011. The TVC, starring Sachin Tendulkar, Castrol’s Brand Ambassador, was built around the brand proposition of ‘protection from sludge’. Castrol Edge, a fully synthetic engine oil was relaunched with Titanium Fluid Strength Technology and new variants introduced in a market which is rapidly moving towards synthetics. Castrol’s Industrial Business entered into a strategic alliance with ACE Micromatic Group – the largest CNC machine tool manufacturers in India. Castrol has historically strong and enduring partnerships with leading automotive OEMs and key off-road equipment manufacturers, globally and locally. This is mainly because of the superior technology and high service levels provided. With more global OEMs coming into India, this presents your Company with further partnership opportunities in 2012 and beyond. A 360 degree communication campaign was undertaken to refresh and rejuvenate Castrol CRB Turbo and bring alive its proposition of ‘Keeps your engine newer for longer’.
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c. Regional: Strategies devised as per regions, geographies, etc. •
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Castrol and BMW recently extended its global partnership to the Indian Business. It also is in a strategic partnership with Volkswagen and recently renewed its agreement with Volkswagen in India for another 3 years. Castrol conducts technology days at Tata Motors and Maruti Suzuki – India’s leading car manufacturers - to share new technologies in lubricants. Castrol Activ Confidence club is an online group which has 35000 users.
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Castrol is a main sponser of the World SuperBike Racing and has its own bikes racing for the title which attracts a lot of viewers. Its riders Jonathan Rea and Alex Lowes are very famous across the globe. In India, a country obsessed by cricket, Castrol’s Brand Ambassadors are Sachin Tendulkar – who has the greatest fan following in cricket and Brett Lee, who is a heartthrob of many females. These events took place during the ICC cricket world cup, 2011 which took place in India and was watched by almost all the Indians. Its various one line slogans like ‘Engine ko rakhe Naya’ or ‘Castrol CRT Plus ka Vaada, Engine ki Umar Jyaada’ are very popular amongst the youth. It launched a ‘Khushali’ offer for tractors promoting the brand message of ‘Protection leading to propserity’ in villages. Castrol has historically been associated with various sports sponsorships, as a means to connect with its target audience. Almost since the inception of the Company globally, Castrol has built a strong association with motorsport and with record breaking feats on land, sea and air. Castrol extended its global sponsorship activities to football in 2008 and your Company leveraged this association during the 2010 FIFA World Cup™ and will continue to do so. In October 2010, your Company became the Official Performance Partner of the International Cricket Council (ICC) for a period of five years, till the end of the 2015 ICC Cricket World Cup. In 2011, your Company leveraged this sponsorship to build a strong association with Cricket and Performance A state-of-the-art Customer Engagement Centre, set up in Mumbai in 2011, at the Castrol Technology Centre, continues to attract a steady flow of customers and consumers keen to learn more about your Company and its unique technology. The key benefits of the brand were brought alive through an on-ground activation program which directly reached out to almost 80,000 consumers and helped drive consumption through trials. The re-launch of Specialties range in last quarter of 2010 was followed by extensive field activation with key consumers – truckers and mechanics - in 2011. This resulted in volume gains, with coolants and greases both clocking substantial volume growth in the retail and workshop segments. A series of initiatives were undertaken during the year 2011 to strengthen the lead brands – Castrol Activ and Castrol Power1. Leveraging the euphoria around the ICC Cricket World Cup, a new TV campaign was launched for Castrol Activ, starring Castrol Brand Ambassador Sachin Tendulkar. The TVC promoted the key brand proposition of ‘superior all round protection’.
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Castrol Activ Scooter with Scootek technology was launched in a unique, convenient spout pack. The unique Scootek technology reduces engine friction by 24% and results in 30% reduction of heat in gearless scooters. The re-launch of Castrol Power1 by biking icon John Abraham and world Superbike riders Jonathan Rea and Alex Lowes, created a big stir in the Indian biking community. The new and improved Castrol Power1 has advanced power release formula for improved acceleration and better pickup. It runs Road safety programs all across India under its Banner and issues safe driver certificates, awards amongst the mass to increase road safety and its brand awareness.
doc_288048436.doc
It describes about Industry Trends in lubricant industry, PEST Analysis of lubricant Industry, Competitor Analysis, SWOT analysis, Company Description, General Information about Castrol, it's Finance performance, SWOT analysis of Castrol and Various Strategies employed by Castrol.
Industry Analysis:
A. Industry trends: Indian Perspectives:
1. With a GDP growth of 7.5-8% expected in 2012 vs approximately 7% in 2011, there
should be a mild improvement in the category consumption of lubricants. Thus, lubricant consumption is projected to grow, led by growth in passenger cars and four stroke motorcycles. 2. The monsoon in 2011 was substantial. Given good monsoon and extended winters, it is expected that better ground levels of water would facilitate a good summer agriculture season. Overall in 2012, the lubricant market is projected to grow around 3-4% in volume terms. 3. The old generation truck market and the two stroke motorcycle lubricant market are projected to continue declining. 4. Industrial production, measured by the IIp (Index of Industrial production), has slowed down and is projected to grow within a range of 5-6% during 2012 compared to 8.2% in the same period a year ago. 5. The Indian Manufacturing Industry is poised to revive and projected to grow at 7-8% during the next two years. 6. Likely rise in income of urban and rural consumers, anticipated correction in the interest rates and launch of new models of vehicles by automotive sector is likely to improve consumer sentiment and drive automotive sales. 7. Rural markets are expected to contribute 50% to the overall sale of vehicles by 2015.
Global Perspectives:
1. The global automotive industry is back on the growth path after the setback caused by the financial crisis of 2009. The industry is now actively pursuing innovative new technologies, production and business techniques. Although it is on a growth path, the fact remains that it will take a long time for it to recover. 2. Asia has recovered well as compared to the West, and this is reflected in the growing automobile numbers. China, the world’s largest automotive market, showed a more than 20% growth in December 2010.
3. China and India seem to have weathered the financial crisis storm, compensating for the decline in lubricant demand in the rest of the world. 4. These countries took over the automotive production leadership position, with over 14 million units – a surge of more than 48%– and well over 10 million more than the total production of the US, Canada, and Mexico combined. In India, the production growth was less dramatic.
Major industry developments:
1. Crown Oil, is celebrating the HazardEx Award for Environmental Contribution to
Industry. Without any spillage, Crown Oil removed and recycled 6.4 million litres of gas oil from Derwent Power Station in a carefully managed operation needing over 200 tanker movements. 2. In the year 2011, Crude prices reflected the volatile trends and reached a high of US Dollar 123 in April 2011. 3. The supply market situation tightened with a number of planned and unplanned shutdowns by refineries and natural calamities like earth quake, floods and the tsunami causing disruption to life. 4. The rising crude prices coupled with the tight supply market in the Asia and Pacific region impacted base oil prices adversely for most part of the year. 5. The performance additives and chemicals category also witnessed more than a double digit (15%) hike in prices on account of growing demand and supply market uncertainties, including force majeure declared by major chemical suppliers.
B. PEST Analysis: Political, economic, social and technical aspects related to the industry: Political Factors: 1. Lubricant demand growth is expected to be slow owing political uncertainties. 2. Hydrocarbon vision 2025 implemented with a goal in mind. 3. Some energy plateaus are past their prime and out of resources. New resources are to be found quickly. Economic Factors:
1. Lower industrial production growth is mainly on account of the high input costs, sustained inflation and steady hike in domestic interest rates as well as the slower than expected global demand. 2. India is 5th largest consumer of energy in the world. 3. Most of this consumption (about 65-70 %) has to be imported and in the present scenario of continuous depreciation of Rupee, these imports are very costly. 4. Economic uncertainties and depressed economic activity will cause problems to the lubricant industry.
Social Factors : 1. Population growth in India is very high and hence, demand will increase further. 2. With the government’s increased focus on emission control measures and any future growth in technology being subject to the requirements of lower carbon footprint and emission control, global technological leadership and techniques are implemented. Technological Factors: 1. Automotive and Industrial advances and the demand for reduction in harmful emissions and fuel used are placing greater challenges on lubricant technology. 2. Developing strategic storage facilities at identified locations. 3. Exploring alternate sources of Energy, including Coal Bed Methane, gas hydrates, etc 4. Improving the recovery of oil from existing fields through methods such as Enhanced Oil Recovery (EOR) and Increased Oil Recovery (IOR) 5. Construction of Major Pipelines. C. Competitor Analysis: Analyze pricing, quality, distribution and partnerships of the nearest competitor of the company: The lubricant industry is led by four major players (Castrol India Limited, Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited) who contribute to approximately 50% of the market in terms of volumes. Another 25% of the market is accounted for by multinational companies such as Totalfinaelf, Shell, Gulf oil and Tidewater oil, amongst others. Numerous smaller players, including global players, operate in the balance 25% of the market, leading to an extremely competitive market scenario.
SERVO brand, from IndianOil, is the brand leader among lubricants and greases in India and has been conferred the “Consumer Superbrand” status by the Superbrands Council of India. Recognised for its brand leadership by the World Brand Congress and as a Master Brand by CMO, Asia, SERVO has now carved a significant niche in over 20 countries across the globe. With over 1000 commercial grades and over 1,500 formulations encompassing literally every conceivable application, SERVO serves as a one-stop shop for complete lubrication solutions in the automotive, industrial and marine segments. Recognized for cutting-edge technology and high-quality products, SERVO is backed by Indian Oil's world-class R&D and an extensive blending and distribution network. The recent top-end offerings in the segment are all-new engine oils on a differentiated synthetic platform—SERVO Futura Synth, a 100% synthetic premium lubricant for diesel & petrol cars and SERVO 4T Synth, engine oil with advanced synthetic chemistry for 4-stroke twowheelers—represent a big leap in bringing technologically advanced motor oils of global standards to the Indian market. Both the products offer outstanding engine protection and performance that far surpasses the benefits offered by conventional mineral-oil based lubricants. In the retailing segment, besides IndianOil petrol stations, SERVO range of lubricants is available through a network of a unique SERVO Stockist Management System (SSMS) across the country. The products are available in every corner of the country through various retailing initiatives likeSERVOXPRESS stations, bazaar outlets and thousands of auto spare parts shops across the country along with a unique concept of Gramin SERVO Stockists to reach the rural hinterland. SERVOXPRESS vehicle servicing centres are one-stop shops for quick, easy and convenient auto care, offering a refreshing experience to motorists. Opened in convenient locations like malls, petrol pumps or as stand-alone units, SERVOXPRESS stations have facilities for engine oil change, tyre & battery check-ups, air-conditioner service, vacuum cleaning, perfuming, upholstery cleaning, polishing, lamination installation, etc., besides replacement of minor parts for two and four-wheeler vehicles. D. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry: Strengths: 1. Negotiating better credit terms with suppliers, Implementing cost competitive bought out model for sourcing, developing new substitutes and suppliers, value focused inventory management and better planning, have helped improve service and cash release to a great extent.
2. In a difficult and unpredictable environment, the lubricant industry ensured that there was no outage in product supply despite many challenges on input materials, by smart planning processes and good execution. Weaknesses: 1. The year 2011 was a year of average market growth for the automotive lubricant market, especially in the commercial vehicle sector, given the slowing GDP. 2. Economic and political uncertainties and depressed economic activity have led to slow growth of the industry.
Opportunities: 1. The competitive situation remains largely unchanged with all major international lubricant players having been present in the market for several years now. 2. Demand from rural markets is a rising trend due to an increase in farm and non-farm income and will be about 50 % of the demand by 2015. 3. The Indian industry is expected to complete projects worth Rs. 5 lakh crores in 20112012. The value of project completion remains healthy. The commissioning of fresh capacities in industrial sectors will enhance production and would increase the demand for lubricants and allied services. 4. The Industrial output growth is likely to be broad based with Automotive, Machinery Manufacturing, Metals, Electricity, Chemicals and Apparels being some of the segments expected to grow in double digits. Threats: 1. Volatility in input costs has a direct impact on our cost of goods. Crude oil prices are expected to remain firm in 2012. 2. Adverse foreign exchange situation has further aggregated inflation on input cost of raw material for importers. 3. The smaller players have been competing aggressively with lower prices and higher sales promotion to gain market share. 4. The Indian lubricants market is highly competitive. Most international players have identified India as a focus market and competition is likely to intensify further.
Company Analysis: 1. Company description (a brief introduction regarding what businesses the company is into):
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Castrol is mainly into engine oils and Lubricants. It manufactures diesel engine oils, two wheeler oils, Passenger Car Oils and lubricants for Heavy Duty Channel (Transport fleets, Building & Construction and Mining). It is also in the Industrial Lubricants and Services Business, Marine & Energy Lubricants Business. Castrol’s track record in this segment and its foray into mining, the overall performance of this business segment will continue to be strong in the future. Continuing its focus to remain ahead of the curve as the market transitions from Shop to Workshop, Castrol launched its Castrol Professional range of products and service support to its key OEM partners like Maruti Suzuki, TATA , Ford, VW, Skoda, BMW, Audi and Jaguar Land Rover. This has resulted in further strengthening of our partnerships and significant volume growth in the premium end of the lubricants segment. Castrol is leading supplier of metal working fluids and high performance lubricants. Castrol has also recently launched new generation grinding fluids based on the latest generation of EHVI hydrocracked oils and technology performance additives. The product is designed for high speed, creep feed grinding, especially gear grinding of ferrous and yellow metals with CBN and carborundum wheels and gear cutting operations. Castrol also commenced marketing of Aviation lubricants in India during the fourth quarter of 2011 and its focus will be to nurture and grow this business going forward. Castrol has launched products such as Subsea solutions, to further consolidate its market share in the offshore drilling segment.
2. General information about the company: location of the headquarters, year of founding, shareholding pattern, number of employees, top management, etc. Headquarters: Technopolis Knowledge Park Mahakali Caves Road, Andheri (East) Mumbai 400 093. ShareHolding Pattern: Stock Code Physical – BSE : 500870 NSE : CASTROL Demat ISIN : Number for NSDL & CDSL : INE 172A01019 97.45% of the paid-up capital has been dematerialized as on 31 st December, 2011. Entire shareholdings of Foreign Collaborator has been dematerialized.
Top management: The Board of Directors had 8 members comprising of 3 Executive Directors and 5 NonExecutive Directors. The Non-Executive Directors included 2 members who were Independent Directors and 3 members who had been nominated by Castrol Ltd., U.K. as provided in the Articles of Association of the Company. The Chairman of the Board is a Non-Executive Independent Director. Mr. D. S. Parekh, Independent Non-Executive Director resigned as a
member of the Board with effect from 20th December, 2011. Mr. Uday Khanna was appointed with effect from 3rd January, 2012 as a Non-Executive Independent Director of the Company. 4 Board Meetings were held during the financial year from 1st January, 2011 to 31st December, 2011. Location of plants: The Company’s plants are located at Patalganga, Paharpur & Silvassa. In 2011, Castrol decided to phase out manufacturing activities at its Tondiarpet plant since it was not commercially viable. Number of Employees: The total number of people employed in Castrol as on 31st December 2011 was 769. Year of Founding:
3. Financial performance of the company: Sales, net profit, segment wise performance of the past 1 year: Sales realizations have increased by 9% over the previous year to Rs. 3428 crores mainly due to an increase in unit sales realizations. However, the sales volumes have declined by 5% over the previous year. Costs of materials have increased by 22% over the previous year to Rs. 1694 crores due to an increase in base oil prices and Indian Rupee devaluation against US Dollar. Despite increasing cost pressures, pro-active Margin Management strategy helped Castrol to maintain its Unit Gross Profits. Driven largely by lower Volumes, the Gross Profits have declined by 5% over the previous year. Operating & other expenses increased by Rs. 4 crores as compared to 2010. Advertisement& Sales Promotion expenses reduced 9% over the previous year through judicious control over spends. Profit before tax decreased by 3% over previous year to Rs. 716 crores. Tax rate for the current year has remained at nearly the same level as that of the previous year. Profit after tax decreased by 2% over the previous year to Rs. 481 crores. The management team is confident that Castrol, with its strong brands, enduring relationships with key stakeholders and continued commitment of its staff, has the ability to deliver a sustainable performance going forward.
4. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the company Strengths:
1. Despite rising inflation, increasing interest rates and fuel prices, as well as a slow down in overall economic growth, the commercial vehicle industry witnessed a growth of around 18% in 2011. 2. Castrol continues to be a major player in the automotive lubricant market and holds a volume market share of approximately 22%, according to internal estimates. 3. Castrol continues to be the leading brand in the retail sector, followed by the public sector brands. 4. Castrol has strong and enduring partnerships with leading automotive OEMs and key offroad equipment manufacturers, globally and locally. This is mainly because of the superior technology and high service levels provided. Weaknesses: 1. Steep rise in raw material and fuel prices, high interest rates and sharp depreciation of the Indian Rupee since September 2011, continue to impact the performance and profitability of industrial companies. 2. Macro economic risk caused by policy freeze and global financial turmoil leading to slower GDP growth and depressed economic activity. This could negatively impact lubricant consumption and demand. Oppurtunities: 1. Growth in economy and a good monsoon will positively impact lubricant demand growth 2. While overall GDP growth forecast has been tempered downward, the outlook for sale of passenger cars and two-wheelers continues to be positive. Between two-wheelers and passenger cars, the country may see sales in the range of 15 million units in the next four years. Castrol, with its ‘Olympic’ status brands, has a strong position in these segments and hence growth in personal mobility would have a positive impact on your Company’s performance. 3. A large part of the increase in demand is also likely to come from the smaller towns and rural areas (especially in the case of two-wheelers) where your Company with its vast distribution network has a distinct advantage. Threats: 1. Numerous smaller players, including global players, have started operating in the market, leading to an extremely competitive market scenario. 2. Volatility in input costs has a direct impact on the cost of goods. Crude oil prices are expected to remain firm in 2012. Of late, adverse foreign exchange situation has further aggregated inflation on input cost of raw material for Castrol. This has created uncertainty with regard to medium-term outlook on cost of goods and pressure on margins. 3. Longer oil–drain intervals can significantly impact volume growth in the market, especially in the commercial vehicle segment. 5. Various strategies employed by the company in the course of conducting business (in the form of alliances, joint ventures, product innovation/ expansion strategies, acquisitions/ divestitures and any such strategies that you think may affect the business of the company) in past 2 years.
(Make intelligent use of above points while trying to understand the strategies used by the company) a. Hierarchical: At the corporate level, business unit level and functional or department level of the firm. • • • • • • • Castrol launched its Professional Product series exclusively its for OEM Franchise Workshop. This was for product demonstration and awareness amongst all its employees. It launched a ‘Castrol ke Anmol Ratan’ campaign and felicitated its leading dealers in order to maintain a healthy and strategic partnership with them. It promotes its rural outlets with special bonuses and hence reaches out to its rural customers effectively. The ‘I love my Car’ campaign at all dealers and retail outlets across India enhanced brand visibility. It recently awarded its Patalganga plant employees a double salary bonus on account of its high productivity. Castrol’s Industrial Business team was recognized as ‘Best Supplier’ by John Deere for a commendable performance in the indirect material and services category in 2011. Castrol’s Heavy Duty Mining team offered its Lubenet service to L&T at their customer’s mining site. Castrol provides Total Lube Management service, oil condition monitoring and training on safe practices at the site. The two-wheeler team continued to strengthen its strong relationship with mechanics. More than 50,000 mechanics were contacted during the year through various mechanic meets and launches, resulting in stronger ties and better brand advocacy. The Castrol Golden Spanner Awards instituted in 2009, continued this year and top mechanics from 18 cities across the country participated in the grand finals held in Mumbai. Over 19,000 mechanics were contacted during the course of this program which significantly strengthened our relationship with this key influencer group.
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b. Business Division: According to various products, divisions, markets.
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Castrol has various innovative products like the Castrol Activ Scooter, India’s first gearless scooter engine oil. A direct consumer contact program launched by Castrol attracted 6000 dealers and many Castrol Bikepoints across 63 cities. It keeps relaunching its products with the latest technologies to compete in the market. The Castrol Professional proposition of ‘performance innovations developed by, with and for experts,’ is a complete package of products and services exclusively created for and in partnership with the world’s leading car manufacturers. The year 2011 was key for the PCO category with a series of initiatives to strengthen the lead brands – Castrol GTX, Castrol Magnatec and Castrol Edge. A new television commercial (TVC) was launched to promote Castrol GTX, co-inciding with the ICC Cricket World Cup 2011. The TVC, starring Sachin Tendulkar, Castrol’s Brand Ambassador, was built around the brand proposition of ‘protection from sludge’. Castrol Edge, a fully synthetic engine oil was relaunched with Titanium Fluid Strength Technology and new variants introduced in a market which is rapidly moving towards synthetics. Castrol’s Industrial Business entered into a strategic alliance with ACE Micromatic Group – the largest CNC machine tool manufacturers in India. Castrol has historically strong and enduring partnerships with leading automotive OEMs and key off-road equipment manufacturers, globally and locally. This is mainly because of the superior technology and high service levels provided. With more global OEMs coming into India, this presents your Company with further partnership opportunities in 2012 and beyond. A 360 degree communication campaign was undertaken to refresh and rejuvenate Castrol CRB Turbo and bring alive its proposition of ‘Keeps your engine newer for longer’.
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c. Regional: Strategies devised as per regions, geographies, etc. •
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Castrol and BMW recently extended its global partnership to the Indian Business. It also is in a strategic partnership with Volkswagen and recently renewed its agreement with Volkswagen in India for another 3 years. Castrol conducts technology days at Tata Motors and Maruti Suzuki – India’s leading car manufacturers - to share new technologies in lubricants. Castrol Activ Confidence club is an online group which has 35000 users.
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Castrol is a main sponser of the World SuperBike Racing and has its own bikes racing for the title which attracts a lot of viewers. Its riders Jonathan Rea and Alex Lowes are very famous across the globe. In India, a country obsessed by cricket, Castrol’s Brand Ambassadors are Sachin Tendulkar – who has the greatest fan following in cricket and Brett Lee, who is a heartthrob of many females. These events took place during the ICC cricket world cup, 2011 which took place in India and was watched by almost all the Indians. Its various one line slogans like ‘Engine ko rakhe Naya’ or ‘Castrol CRT Plus ka Vaada, Engine ki Umar Jyaada’ are very popular amongst the youth. It launched a ‘Khushali’ offer for tractors promoting the brand message of ‘Protection leading to propserity’ in villages. Castrol has historically been associated with various sports sponsorships, as a means to connect with its target audience. Almost since the inception of the Company globally, Castrol has built a strong association with motorsport and with record breaking feats on land, sea and air. Castrol extended its global sponsorship activities to football in 2008 and your Company leveraged this association during the 2010 FIFA World Cup™ and will continue to do so. In October 2010, your Company became the Official Performance Partner of the International Cricket Council (ICC) for a period of five years, till the end of the 2015 ICC Cricket World Cup. In 2011, your Company leveraged this sponsorship to build a strong association with Cricket and Performance A state-of-the-art Customer Engagement Centre, set up in Mumbai in 2011, at the Castrol Technology Centre, continues to attract a steady flow of customers and consumers keen to learn more about your Company and its unique technology. The key benefits of the brand were brought alive through an on-ground activation program which directly reached out to almost 80,000 consumers and helped drive consumption through trials. The re-launch of Specialties range in last quarter of 2010 was followed by extensive field activation with key consumers – truckers and mechanics - in 2011. This resulted in volume gains, with coolants and greases both clocking substantial volume growth in the retail and workshop segments. A series of initiatives were undertaken during the year 2011 to strengthen the lead brands – Castrol Activ and Castrol Power1. Leveraging the euphoria around the ICC Cricket World Cup, a new TV campaign was launched for Castrol Activ, starring Castrol Brand Ambassador Sachin Tendulkar. The TVC promoted the key brand proposition of ‘superior all round protection’.
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Castrol Activ Scooter with Scootek technology was launched in a unique, convenient spout pack. The unique Scootek technology reduces engine friction by 24% and results in 30% reduction of heat in gearless scooters. The re-launch of Castrol Power1 by biking icon John Abraham and world Superbike riders Jonathan Rea and Alex Lowes, created a big stir in the Indian biking community. The new and improved Castrol Power1 has advanced power release formula for improved acceleration and better pickup. It runs Road safety programs all across India under its Banner and issues safe driver certificates, awards amongst the mass to increase road safety and its brand awareness.
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