"Castrol India Limited
4Q and Full Year 2022 Earnings Conference Call"
February 13, 2023
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
February 13, 2023
Moderator: Ladies and gentlemen, welcome to our 4Q and Full Year 2022 Earnings Conference Call for Castrol India Limited. Please note that all participant lines will be in the listen-only mode and can ask your questions after the opening statement. If you need assistance during the call, please press star then zero on your touchtone phone to reach the operator. We have with us Mr. Sandeep Sangwan: Managing Director of Castrol India Limited; and Mr. Deepesh Baxi CFO and Whole- time Director of Castrol India Limited.
I now hand over the conference to Mr. Sangwan. Thank you, and over to you, sir.
Sandeep Sangwan: Thanks. Good evening, everyone. I hope you can hear me clearly. And thank you for attending Castrol India's Fourth Quarter '22 Earnings Call. My sincere gratitude to you for taking out time and joining us at this hour. Due to some key business meetings, which are unavoidable, we had to schedule this call today in the evening instead of market hours on the next day, which has been our usual practice. Both I and Deepesh are joining you straight after our fourth quarter Board meeting. We've just disseminated our annual and fourth quarter results a few minutes back.
We are pleased to share that Castrol India Limited has delivered a resilient performance in the fourth quarter and full year ended 31st December '22. I would like to highlight that Castrol India follows the Jan to December calendar year for its financial reporting. Our fourth quarter '22 performance was in the backdrop of extreme forex and inflationary pressures arising from volatile crude oil prices, leading to rising costs of additives and base oil.
To safeguard our margins and deliver bottom line growth, we employed rigorous pricing and cost management decisions. The inflationary and forex pressures are likely to continue in '23, although we started to see some softening in base oil and crude prices. But our topmost priority will be to continue driving growth, protecting our margins, making our employees and business future-ready and strengthening Castrol's enduring legacy of innovative brands and reliable services with our customers and consumers.
To begin, I invite Deepesh to take you through our fourth quarter numbers and financial performance in detail. Deepesh, over to you.
Deepesh Baxi: Thanks, Sandeep, and good evening to all of you. I would also like to thank you for joining us at this hour and for your continuous engagement with Castrol India. Today, we announced our 4Q and full year results for 2022. Let me share some key financial highlights. In the fourth quarter of 2022, we have reported a strong financial performance. Our revenue from operations was INR 1,176 crores, which was up 8% compared to INR 1,091 crores in 4Q 2021. This is also 9.6% above the sequential quarter of 3Q 2022.
Our profit before tax was INR 248 crores. This was lower by 3% compared to 4Q 2021 and lower by 2.4% in the sequential quarter 3Q 2022. With our 4Q 2022 results, we have also recorded INR 4,774 crores as our annual revenue from operations for 2022. This is a growth of 14% compared to INR 4,192 crores in 2021. Profit before exceptional items and tax stood at INR 1,093 crores, marking a growth of 6% from INR 1,029 crores in 2021.
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Castrol India Limited
February 13, 2023
In addition to an interim dividend of INR 3 per equity share, the company's Board of Directors in the meeting held today have recommended a final dividend of INR 3.5 per equity share each for the financial year 2022. Of course, this would be subject to shareholders' approval. This INR
3.5 was compared to last year INR 0.50 higher dividend. Overall, we remain confident of our strong business fundamentals and long-term profitable growth in India.
I would now like to hand over the call back to Sandeep. | |
Sandeep Sangwan: | Thanks, Deepesh. Apart from financial performance, I would like to draw your attention to some |
key business developments of Castrol India. In November '22, we announced a partnership with | |
Ki Mobility Solutions, or KMS, to leverage each other's strength and expand India's automotive | |
aftermarket ecosystem via myTVS, KMS' digitally integrated multi-brand service platform for | |
2 and 4 wheelers. | |
The all-cash deal included an INR 487 crores investment by Castrol India and acquisition of | |
about a 7% stake in Ki Mobility Solutions, and this transaction was completed in January '23. | |
With this strategic investment, we aim to expand our presence in service and maintenance for | |
both internal combustion engine and electric vehicles and leverage myTVS' digital and | |
operational capabilities. This alliance will also offer potential for Castrol and Ki Mobility | |
Solutions to collaborate and partner in select markets beyond India. | |
Castrol's future-ready strategy focuses on an enhanced play in service and maintenance and a | |
foray into new segments, including automotive aftercare and electric mobility. In fourth quarter | |
'22, we expanded our service and maintenance network with 230 Castrol Auto Service centers, | |
about 5,000 Castrol Bike Points and 40-plus Castrol Express Oil Change outlets across India. | |
With the EV space evolving rapidly in '22, we supported 200 top-tier car and bike mechanics in | |
Delhi and Chennai with our Automotive Skills Development Council certified EV readiness | |
training. This year, we plan to extend our training to mechanics in other cities across India and | |
help create an ecosystem enabled to serve EVs better. In '23, we will also launch our Castrol ON | |
range of EV fluids for the aftermarket and collaborate with 2-wheeler and 4-wheeler OEMs to | |
support their EV transition. | |
On the brand side, Castrol Activ is one of our leading premium engine oil brand that is trusted | |
by consumers. In fourth quarter '22, we launched a new marketing campaign, | |
CompromiseMehngaPadega, for Castrol Activ, demonstrating Activ's superior protection for | |
bike engines and how it shields bike owners from expenses related to engine breakdown. | |
Health, safety, security and compliance are some of the key pillars on which we operate our | |
business. I'm pleased to share that Castrol India was authorized by the Directorate of | |
International Customs as an Economic Moderator: Tier 2 certified organization in recognition | |
of the high safety, security and compliance standards demonstrated by us. | |
On that positive note, I'd like to thank you for your attention and would like to open the session | |
for your questions, feedback and views. Thank you. | |
Moderator: | The first question is from the line of Bharat Sheth from Quest Investment Advisors. |
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Castrol India Limited | |
February 13, 2023 | |
Bharat Sheth: | If I look at full year number, is it fair understanding that the larger -- see, top line has grew |
almost 13%, 15%. So large part of the growth has come because of price or volume, both? And | |
second, on core business, we were working on to enter into CV mark -- CV, OEM and so what | |
is the status of that? I have a second question, I'll come back in queue. | |
Sandeep Sangwan: | Yes. So I can take that. I think you're right, the top line growth has largely been driven by pricing, |
but there is volume also in. So our volumes have grown versus '21. And in fact, if I take the pre- | |
pandemic normal year 2019 also versus that we've grown our volumes. But given that it was | |
such an inflationary environment where cost increases are hitting us month after month, | |
especially during the first 9 months, the priority was to balance margin protection and volume. | |
And I think we've managed that very well, delivering a bottom line growth of about 8%. So that's | |
the first bit. | |
I think as far as commercial vehicles are concerned, your second part of question, we play very | |
actively in the commercial vehicle segment, okay? We have some OEM relationships that we | |
have established. And I think our strategy is to continue to be a premium branded player, which | |
will continue to grow and support our commercial vehicles category with innovations with new | |
products. So for example, all our products are BS-VI compliant. We also introduced a product | |
which is relevant for one of the large OEMs and CVO market. So we'll continue participating in | |
the commercial vehicle segment. | |
Bharat Sheth: | I mean taking forward to your first answer, is it possible to give some kind of a broadly volume |
and value growth, if you can, I mean, how much is because of the volume and how much is the | |
pricing? And currently, what is CV contribution in our overall business? | |
Sandeep Sangwan: | Yes. So commercial vehicles contribute to about, let's say, about between 25% to 30% of our |
business from a margin perspective, the volume contribution is much higher because margins | |
are better in personal mobility sector. And I think on volume and turnover road, Deepesh, do | |
you want to take that question? | |
Deepesh Baxi: | So I think on a full year basis, we have grown volume from 208 million liters to about 210 |
million liters. What we have -- as Sandeep explained, a hit by is the cost inputs increase, and | |
that increase on a full year basis is almost by 20% on a per liter basis. And that is what we have | |
tried to recover during the year through pricing intervention. | |
Moderator: | We'll take the next question from the line of Hemal, an individual investor. |
Hemal: | Just want to clarify, so just based on that the October-December volume would be around 48 |
million approximately, is that accurate? | |
Sandeep Sangwan: | Yes, that's right. |
Hemal: | But are there like a 10% volume decline year-over-year. Is that also accurate or? |
Sandeep Sangwan: | No, that won't be accurate. I think the volume decline only in the fourth quarter, I would say, is |
in the range of 4% to 5%. |
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Castrol India Limited | |
February 13, 2023 | |
Hemal: | 4% to 5%. Okay. The other part of the opening remarks was that the base oil price seems to be |
stable, but the additives price costs have continued to increase. So have you taken any -- are you | |
continuing to take any price rise going forward in January, February? Or do you think the price | |
rises have now peaked is what -- like if you can throw some light on the reality of the competitive | |
market space that you're playing because the EBITDA margin obviously suffers because of that? | |
So is price rise a further possibility in our business going forward? | |
Sandeep Sangwan: | So let me answer that question. First of all, I think in the year 2022, given the strength of our |
brand of Castrol and Indian tractor consumers put in our brand, we've been able to protect our | |
per liter margin. So that's the first kind of fact I love to put on the table. And as I said in the | |
beginning, our intention was to protect our margins and balance our volumes. | |
Coming to the cost pressures on additives, I think cost is a combination of multitude of factors. | |
There's base oil, there's additive, there's forex involved. And we have a pricing strategy, which | |
we adhere to, and we are a premium branded player. Now depending on where the cost | |
environment is, we will take pricing actions in line with our strategy, but our intent is to continue | |
delivering value to our consumers and customers. So I cannot say for a definitive answer, then | |
further price increases decreases, I think we'll continue monitoring the environment. As we've | |
done in '22 and take appropriate pricing actions that help grow the business, but also deliver | |
value to our consumer and customers. | |
Moderator: | The next question is from the line of Abhijeet Bora from Sharekhan by BNP Paribas. |
Abhijeet Bora: | I missed upon the annual volume number. Can you just share it again? |
Sandeep Sangwan: | Annual volume is 210 million liters. |
Moderator: | The next question is from the line of Douglas Turnbull from Invesco. |
Douglas Turnbull: | My first question is just I wonder if we could get a bit more of your expectations for the coming |
year in terms of -- I know you've already commented on price, but it really depends on the cost | |
case. But in terms of your volume growth expectations and how you see that sort of balanced | |
against the ability to regain some of the margins that we have lost over the course of this year? | |
That would be my first question. We just be some more forward-looking colour coming year, | |
please. | |
Sandeep Sangwan: | Yes. So Douglas, thanks for your question. So I think the way I would like to share the answer |
with you is the lubes category, we project will grow at about 4% next year, okay? And there will | |
be differential rates of growth amongst personal mobility, commercial vehicle, but overall, the | |
market should grow at about 4%, that's our projection. And typically, we want to grow ahead of | |
the market. So you can hope a couple of percentage ahead of the market. So that's what our intent | |
is, okay? But we'll also have to see how the environment plays out. | |
And the second is from a margin perspective, I think as I said in my answer to the previous | |
question, we've been able to, given the strength of our brand holdout per liter gross margin level | |
and intent would be to continue making sure that we are holding those margins or improving | |
those margins, that's what our intent is. | |
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Castrol India Ltd. published this content on 20 February 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 February 2023 06:09:01 UTC.