Chief Financial Officer, Nayara Energy Limited
Will Castrol Growth Recover? | Deepesh Baxi, CFO And Wholetime Director, Castrol India
Lubricant brand Castrol India on Monday reported a net profit of Rs 189 crore in the fourth quarter ended December 31, almost unchanged from the year-ago period. Castrol follows the calendar year (January to December) for its financial reporting.Net profit in October-December 2020 was Rs 188 crore, the company said in a statement without assigning any reasons for the unchanged profitability. Revenue in Q4 2021 (October to December) rose 17 per cent to Rs 1,091 crore. "The company achieved this growth amidst a very challenging environment marked by an unprecedented rise in input costs and suppl...
Transcript (11 segments)
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Interviewer0:00
Welcome back, you're watching Buy Now, Sell Now. Time to turn to earnings now, and Castrol India is the counter that we're focusing in on. The company reported revenue of 1,190 crore rupees, that's a growth of 17% on a year-on-year basis. EBITDA came in at 188 crore rupees, more or less flat compared with a year ago period. You had margins that contracted about 3 percentage points. We're joined by the management: Deepesh Baxi, who's the chief financial officer and whole-time director of Castrol India. Thanks so much for taking the time. I do want to ask about something that relates to your margins, which is that you are seeing raw material price increases. Are you passing that on? Do we anticipate that the increase in crude oil prices is going to be passed on to consumers? Are you planning any price hikes in the first quarter of the calendar year?
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Deepesh Baxi0:55
We have a calendar year which is January to December, so the fourth quarter is the quarter that we are talking about, which is October to December. In this quarter, our revenues have gone up by 177% and profit before tax has gone up by 3%. We've also grown sequentially over the last quarter of the third quarter of 2021. You're right, there has been a sharp increase in the input costs and also there has been some softness in the demand, but we've tackled that through strategic pricing interventions and also introduction of various new products in this quarter. Going forward, crude is expected to give some headwinds; however, we do have a strategic pricing strategy in place, and we will respond as we see the changes in the crude environment.
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Interviewer1:51
Deepesh, speaking about the price hikes that you've taken till June of 2021, did they somewhat mitigate the rise in input costs? How much did they cover?
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Deepesh Baxi2:03
Yes, it did. Compared to last year fourth quarter and this year fourth quarter, the price of COGS — crude and base oil — has gone up by almost 60%, and we've covered almost the entire price increases when we took the price increase in June.
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Interviewer2:24
Well, Deepesh, there's Chery also joining in and talking about your quarter. Going by what exactly resulted in the dip in the margins in the quarter? If you look at the number, your margins have come in at around 24.4% versus 24.5% on a year-on-year basis. So what contributed to this dip?
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Deepesh Baxi2:45
Right, so I think there are a couple of reasons. Firstly, there has been softness in the demand. We have grown volumes but as you've seen the recent statistics coming out in terms of car sales, bike sales, tractor sales, there has been some softness. The second thing is that we always look at the premium against our competitors and support our brand through investments and resilience, so that kind of created headwinds. Forex is another aspect of our input cost and there has been variation in the forex as well; of course we do our hedging, but forex has moved in the fourth quarter as well.
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Interviewer3:32
Mr. Bakshi, let's dwell further into your Q4 numbers. Could you help us with the volume growth that you witnessed in the quarter gone by, and also along with that, if you could help us with the overall mix of your products?
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Deepesh Baxi3:47
Right, so the volume growth in the fourth quarter has been around 2%. In terms of the mix, out of the total volume we have about 15% in industrial and the rest of it is in automotive. Out of the automotive sector, almost 60% of that comes from our personal mobility, which is cars and bikes.
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Interviewer4:13
Just trying to understand the traction in the oil change service that you've started providing at the GOP outlets. Have you started covering all of the outlets? What's the response like?
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Deepesh Baxi4:31
Yeah, I think it's been a very good response. The GOP outlets are about 1,400 plus currently, and we supply oil to all the 1,400 outlets. The Express Oil Change currently are 25; we just started this three to four months ago and we have plans to ramp that up as well. Overall, it's been a very good response on the Express Oil Change. In addition to that, I would like to inform that we've also launched Castrol Auto Services. These are multi-branded workshops where you not only service vehicles but also change the oil, and we have about 100 of them by today. This is another thing we have taken in the market to strengthen our adjacencies portfolio in addition to our product brand portfolio.
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Interviewer5:25
All right, thank you so much for taking the time. Wish you all the best for the rest of the year as well.