“If you track our performance over the decades, westood the test of time, which gives us the confidence that we are constantly onour toes and defining the future,” says JayantaChatterjee, Wholetime Director – Supply Chain, Castrol India Ltd. Thecompany has been shaping the Indian lubricant industry for over one hundredyears, offering innovative products to the Indian consumer. Castrol, today,offers superior pricing power in the lubricants market due to a strong brandpull, besides a well established distribution network to monetise the brand.The company has access to global technology innovations and managementexperience. So, just how ready is Castrol India for the future? Shashidhar V finds out.

“If you see, technology, availability, andrelationships, have been the three broad areas which have helped us to maintainthat premium and brand positioning.”

How do you seethe market for lubricants shaping up?

The lubricants market, as we look at it, is growing by3-4 per cent. That is our general estimate. And, within that, again, there aredifferent areas, like whether it is on the personal mobility, which is like thepassenger cars, or the two-wheelers, and then there is the commercial vehicles,and industrial, and heavy duty. And, Castrol in India being around 110 years,we are present in all the sectors. But, by and large, what we see is that themarket, on average, is growing by 3-4 per cent.

For us, market is not the entire lubricants what isavailable. We choose, in all these areas, where we want to play. And, clearly, weare not in some of those areas, such as tendering business. We definitely stayaway from that. And, so, for us, the market is in terms of how we look intoprofitability and how we look into the long term sustenance in those marketsand, accordingly, we plan our presence in those.

When you saythe market is growing by 3-4 per cent growth, you are referring to the industrygrowth.

That is correct.

What has beenyour growth?

We have been growing, over the last few years, involume terms and not just the financials, more than the market. So, if themarket is growing at 3-4 per cent, our volume growth has been close to five percent. Keep in mind that this is volume growth, and not the value growth.

We are constantly looking for opportunities to grow.But, when we say growth, for us, it is also profitable growth, because Castrol,as you can see from our results, has high return on sales. And, in this rangeof select 20-30 per cent what we maintain is not that easy to maintain in sucha competitive market.

And, the growthfigure that you mention cuts across your offerings?

Yes. And, within which, again, there aredifferentiated growth rates. So, if I were to look at the personal mobilitysegment, the growth rate may be much higher than, say, commercial vehicles.

The personalmobility market is under stress presently. So, do you see that impacting yourgrowth going forward?

No. This stress, in my opinion, is a short-term blip. IfI see how it has panned out in the past, and how we see the future, we aredefinitely optimistic about the personal mobility segment, both in thepassenger cars business as well as 2-wheelers. And, we have consistently seen higherthan our average growth rate in these areas.

The market iscrowded, with both local and international players, offering innovative,well-researched solutions. How would Castrol differentiate itself in such a market?

Castrol is a premium brand, and we have maintainedthis position over the past century. And, India was the second market after UK.So, that has helped us. What has happened over this time is that we haveestablished the strength of the brand in the country. And, one other importantthing that we worked upon is how to make ourselves available across thecountry. I think these are the two big points that has worked in our favour. And,third, I would say, would be in terms of advocacy of different consumers.

If you walk into any of the shops where Castrol issold, it would be at least 15-25 per cent in terms of the price premium incomparison to the rest of the brands or products available there. Again, thathas not been easy.

So, what we have done is constantly looked into technology,because that has been one of our core strengths to have allowed us to bring innew products and constantly innovate.

And, the other area has been in terms of therelationships with our OEMs, with our various consumers and customers. So, Ithink if I look into, from that perspective, technology, availability, andrelationships, have been the three broad areas which have helped us to maintainthat premium and brand positioning.

How is Castrolpositioned for the transition that will be made to BSVI going forward?

We are in a position of advantage because we are amultinational company. And, so, Euro VI in other parts of the world is in placeand we already have the product portfolio. We have the formulations, and weknow what the products are. And, in India, it would not be difficult for us tobring in these products once the OEMs are ready for it.

And, we are also constantly working with the OEMs,because there is a lot in the engine technology and in the emissions what theyare working on. So, we would be ready for it. I don’t think that would be anissue at all.

Where does the Silavassaexpansion plan fit into this?

We have three plants in the country, and Silvassa is astate-of-the-art lubricants plant. And, it is a plant which caters to our OEMrequirements, the B2B requirements. It is a plant which services leading brandslike JCB, Mahindra, Maruti Suzuki, and Ford, to name a few.

The Silvassa plant is also where we have a pilotfacility where OEMs can co-create products with us. OEMs also audit the plant.It is also a plant which received the Q1 certification from Ford, which is aQuality 1 certification. And, we are the only lubes plant in India to get thatcertification. And, not just in India, but in the entire Castrol world, we havegot this. It is very prestigious for us.

So, Silvassa plant, in that sense, caters more to theOEMs, the B2B business.

What is thecapacity of that plant?

We have a capacity of 80mn ltrs. of blending as ofnow, and we are expanding it by another 50 per cent. So, we will add another40mn ltrs. of blending capacity in Silvassa.

In other words,the utilisation is to its full capacity.

Such a capital investment decision is only possible whenwe are absolutely certain about the capacity utilisation. And, what we find isthat we have to invest now in the plant. And, when we are investing, we arealso looking into newer technologies and newer blending processes. So, we arebringing in the inline blending technology over there, which gives us thecapability or facility to blend thinner oils, to blend much more flexibleblending operations.

Moreover, we will have smaller batch cycles. And, whatwe are also investing in is in filling for the small pack, which would be in linewith our personal mobility business ambitions that we have.

What aboutGreen Energy?

One is we constantly look at our products to see howwe can make them more efficient. That is one approach we have. And, we havequite a few products which give better efficiencies. Second approach to it isthat we have redefined base oil used in a few of our products. Again, we lookinto it in terms of the population, and the specs, and what our claims are, andhow it is meeting those claims.

Third, we constantly look into our overall operationsand see to it how we can reduce our energy consumptions. These are the threeareas presently how we are going green.

Longer drainintervals is, normally, bad for business.

If you look at it simplistically, it is bad for business.From a volume perspective, it is bad. Consumption comes down. But, what it alsomeans is that it helps us to play on the value field, because you would requirethinner oils as you move into those longer drain interval oils. You wouldrequire products which are more premium in nature.

So, in the sense from a value perspective, we don’tsee any disadvantage. Only when you look at the single index of volume, it isobviously disadvantageous.

So, the products that we have, we constantly look howwe can offer our consumer something better, and this brings us to the point ofinnovation – how we can bring value to the consumer. And, that is what willdraw a consumer to buy or prefer Castrol.

But, the factis that Indian consumers lack awareness when it comes to lubricants. One isjust as good as the rest in the market. So, how are you addressing this issueto make sure that customers are using Castrol?

See, Castrol being in the country for such a long timehas made it a brand with high recall. What is important is to convert thatbrand recall, or brand recognition, to actual business. And, in that process,there are quite a few areas that we work on.

One is in the workshops. We work very closely withindependent workshops. That is one of our strategic channels that we focus on,and will continue going forward.

Then, we are also working with the OEMs. And, we alsohave franchisee workshops where Castrol is a product that is endorsed by theOEMs and is available in the OEM workshops.

Then, there is the retail consumer. So, we make surethat we have our relationships with the distributors and the retail network.

If you look atit, all that you are doing is exactly what your competitors are doing as well.So, how would you ensure that a customer goes for Castrol over yourcompetitor’s product so that you grow over your competitors?

I think the way we grow, there is personal mobilitywhere we are growing, and that is an important focus area for us. And, inthere, we do various relationship building activities with mechanics. We alsoshare with them the technical superiority of our products.

And, if I go to the market and the work which we do inthe market in terms of gaining mechanic advocacy or helping the mechanics tounderstand our products – and, this is also something which our competition isdoing as well – is something which Castrol started. So, it only shows what weare doing it right.

But, then, we constantly keep innovating on that. Wespend a lot of time in terms of helping people understand how Castrol brings intechnological differences. And, that is something that we constantly work withour technology team and our technical services team, to make sure that ourmechanics and the people who are using our products understand the benefit webring.

What are yourpresent retail touch points?

We are close to a lakh and fifty thousand. See, almostevery one stocks Castrol. So, it becomes difficult to get the exact numbers onthis. Availability is one of our core areas of distribution success. And,through our distributor network, and also through the rural market, we makesure we are present over there in those areas.

So, what is thegrowth in distribution that you have seen over the past few years?

We have been growing on this front. It is not aboutgrowth from the perspective of having to bring in a new counter. That is not ameasure of growth for us. What we look into is what is the volume that we aredoing in each of the counters that we are present in, and what is the growththere. So, technically, any company can show growth by just increasing theirtouch points. But, if you don’t get the business out of the outfits, it justdoesn’t reflect the true story.

So, what we have is we have a weekly productivity ofsales which we measure, which is essentially the distributor to the dealers asit is going, and what sort of stocks are moving, and what sort of lines arebeing sold. That, in my opinion, is a very detailed sales analysis which weundertake.

And, we have information flowing in from the retailoutfit to the distributor and to the company to replenish exhausted stock. So,it gives us a better picture of which product is being sold, at which outlet,etc. And, that gives us a better measure of our growth.

As a company,you use a lot of technology to understand your customers, their needs, therequirements at your retailers, etc., which generates a whole lot of data. Howare you using this data generated to make better products for your customers,and to enhance their experience, and purchase decision?

There are 2-3 ways in which we look into productrequirements. One, is clearly working with the OEMs, because that is where wecome to know the changes in the engine technology that is happening, etc. Welook at this from a global scale and, then, we zoom into various countries andgeographies. So, one part of the product requirement comes out of the changesin technology on the engine, etc.

The market feedback too helps us in terms of the packshapes and sizes, because many of the times, that is what we get out of themarket requirements. For example, we have come with a six litre pack aimed atthe SUV market, which was not available earlier. And, this is something whichwe found out was a genuine requirement in the market. Prior to this, we alwayshad five litre and one litre packs. But, when the SUV business started growingto substantial numbers, we realised that we cannot continue with just these twooptions. So, this information (to introduce the six litre pack) we got from thedata that we analysed, the feedback that we got for our dealers.

Can you take methrough your research and development in India and how does that contribute tothe global development?

We have our biggest R&D centre in the UK. Besidesthat, we have our technology centres in China, Japan, and one in India, and inGermany, and some other places. All of them play a very critical role in termsof understanding not only from new products development but also understandingfrom applications.

Again, I will not limit it to automotive only. We alsohave industrial applications. The German technology centre, for instance, isessentially for the industrial business.

So, we use the global scale, and what we are alsofocusing a lot on making the formulations such that...at times, we have hadvariations in the formulations based on the availability of the raw material,etc. We are now making standardised formulations. And, that helps us from abusiness continuity perspective.

If I have an issue, I can get the material fromanother country. So, we are also trying to see how we can standardise our packsizes, pack shapes, so that we can feed the market from anywhere.

Silvassa has a quality deployment laboratory. It is anintegrated lab where we have both the technology teams and the blending qualitypersonnel working together. It is unique and something that you normally don’tfind in any of the lubricant plants.

We also have a pilot blending facility in Silvassa,where we can do a pilot scale, which is bigger than a lab scale but lower thana commercial scale production.

Are there anyproducts that you have developed locally and are now marketed globally?

Yes. If you look at the 2-wheeler market, it ispredominantly an Asian market. It is not that large outside of Asia. So, theCastrol Activ, for example, was developed in India, and is now available acrossthe world, wherever there is a requirement. So, the 2-wheeler developmentlargely happens in India, but some work also takes place outside of thecountry.

To what extentis your export market?

It is limited. I say this because what we produce inthe country is enough for the demand in this country itself. And, also, we haveplants around Asian countries, like in Thailand, Vietnam, Malaysia, Singapore,etc. So, it is not that we import a lot, or export a lot. It is more likecatering to the domestic requirements that we have here.

From yourperspective, what are the pain points?

From a supply chain perspective, one for us is, as weare seeing all these different types of consumer requirements coming up, it leadsto a lot of changeovers in the production lines. Ideally, we feel that if wecan run the production line with one product for two days, you get the maximum operationalefficiency. But, given the needs of the consumers, given the requirements, wedo a lot of changeovers.

And, we are also introducing new products. So, thatbrings in certain amount of manufacturing complexity.

Having said that, we feel that it is a good complexityto have, because it allows us to give the customer different types of productsas they require. That is why, even when we are investing, we are looking at theblending facility, inline blending which allows us to have smaller pack sizes,but with quicker batch cycle times. So, what we understand is that it is not asmuch of a pain point; it is an opportunity.

How wouldelectric vehicles coming in impact Castrol?

It will definitely impact us. The point is that we arepart of BP, which does very detailed study on the economic outlook, and theenergy outlook. And, what we believe is that it is something that will happenin the future, and will take time.

How positiveare you about the future?

In Castrol, we are constantly looking into thecompetitive scenario, and making sure that we are ready for it, and that we areleading it! And, that is the way that Castrol has always operated, both inIndia and globally. We have the five year strategy which helps us to look intoeach of those areas where we need to focus on and how we will do our business.

I am very optimistic in terms of where we are, andgiven what we have seen and how we have grown over the last few years, and howwe are positioned at this point in time, if you look from the perspective ofthe product, the technology, and the availability in the market, we are verywell placed. But, we constantly look into where the opportunities forimprovement are, because being the market leader, it is important for us to beguarding against any complacency which sets in.

Every player would like to get a share of the marketout of the leader. That happens in every product category, every sector. So, weneed to be certain about it that we are clear about what we want to do. But, Ican only tell you that given what we see, the way we are, and the capabilitiesthat we have in this organisation, I am very hopeful.

Five years, tomy mind, seems a bit too long a period considering the pace at which economiesare rapidly changing course, and technology is changing by the day. So, isn’t afive year strategy too long a period?

See, we are flexible. And, at the same time, you needto have a plan. You cannot be jumping from one to the other, because when westrategise, we really make sure that we address every consideration. Assumptionsare very robust. So, it doesn’t mean that everything works. We are againrelooking at it. So, we have a strategy, but we revisit it every year.

Take, for instance, the capacity investment that wehave done at Silvassa. It is something that has come about after many deliberationsand strategising. We looked at it to understand the right capacities that weneed to bring in. Similarly, about technologies.

So, we are constantly looking at how we can be moreefficient and agile, while at the same time, we need to be clear about what ourlong-term strategic directions are. If we don’t have the right balance of both,then we would be jumping from one to the other, which might not be the best wayforward.

Castrol SuperMechanic Contest:

The company runs a contest for mechanics across thecountry where three mechanics in Passenger cars and three mechanics in2-wheelers are chosen to get a chance to represent India at a country level inthe Asia Pacific region.

USE IN SIDEBAR:

The Silvassa brownfield expansion project is to becompleted and be fully operational by 2020.

Total investment in the project: INR140-crores.

Castrol India: Part of BP Group.

Countries ofOperation: 70

Number ofEmployees: 74,000

Sales &other Operating Revenues: $240-bn (Castrol Group).

200 mnconsumers.

500,000customers.

7,500 people.

120 Countries

25 blend plants

7 TechnologyCentres

Castrol India:

-         110 years in India.

-         700+ employees.

-         3 blend plants.

-         5 offices.

-         350 distributors servicing 150,000 retail outlets.

-         Third largest business in BP lubricants worldwide.

-         Market capitalisation: INR149-bn (as on 07/01/2019).

Some of theleading OEMs:

-         Bosch

-         JCB

-         L&T Construction & Mining Machinery

-         CAT

-         Tata Steel

-         Volvo

-         Mahindra

-         Volkswagen

-         ZF