Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Castrol India Ltd (BOM:500870, Financial) reported a 5% year-on-year increase in revenue for 2Q 2024, reaching INR1,398 crores.
- Profit before tax for 2Q 2024 rose by 3% year-on-year to INR314 crores.
- The company declared an interim dividend of INR3.5 per share, reflecting a 16.7% increase from the previous year's interim dividend.
- Castrol India Ltd (BOM:500870) launched three new variants of Castrol EDGE and expanded its Auto Care range, enhancing its product portfolio.
- The company inaugurated a state-of-the-art India Technology Center at Patalganga to boost innovation and development, including advanced testing capabilities for EVs.
Negative Points
- Despite the strong financial performance, the company faces uncertainties in the stabilization of input costs, which could impact future margins.
- The data center cooling fluids project is still in its early stages, making it difficult to predict potential revenue from this initiative.
- The company's pricing strategy maintains a premium over the market, which could limit its competitiveness in lower segments.
- There is a potential risk of reduced lubricant usage in EVs compared to ICE vehicles, which could impact future volumes.
- The company has not provided specific guidance on future dividend or bonus decisions, leaving shareholders uncertain about potential returns.
Q & A Highlights
Q: Just wanted to understand more on the data center. So you said the cooling fluids are ready. Just wanted to understand what is the status and what is the potential revenue that we should expect out of this?
A: I think, Sahil, there's a lot of interest around the data center, thermal management cooling fluids, et cetera. And I think there are right questions, but we are very early in this opportunity area. So I think where we are is we have a range of fluids that are relevant for data center thermal management as Castrol globally, we are setting up our R&D facility. It's in the process, we're investing INR500 crores in our R&D facility on thermal management of looking at the future. I think it's too early to talk any revenue. I think because a lot of work is happening with our partners, customers around testing, proof of concept, a lot more to come, but that's all I can say at the moment.
Q: Given it's [125 year] for Castrol globally and one to three year for Castrol in India and given our strong financial performance and cash reserves, can we expect a liberal bonus from the management in this financial year itself?
A: So thanks, Balaji. I think thanks for your interest. So first of all, any dividend decision, any bonus decisions, anything to do with rewarding shareholders is the Board decision. So I'm not the right person to comment on that. We do deliberate in the Board, and the Board will take the right decision and interest of shareholders. I think we've already announced an interim dividend of INR3.50 vis-Ã -vis 16.7% increase from what we had announced last year as interim dividend. And I think that is based on -- the Board was quite happy with the performance and the way the business is shaping up. But any future, its speculation will be a Board decision at the appropriate time.
Q: How is the business that we are looking at from the partnership that we have with TVS Automobile, the Ki Mobility that we picked up stake. How are we getting business? And what additional revenues can we expect going forward from that business?
A: Yes. I think our investment in Ki Mobility is a strategic investment. We're not a financial investor. I think it was a coming together of two brands, two trusted brands, I must say, TVS and Castrol to build up the aftermarket service and maintenance ecosystem. And I think the business is progressing well. Anything specific to Ki results, I guess you'll have to ask Ki Mobility people. But I think as far as we are concerned, we are seeing progress because there are various sources of value for us. They're expanding their network. And I think in the last two, three years, there's been a lot of learning in terms of what work and what doesn't work. And we discuss that with Ki, but good traction on network expansion. We sell our lubricants into their network. They sell their spare parts into our RWS network. We have a joint branded workshop concept. And I think they're expanding into more geographic areas. So more to come on that, but we are really happy with the progress that has been made.
Q: Just wanted to get your thoughts on two things, a, we have started spending on advertisement as a customer myself, my service center decides on what lubricant is going. And I have little or no choice, or maybe I don't even bother. So how do you think these advertisement spend will help you in when to take us, say, hiring the Shah Rukh Khan, et cetera?
A: The first question was around consumers, not deciding on the lubricant brand. I think there is all consumers that are there in the market. There are consumers who want to decide on the brand, who want to be fully aware of what product is going into their car engine or a two-wheeler engine, there's consumers who give this responsibility to the workshop owners, they trust in the workshop whatever their workshop recommend. So I think we work on all the fronts, we worked with the mechanic community also. We work with workshops to educate them on the quality of our products and the performance credentials and how our products is better value for money to be used in their vehicles. So in addition to advertising, we do a lot of work with the mechanical community with workshops. We cover about 28,000 two-wheelers workshops. We cover 9,500 car workshops. We have a network of 530 plus Castrol auto service. So it's a combination of everything that builds a strong business rather than just advertising on TV. But as a consumer, our intent is also to build awareness of our products like as Castrol EDGE is a new launch. It's top of the line products in our cars portfolio. We launched variance around hybrids. We've launched variants around XUVs. We've launched variants around European cars. So as consumers, when you see the advertisement, at least you have a positive mindset towards Castrol, okay? And then whatever the workshop recommends is something that we build through our training of mechanics, and we have the largest mechanic data set that we interact with. So that's how advertising works.
Q: Can you give the volume number?
A: So we did one -- we did 61 million liters in this quarter.
Q: So what should be equate to in tonnages, if that is possible?
A: We don't measure tonnage. We measure liters. I think there will be a fact of tonnage, but typically we measure -- we report our numbers or we measure in liters.
Q: How our pricing stand vis-Ã -vis competitors? So if you can make some qualitative comments, it will be highly useful.
A: First of all, we have a pricing strategy, okay, in terms of where we want to operate versus the market and versus our competition. We are a premium brand, and we want to maintain those premiums. So we operate a premium to market. But that being a sustained where there a lot of investment in technology, innovation, bringing new products to our customers and consumers and also supported with advertising. So I think that's what I can say, our pricing strategy will continue to be maintaining the premium that you want to command. At the same time, I think one change we've made over the last, if I can say, one to two years is we've also introduced products in lower segments, which cater to the mass segment or mass premium segment. So we launched products such as Activ ESSENTIAL. We've launched products CRB ESSENTIAL, which help us cater to consumers and customers who are not being serviced by Castrol.
Q: Sir, as we can observe that last couple of years, our focus has been improving on the volume side to generate a lot of volume. However, if I look at your last decade, like 2011 to '20
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
