CASTROLIND - Castrol India Ltd Share Price

In the 1Q FY 2025 earnings call for Castrol India Limited, management presented an optimistic outlook, highlighting strong financial performance and growth strategies. Revenue from operations reached INR 1,422 crores, marking a 7% increase year-on-year from INR 1,325 crores in 1Q 2024. Profit before tax was reported at INR 313 crores, also up by 7% compared to INR 292 crores last year, and profit after tax rose to INR 233 crores, an 8% increase from INR 216 crores in the same period.

Key forward-looking points from management include:

1. Product Innovation: The re-launch of Castrol Activ with a new formulation and marketing campaign, expected to enhance brand visibility and consumer engagement, particularly through partnerships with prominent figures like Shah Rukh Khan.
2. Expansion Plans: The network now includes approximately 148,000 outlets, with a strong focus on rural expansion, where they aim to capture more of the burgeoning market, especially in segments where over 50% of new 2-wheelers are sold.
3. Strategic Growth Areas: Investments in their chemical management services and enhancing visibility for industrial products. Progress in acquiring new customers through innovative products like the Rustilo DW 800 series and automotive solutions targeted at SUVs and commercial vehicles.
4. Cautious Optimism: The management maintains a cautiously optimistic outlook for the fiscal year, emphasizing continued focus on operational efficiency and delivering high-quality products while navigating macroeconomic challenges.

Overall, Castrol's management expressed confidence in their growth trajectory, fueled by strategic investments in brand awareness, rural outreach, and product innovation.

1. Question: "I just wanted to know if Castrol is developing any product with respect to the data center cooling environment. Do they have any product? And are they working in that area?"
   Answer: Yes, we've been actively engaging with data centers globally, developing coolants for immersive and direct-to-chip cooling technologies. Our products are being adopted by large data centers transitioning from ambient to coolant-based cooling. This segment is expected to grow, and while I cannot disclose specific customers yet, we are working diligently to establish these partnerships.

2. Question: "Can you provide some more color in terms of a breakup between your automotive and industrial segments? Can you help us get some more understanding around what volume is going towards mid-market segment products and rural areas?"
   Answer: In Q1 2025, we grew volumes by 8%, with the automotive segment contributing 85% of our business. Commercial vehicles and cars saw double-digit growth, while 2-wheelers had high single digits. Rural markets, especially for 2-wheelers, are crucial, with over 50% sold in rural areas, contributing significantly to our growth.

3. Question: "Why have EBITDA margins been slightly lowered, and can you explain the EV fluid process?"
   Answer: Our EBITDA margin is at the lower end of our guidance of 22-24%. We chose to invest in advertising and promotions, particularly with our new campaign featuring Shah Rukh Khan. Regarding EVs, they require specific fluids that last longer, and while they reduce the frequency of changes, we are positioned to adapt and provide relevant products for this market transition.

4. Question: "What are we doing in terms of strategy for the industrial part of the business, and where do we see it over the next 3 to 5 years?"
   Answer: We believe the industrial lubricants market will see substantial growth. Our strategy focuses on high-quality, technologically advanced products across various industries. While currently contributing 12-15% of our business, we aim to expand this segment by developing long-term partnerships and specializing in key industrial applications.

5. Question: "Could you help us understand the impact of recent crude oil price corrections on your financials?"
   Answer: Crude oil prices have a low correlation to base oil prices due to limited refinery numbers and forward stock levels. Despite crude prices being stable at around $70 per barrel, we anticipate our costs of goods sold (COGS) will remain relatively stable, influenced also by foreign exchange rates. Overall, our profitability will not see significant fluctuations directly tied to crude oil price corrections.