Castrol India Limited (500870) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to our 2Q and 1H Earnings Conference Call for Castrol India Limited. [Operator Instructions] Also please note that this conference call may contain forward-looking statements, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. We have with us today Mr. Saugata Basuray, Managing Director, Castrol India Limited, and Ms. Mrinalini Srinivasan, Chief Financial Officer, Castrol India Limited. I now hand the conference over to Mr. Basuray. Thank you, and over to you, sir.

Thank you, and good afternoon and Namaste to everyone. Thank you for joining Castrol India's analyst call for the second quarter and first half year ended 30th June 2026. As a reminder, we follow the calendar year for financial reporting. I'm joined today by my colleague Ms. Mrinalini Srinivasan, our Chief Financial Officer and Whole-time Director. Moving into the commentary for the quarter, we delivered another strong quarter with broad-based growth across our consumer, industrial, and institutional business. And this is in context of a very volatile operating environment marked by supply disruptions and commodity cost inflation. The performance reflects disciplined execution, the strength of our brands and the portfolio that we have, effective pricing and cost management, and the agility of our global sourcing network, which has really played out in this quarter. Our resilient supply chain and disciplined inventory planning helped us maintain uninterrupted customer supplies while balancing growth and margins. We also continue to invest behind our brands, innovate on distribution, customer relationships, and operational excellence, which strengthens both current performance as well as our long-term growth foundations. Let me highlight five areas that defined the quarter: broad-based growth; our consumer, industrial, and institutional business all performed well. In personal mobility, our power brand grew ahead of the rest of the business, supporting a healthier portfolio mix and demonstrating consumers' preference for high-performance lubricants. The industrial growth was supported by advanced solutions, reliable supplies, and an expansion in customer base. The second big theme for the quarter has been expanded reach. We maintain a national footprint of approximately 160,000 outlets. We expanded availability of our auto care range to 40,000 outlets and strengthened our service ecosystem with 34,000 independent motorcycle workshops and 16,000 car workshops. The Castrol-branded auto service, CAS, is now 850 strong. Our rural distribution continues to expand. We are now at about 45,000 outlets, and on that, we have also added -- we are now at 950 rural service express, which cater to bikes. The rural business continues to grow at double digits. We also sharpened execution in key urban clusters to strengthen our premium passenger car portfolio business. The third theme is innovation and localization. We expanded our fully synthetic range. We introduced premium variants in Castrol Activ. It's called Castrol Activ Synthetic 10W-30 and 5W-30 visco metrics. We upgraded GTX 5W-30 to a fully synthetic product positioning, and introduced a full synthetic under GTX 0W-20. These are all focused on modern engines. We also advanced localization in our industrial portfolio by introducing Alusol SL 61 XBB. This is a specialized coolant used for demanding industrial applications. The third theme is brand and consumer engagement. So with Castrol Activ Fully Synthetic campaign, on the back of introduction of the products, we reached over 150 million consumers. Our other premium brand in the motorcycle portfolio, POWER1, in POWER1, we have engaged with 10,000 bikers and strengthened our performance credentials for the brand, and that has played out as well in this quarter. Safety continues to be the bedrock of our performance and the way we work. Our Paharpur plant completed 9 years, and Silvassa 3 years, without any significant recordable incident. Silvassa plant also received the NAMC Gold Award, and Castrol India received a Special Jury Award for championing sustainable procurement practices. These actions reinforce our strategy, which is to broaden our distribution reach, focus on urban clusters to premiumize our portfolio, go deep into rural markets to tap into demand for motorcycle products, especially in agri, and build a strong services-led ecosystem, and we talked about our CAS network in that context. We continue to see meaningful headroom for growth in rural India. At the same time, we are also building capabilities for specialized EV fluids and working closely with OEMs, while recognizing that internal combustion engines and hybrids will remain the dominant part of India's vehicle park for the next many years. With that, I will hand over to my colleague Mrinalini to take you through the financial performance, the drivers of the quarter, and our perspective on the outlook for the rest of the year. Mrinalini, over to you.

Thank you, Saugata, and good afternoon, everyone. For the second quarter of FY '26, revenue from operations was INR 1,871 crores. This is 25% up on a year-on-year basis and 21% sequentially. EBITDA for the quarter was INR 494 crores, an increase of 41% year-on-year and 41% sequentially. Profit after tax was INR 348 crores, up 43% year-on-year and 44% sequentially. For the first half, revenue was INR 3,417 crores, up 17% year-on-year. EBITDA was INR 823 crores, up 25%. Profit after tax was INR 590 crores, up 24%. This translates to an EBITDA margin of approximately 26% for the quarter and 24% for the first half. The performance was driven by broad-based volume growth, pricing action, portfolio premiumization, and prudent cost management. Our global sourcing network, diversified supplier base, and disciplined inventory planning cushioned the initial impact of the supply disruptions and commodity volatility, enabling reliable customer service and strong operating leverage. We began to see the anticipated increases in cost a bit delayed, but towards the end of the quarter. We, therefore, expect the impact of commodity and feedstock inflation to become more visible in the third quarter. We will continue to monitor costs, pricing, customer sentiment, and demand closely, balancing near-term prudence with continued investment into our brands, distribution, innovation, and customer proposition. The Board this quarter has declared an interim dividend of INR 6.25 per share, which will be payable on or before 2nd September 2026. This reflects the resilience of our business and our ability to continue generating healthy cash flow. With this, we bring forward cash into the hands of our shareholders while maintaining our disciplined capital allocation philosophies. Looking ahead, we remain cautious given higher inflationary pressures, uneven monsoon conditions, and continued volatility in key commodities. Our focus remains on disciplined execution, careful cost management, resilient supply, and sustained investment in long-term competencies. Thank you, and I will hand back to Saugata for his closing remarks. Saugata, over to you.

Thank you, Lini. And with that, we are open to questions from the people on the call.

[Operator Instructions] First question is from the line of Devansh Jain from Neo Wealth Management.

Am I audible?

Yes, sir. Go ahead.

Yes.

Yes. Sir, I wanted to know when can we expect the open offer to conclude? There are so many approvals that are pending. What is the expected timeline?

Maybe let me take that, Devansh, if I got your name correct. For the rest of the audience, Devansh is referring to the transaction which is currently underway. BP announced as a part of its strategic review that they would divest 65% share of the global Castrol company, and Stonepeak emerged as the lead bidder. The transaction currently is progressing well, and Stonepeak is in the process of getting the right licenses and operating methods across the entire country, across the entire world, which is many countries. Such deals take time, and we will have to wait for the first deal closure statement to come as per compliance. As soon as the deal is closed, you will expect a notification from the company to SEBI as well as to the shareholders. Following that, there are certain timelines that are prescribed after which the open offer will go live.

Any expectations on the timelines?

No, Mr. Jain. As I said, the deal is rather large, and it goes beyond India. It goes to many other markets in many other countries. I think we will have to wait for the deal closure to happen and a formal communication to come your way.

[Operator Instructions] Next question is from the line of Dhaval Popat from Choice International Limited.

Yes, sir. As far as the overall revenue growth is concerned, yes, there is strong growth. Is it possible for you to break down on volume or pricing? I understand you have guided for 2x the market growth. Is it safe to assume that there would be 8% volume growth, or there was broadly volume growth and lesser pricing growth? That's my first question. Second question on Silvassa plant. There have been a flood-like situation, and some of the other manufacturers have reported some kind of damage. Just wanted to understand the utilization levels at Silvassa plant for Castrol. These are my first two questions.

Right. Okay. I'll answer your question, and then maybe Mrinalini might want to join. On the second question first, which is on Silvassa plant, yes, you're right. Earlier in July, which is after the close of second quarter, there were a couple of days where there was very heavy rainfall in Silvassa. We had ceased operation of our plant at that point in time, in the interest of safety. But I'm pleased to say that the plant is fully back up. We have a business continuity plan which kicked in, and operating levels of the plant are at the same peak level as it was in quarter two and earlier this year. As of now, no impact on the plant. That's on your second question. Your first question, I think broad-based growth, we maintain the range of 2x the market growth. We are in that range. Different parts of our portfolio have grown at different levels. In the quarter, which is the April to June quarter, we have taken pricing action, which are in low double digit. With that, there are 2 price increases that we have implemented this year, January to June, in context of the supply chain volatility as well as inflation that we are seeing. There is a broad-based volume growth across our three businesses. In the consumer business, a lot of it coming from our rural operations and premiumization of the portfolio now in urban clusters. That is for the consumer business. In the industrial and institutional business, we continue to expand our portfolio as well as increase the number of customers. That is not just about this quarter. We have been doing that for the last couple of years. That enabled the volume growth, the pricing action kicked in on top. That is purely to make sure that we manage our margins well.

Next question is from the line of Vipul Kumar Shah from Sumangal Investments.

What was the volume this quarter, and can you give volume for sequential quarter and same quarter last year?

I think this is similar to what Dhaval also just asked. We don't follow segmental reporting, specifics are avoidable. As Saugata said, lubricant industry grows 3%, 4%, and our endeavor always is to grow ahead of the industry. Weve been able to do that broad-based across segments. We play in automotive across the 3 spaces as well as in industrial. Volume growth is broad-based, is where we will leave it. Specifics on volumes we don't really share.

In previous call, you always shared the volume number in million liters. You have stopped that practice now?

I think it's prudent in the interest of shareholder that we continue with the practice. We have always maintained the same practice. You have the full P&L disclosures, et cetera, are with you to go through. Specific volume numbers, we have not declared in the past.

Okay. Was there any inventory gain in this quarter?

Can you repeat that again? Inventory gain?

Inventory gain.

Indeed, the one fact is that cost increases are delayed into the P&L. Not all the cost increases have been incurred into Q2. Some of it took slow into Q2, as I said earlier. Inventory, specifically that we were carrying from the earlier peak period, we do consume them in the quarter, and correspondingly, we have some part of our volume coming in at a lower consumption cost. This is normal for any business course, and that's what we've also benefited from. What I can say is that even excluding these one-time benefits of the inventory, we have grown profitability healthy in this quarter.

Vipul Kumar, I will request to come back for a follow-up. Next question is from the line of Rajesh Toshniwala from Family Office.

I just had a query, like this upcoming sector wherein for data centers and hyperscalers, a lot of products are being developed by the lubricant industry. Is Castrol India also looking into it? Are they already into this stream? If yes, what kind of revenue and relevant numbers can be shared for the shareholders?

Yes, there is work happening on the front of developing data centers in India, and we have in the past also touched upon it. We have a team that looks into it. The products are ready, and globally, we do participate in the data center thermal cooling space. We have various trials that have been ongoing. This is a B2B business, and at the moment, it is not a material part of the business.

Next question is from the line of Aditya Shah from Vikram Advisory.

Sir, could you highlight your dividend policy, which is as of now? Regarding the second question, which is on data centers. Out of the two technologies currently available, what I know is immersion cooling and direct to chip. Which one are you more focused on in India, and what is the update about the trial runs you mentioned in the previous conference call that were onboarding for these data center things?

Let me tackle your second question, and then Mrinalini, address the first question on dividend. The technology is a choice by the OEMs who are setting up the data centers for the developers. Therefore, whoever is setting it up, whether they're looking for direct-to-chip or they're looking at immersion coolant, there are products available for that. I think well have to wait and watch in India which technology emerges eventually as the predominant technology, but early to say at the moment. We are positioned to participate in both. Some of the trials that we talked about have resulted in some business, but many of these are long-range trials. The last bit I would say is while there has a lot of announcements of development of data centers, we have to see for a lot of them to convert into operational data centers, eventually then they'll start consuming cooling solutions.

That could be at least 2 years out?

Difficult for me to say, because we are just tracking it, but as it emerges, we'll be there to participate.

Okay. What would the competition be like within the lubricants that we give for data centers? Any competition in India?

Sir, can I just interrupt you? You have asked two questions, so if I may just request for Lini to respond to your first question.

Sure. Okay.

Our dividend policy is on the website, so please do go have a look, but let me give you a broad framework. For the past many years, we've followed windows to split our dividend into one interim and one final. Usually, we're a cash-generating business, and we like to reward our shareholders with a healthy dividend payout. While we don't have a call pay number, you would see that our dividend yields are usually in the range of around 5% when I accumulate the interim and final dividend. Additionally, in case of events, you would have seen over the last 10 years, a couple of times we've also given a special dividend to reward our shareholders. That, for example, was the 125 years of Castrol globally. We had done that a couple of years ago. That's the broad framework. We manage our cash and reward our shareholders. I'm sure you've seen also that we have issued an interim dividend as per current framework, we've advanced cash into the interim window rather than the final window.

Okay. Is it safe to assume that you probably intend to pay out around 80%-90% of your earnings as dividends, roughly?

Intentionally, we've not given a percentage in our policy because I think what we really are guided by is our capital allocation framework, wherein if we have an alternate use case of the cash, we would potentially maybe deviate from the percentage that you mentioned. Like you said, past three years, we've been in that range.

Aditya, I'll request to come back for a follow-up question. [Operator Instructions] Next question is from the line of Kirtan Mehta from Baroda BNP Paribas.

First question is on the pricing side. You mentioned that we have taken sort of pricing action, 2 price increases between January to June and in the low double-digit. We heard from your competitor that probably they've been able to sort of take around 4 price increases between March to July, even after the end of the quarter as well. So question in this regard is, normally Castrol has been the one which has been leading the price increase in the Indian industry. Is their structure changing, or is it that the competition is catching up with some of the discounts reverting and then sort of increasing the price at this point of time? The second question was about the impact of the price increase that you can. If at all the industry has taken a higher price increase, do you see a risk to volume growth as we go ahead? Would there be downtrading? How has been the experience in the past, if you can narrate on the same?

Okay. Let me answer your 2 questions. I think we have guided the pricing actions by 2 things. One is our outlook on raw material prices, cost, and the second is our direction on maintaining our EBITDA margin at 21%-24%. These are the 2 parameters within which we run the business. Based on that, we have modeled what would be an ideal pricing scenario this year, and we have executed those price actions late in 1Q, and then again in Q2.As things stand today, the pricing actions we've implemented have been sufficient to offset the raw material increases coming from Q2, and we expect some of the raw material increases to also sustain and spill over into Q3, right? External environments remain very volatile. If the volatility increases or if facts change, then we stand prepared to take whatever other pricing action is required. But we are guided by our raw material cost profile as well as our outlook on that more than anything else. In the past, whenever such environmental changes have required us to take pricing action, we've also doubled down on activating the consumers and investing in the brand, which we continue to do right now. In the short term, there may be volatility and there might be some sort of trade-offs happening. We are guided by, again, a history of about a decade when we have taken these kind of pricing actions in a very volatile environment. Generally, the business comes back to a 21%-24% EBITDA, and we also sort of continue with a certain volume growth rate. So we feel that in the short term, there might be a volatility, but in the medium and long term, we are pretty certain in terms of the directional travel of the business.

Next question is from the line of Nitin [ Borecha from Securin ] Investments.

Am I audible?

Yes, sir, go ahead.

My question is on the opening remarks, you mentioned the impact of the commodity will be more visible in the Q3, right? Does that mean that the low-cost inventory which we have will be visible in the Q3? This kind of realization will continue in Q3 also?