Castrol India Limited — Q4 FY26 earnings call

Now in quarter 1, you are very fair in asking whether it indicated impacted my cost or not. Given the inventory cycle, we saw minimal impact of these raw material increases into the COGS that we reported in quarter 1. I spoke about it in my comments. The currency fluctuation definitely impacted us. Many of these are imported for us and we pay in dollar, and the dollar rate versus last year is down -- I mean, the rupee is down by about 6.5%, 7% versus same period last year. So, to that extent, my COGS in Q1 was impacted, but the majority of the cost increases that we are talking about, we are now pending 2Q. But our strategy is relatively simple. Saugata spoke about it. Top priority is to secure our customers, and make sure that the entire pipeline that goes into making the final product is ready. And we are really working on that with urgency. Saugata spoke about it. We will have diversified supplier network so that we can minimize any supply gap. ... Structurally, the objective of the company is we want to maintain our structural margins in the medium to long term. In the short term, we may see a little bit of [inaudible 0:12:11]. Long term, we want to go back. Saugata spoke about it. We had [inaudible 0:12:15] at the beginning of April, actually towards the end of March. [inaudible 0:12:20].

Addresses a key investor concern about rising input costs and the company's strategy to manage margins through pricing and cost control.

Asked by Nitin Tiwari

Yes. So, on volumes and on revenue, I think you would see that our revenue top line revenue has gone up 9%. So, it's a high single-digit result. Our volume is very much similarly in line. So, high single-digit is what we have delivered also on volume. ... Our overall expenses have grown 9%, in line with the revenue, while revenue grew also 9%. Within this, if you look at specifically COGS, COGS have grown slower and that's because of all the product cost saving and efficiency muscle that we have within the company that the COGS have actually grown slower than volume. And all of our other expenses, I think we are breaking it down internally into structural and one-time. There have been some one-time costs here, but structurally, we have actually grown our gross profit by about 11%.

Clarifies the volume growth for the quarter (7-8%) and explains the increase in operating costs, distinguishing between structural and one-time components.

Asked by Nitin Tiwari

It's not that we don't focus on commercial vehicle. In fact, commercial vehicle is a big -- a significant contributor to our overall volume, right? What I mentioned was that we have been pushing very heavily into rural India to build our distribution muscle in the last few years. And that is reaping rewards for us in our motorcycle business, which is a very profitable part of our business. ... On EV side as well, we have partnerships going. While this is an emerging space, still small. But from our point of view, we want to be prepared for the future. ... We have a diversified sourcing strategy from across the world. We do import a certain percentage of base oil from Singapore as well as from South Korea. This is really driven by the quality and the specification that which we require for certain of our formulations. We equally source base oil domestically as well. We source from the Indian refiners.

Provides a comprehensive overview of the company's strategic approach to key market segments (rural, commercial vehicles, EVs) and its diversified base oil sourcing strategy.

Asked by Dhaval Popat

You would remember, we always have given the guidance of 21% to 24% will be our operating EBITDA margin range. The reason for always giving this range is because our cost profile from one quarter to the other quarter really differs a lot. And if you now look at the Q4 of last year, we had a very high EBITDA margin of 26%. But if you look at my Q1 of previous years, you will see Q1 is always the softest quarter because of our cost profile. So in line with that, I don't see a huge dilution in our EBITDA margin in Q1 as we completed the results. Now, looking forward will be a different story because we just acknowledged that there is a lot of geopolitical volatility and a lot of the raw material costs have increased. While structurally, we will recover the structural margin for the company, we will want to go back into that same range of 21%, 24%. There could be some short-term volatility that we will see even in our numbers.

Explains the Q1 margin performance in context of historical trends and reiterates the long-term margin guidance despite anticipated short-term volatility from rising costs.

Asked by Sabri Hazarika

Yes. I believe Nitin had also asked a similar question because of our inventory cycles, when the geopolitical scenario started, it was just early March. So, our inventory cycle covered up for Q1. We saw minimal impact. The impact was primarily on foreign exchange. But 2Q onwards, even the raw material prices will start showing up.

Clarifies that the full impact of higher base oil prices was not seen in Q1 due to inventory cycles but is expected to manifest from Q2 onwards, indicating future margin pressure.

Asked by Sabri Hazarika

Thanks, Nilesh. So as you would know that there's a lot happening in that space. A lot has been announced in terms of new data centers being developed or built in India. The team remains closely in touch with the people who are developing the data centers as well as OEMs who develop the cooling systems solutions around those data centers. So it is beyond pilot. There are trials that are going on, and these are long time cycle capital investments, as you can understand. ... We can't make a guidance at the moment because this is not something we are driving in terms of the implementation of -- or the execution of the data centers. But our teams are closely in touch. The products that we have deployed in the country for pilot or rather for trials are the products that are being used in other parts of the world in data centers.

Highlights the ongoing trials and long-term potential in the data center cooling space, but management defers specific market size or contribution guidance due to early stage and evolving technology.

Asked by Nilesh Jain

Yes. Yes, we do have a hedging policy. Hedging is a very critical tool for us, which helps us with certainty of foreign exchange. It doesn't really assure us with a lower foreign exchange exposure. So, let me talk you through it. We do have a 60-day hedging policy, and this 60-day roughly links to my inventory cycle. ... From a raw material exposure standpoint, half of our raw material is locally procured and half of it is imported. So, about half of my COGS is what we hedge for.

Provides specific details on the company's currency hedging strategy (60-day policy, covering 50% of imported COGS) to mitigate forex volatility.

Asked by Rahul Ahuja

Right. So, Kirtan, what -- the rural and urban geographies, right, that's the way we categorize it. So within that, rural is growing at double-digit. In urban, we further segmented because we think urban has a role to play in premiumizing our mix. The premium portfolio that we sell into urban India, predominantly cars and motorcycles, that also is growing at double digit. If you remove this, then you have the large commercial vehicle business or commercial vehicle products, which include engine oil for trucks, which somebody asked a while earlier. You have specialty products like transmission fluids and greases. All of this is a significant part of our portfolio. It is growing, but not at double-digit, high single-digit, okay? And all of this at a blended level brings us to the kind of growth profile that we talked about.

Clarifies that while specific premium and rural segments are growing at double-digits, the overall blended volume growth is moderated by high single-digit growth in other large segments like commercial vehicles and industrial products.

Asked by Kirtan Mehta