Lubricant Market Globe vs India

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Market Analysis

Globe Vs India



Around 45 Million MN. Automotive 51 %, Industrial 41%, Balance

Marine .

Globally Rate of Growth 2-2.5% perannually ( Last Five Year ).Developed Countries only 1 % per annually

slower growth rate in AutomotiveLubricants duo to saturation of Veichel

Population, High engine performance, highquality of oils.

Scope in Developing Countries .



Region Wise Demand

Asia Pacific (25 %)

Europe (35%)

North America(28%)

Central South

America(12%)



Asia , Third Largest Market , Growing at

Faster Rate.

Per Capita Consumption for Countries asBelow .

India :1%

America :31 %

China :2%Europe :14%



Seventh Largest Market In world. Sixth Largest Market in Automotive Lubricants. India Sales Vs Value:

1.75 MMT Vs Rs.11,375/- cr.( 2008-2009 ). Vs 45 MMT /48Billion UDS Globe

1.75 MMT , lubricants produced by theorganized sector; large, midsized as well smallscale companies.

This does not include branded base oil,transformer oils as well as sizable amounts of re-refined and spurious lubricants salesproduced by un- organised sector



Lubricant industry in India is broadlydivided into 3 major markets sectors:

Automotive, industrial and marine &

Energy applications.Ratio of automotive to industrial

lubricants is approximately 63:37.Major share of products wise is Auto

Engine Oils, Auto Gear Oils, AutoGreases, Turbine Oils, Hydraulic &Circulating oils etc.



0

5

10

15

20

25

3035

I O C

3 4 %

H P C L

1 8 %

B P C L

8 %

I B P

2 %

C A S T R O L 1

9 %

G U L F O I L 6

%

T I D E W A T E R 4 %

E L F 3 %

O T H E R S 6 %

Sales

Sales

About 1200manufacturers of various grades of lubricants & alliedproducts in

organized sector outof which about 1150are in small &medium sector. Theestimated totalinstalled capacity of these units is about

2.2 million MT andcapacities are beingcontinuouslyaugmented



The automotive industry saw very good growth in 2010. The growth was acrosscategories ,with the passenger vehicles segment growing by over 29% and thecommercial vehicles segment growing by 28%. It is believed this upward trend will besustained in the foreseeable future due to a strong domestic market and increased thruston exports.

The luxury car segment has taken off substantially in the last three years and current

data suggests demand will be sustained in the long term. Additionally, the automobileindustry is yet to fully tap into demand from rural areas but most Original EquipmentManufacturers (OEMs) are targeting the rural customer and there has been a gradual butsteady growth in demand for passenger vehicles from these areas. Rural markets and theluxury car segment are expected to play a significant role as the Indian automobileindustry seeks to double total sales over the next decade.

India is truly emerging as a global hub for compact cars with almost every OEM wanthave a presence in this segment. Interestingly for Castrol, its global partners Ford and

Volkswagen successfully launched their small car offerings Figo and Polo in the Indian

market. Castrol extended its strong partnerships with leading automotive OEMs by tying up withSkoda India. This tie up will benefit the synthetic segment of our portfolio. With moreglobal OEMs coming into India, this trend presents us with strong partnershipopportunities in 2011 and beyond.



By

Sandeep Walke



The Background These are exciting times for the lube industry in India. Each one of the vast contingent of 22Multinationals and a total of 80 big & small players are vying for a pie of Rs.5,500 Crore market.Worldwide established brands,some of them albeit new to India, like Shell, Mobil, Caltex, Elf, Pennzoilare fighting it out with established Indian brands like SERVO & others to establish their foothold in the6th largest lubricant market in the World. Compared to the average World consumption of 35 Milliontonnes per annum & Asia-Pacific region consumption of 7.5 million tones, the Indian lube industry withannual demand of 1 million tonnes is just behind Japan and China in Asia having a demand growth rate

of 4% compared to the World growth rate ranging between zero to 2%. That is the lube industry inIndia today.Prior to 1992 the lube industry in India was controlled by the 4 major Public Sector Oil companiesnamely Indian Oil, HPC,BPC & IBP and a handful of private companies like Castrol, Gulf, Tidewater &others. With the distribution & canalisation of base oil import being controlled by the Government of India, the PSU Oil Companies controlled 90% of the market share. The decanalisation of the lube baseoil imports in 1993 by the Govt. of India followed by reduction of import duty on lube base oils from85% to 30% and gradual scrapping of administered pricing observed the announcement of almost anew lube venture every month during 1994. Most of the new entrants formed associations with Indiancompanies both in the Private & Public sectors. All these new entrants are targeting for a very smallshare of the market considering that even 1% market share means a sale of Rs.55 Crores.

The Indian Oil controlled 54% of the lube market out of total PSU's market share of more than 90%during 91-92. The Government policy of deregulation followed by entry of multinationals through JVCshad its effect on the market dominance of PSUs. This has been followed by sudden entry of lot manyplayers, each one claiming to have some international collaboration and a `foreign' brand name.Thishad its initial impact and illusions in the market and the market became more volatile. During thesephases marketing channels of distribution had drifted from petrol stations to bazaar trade.



The Marketing Channels The marketing channels for automotivelubricants in India consist of the following,

Petrol StationsWholesale DistributorsLube Oil Shops Auto Spare Shops Authorised Service Stations

GaragesRural & Agricultural dealersSuper Markets



Till recently, the Indian consumers linked filling of lubricants to that of petrol & diesel in petrol stations. With the advent of deregulated marketscenario & fierce competition, efforts are being made to positionlubricant as a high involvement consumer goods. Hence, the resultantdrift towards the bazaar trade i.e., outside the petrol stations. The sales of automotive lubricants through bazaar trade increased from a mere 10%

prior to 1993 to a handsome present level of 40% compared to WorldwideTrend of more than 70%.In the developed World, because of high degreeof customer sensitivity & awareness, D0-it-Yourself (DIY) concept hasevolved for filling of engine oil. People buy from super markets & fill itthemselves. In India, this job is still left to the mechanics & service stations.During these years this shift in trade had the following effects: Decline inMarket Share of PSU oil companies.

Market became heavily crowded & the industry got transformed intoFMCG.

Dumping of products in the bazaar. War of trade discounts resulting in rice war & lesser margins for dealers. Entry of spurious lubricants.



Tie Up with OEMs Among the PSU Oil Companies Indian Oil is one company who hasall along given utmost importance on tie ups with OriginalEquipment Manufactures (OEMs) after signing agreements withmajor OEMs like Maruti Udyog Ltd,TELCO, Bajaj Auto, Kinetic

Engineering,SKODA etc. Even initial fill & warranty fill agreements were also signed with TELCO & Hindustan Motors. In fact, the Japanese vehicle manufacturers prefer to tie up with one or twomajor oil manufacturers for use of engine oils as `Genuine SparePart' of the vehicle whereas the American vehicle manufacturersprefer to follow the American Petroleum Institute who defines theperformance parameters of engine oils. The Indian vehicle

manufacturers follow a route which is combination of both.These inner strengths of PSUs and the quality policy adopted bythem, even attracted major multinational players like Shell, Mobil,Exxon & Caltex to enter into tie up with one or the other PSU tohave access to their well established marketing network.





S trategic Business PlanThe PSUs initially could not resist the onslaught of dumping in bazaarchannels and illusions created by FMCG practices but off late startedregaining their lost ground and to some extent restrict & arrest theirdecline from a level as high at 90% to 65%. In this front Indian Oil afteremerging as India's largest commercial organisation and being the only

company in the country to feature in the Fortune Global 500 listing hasadopted structured business plan approach to strike a balance betweenconventional marketing channels (petrol stations)/distribution networkand parallel marketing channels (bazaar trade). The parallel marketingchannels chosen by the Company also adopted the path of brand image,customer focus & customer accountability by way of putting up SERVOPremium Lube Shops in the bazaar trade. The petrol stations are alsosimultaneously undergoing major facelifts through implementation of thecompanies Vision-2000 modernisation plan. By way of this modernisationthe customers will get the opportunity to pick up all their conveniencestores in the `Convenio' (departmental store ) put up at the petrol stations

while filling up petrol, diesel & lubricants.



IOC is also in the process of establishing certain strategically located modern petrolstations on the highways where apart from all way side amenities like motel, dhaba,restaurant, amusement parks, toilets, car parking slots, wash rooms, communicationfacilities (STD/ISD,E-mail) etc. also service & repair shops of major OEMs of the country

will be put up to facilitate quality services at right price. The concept being developedin the Golden Jubilee year of India's independence,these outlets will be christened`Jubilee Outlets'.

The coming years will ensure availability of more effective & customer friendly channelof distribution and will have its impact in the long run on the short terms strategypresently being practised in the automotive lubricant market. The strength of amarketing company more so in the field of specialised lubricants definitely lies in theiraccess to superior technology base. This is more so because the automotive sector isundergoing a major technology upgradation programme with entry of reputedinternational automobile manufacturers in the market. Moreover, stringent emissionnorms & eco-friendly devices are taking over old practices which will necessitateimprovement in performance of lubricating oils. Such challenges can not beencountered with only technological collaborations but also input resourcing.Consistency of inputs and sound infrastructural base will play a significant role tocombat competition. The thrust in the coming years will be more on adopting to Indianmarket & Indian road conditions and thereby it will be essential to develop indigenouslubricants technology keeping pace with international standards



S trength of an Oil Company Manufacturing of quality lubricants is guided by two important parameters i.e, resourcing of consistentpremium quality base oils and incorporation of cost & performance effective additive technology

which is privy to the oil company and is an effective tool to establish superiority over competitors. Inthis area R & D effort plays a significant role as it has to be end use specific, location specific,environment specific & at the same time cost effective. Just bringing in imported technology withoutany own & defined resource of quality inputs like base oil may not be suitable for Indian road/marketconditions. Today, technology has become so demanding and requirement is so stringent that leadinginstitutes like API (American Petroleum Institute) gives performance approval on the basis of identification & sourcing of base oils. Their approval is on crude specific, Refinery specific & base oilspecific considerations. Bringing in base oils taking leverage of decanalisation of imports & reductionof duty, putting up blending plants at Tax holiday locations to remain in the cut throat competition &dumping may or may not yield far reaching benefits. The need of the hour is long term commitmentand not sheer opportunism and with more competition expected in the coming years, customers willalso realise impact of such focussed approach.The automotive lubricant trade is gradually becoming wiser today. The traders now understand thebenefits of stocking fast moving & familiar brands instead of overcrowding the shelf space becausethere are very few companies in India, who can make the entire range of automotive productsavailable. It has also been found by the trade that because of working capital constraints the new

entrants are increasing cash discounts resulting in price war and reduction of dealer margins. Formaking all the products available at all times a company would need to keep a high inventorycommensurate with the sales volume for which an additional working capital of at least 35% would benecessary. Among the oil companies in India,established companies like IOC have good financialresources, who can afford to keep such high inventories.



R&D efforts & pursuits for excellenceTechnology was never in short supply in the field of lubricant market inIndia. In fact it is at par with the latest standards, thanks to the import of technology and the exceptional efforts made by companies like IOC inthe field of Research & Development of indigenous products meetingWorld standards. The biggest & one of the best petroleum R&D in Asia

accredited with ISO 9001 belongs to IOC. This R&D has developed over1500 formulations through their scientists with state of the art technologyand enjoys approval from competent bodies both at National &International level. Through development of bio-degradable, energyefficient & eco-friendly lubricants, Titanium complex grease, Indian Oil'sR&D won various laurels like prestigious DSIR award, NRDC award forbest invention, ICMA & FICCI award & UN-WIPO award. It has also gotover 75 National & International patents including the US & Australia. Overthe years IOC's R&D has demonstrated its ability to develop World classlubricants suiting Indian conditions.Quality & continuous technology upgradation is one of the key attentionarea in this competitive environment and here also IOC scored very highamong all Oil Companies in India having secured ISO 9002 & ISO 14002accreditation for all its refineries, lube blending plants & QC labs



Conclusion :Lubricant market, in the last 5 years has seenseverest turmoil and this phase will continue for ayear or two and then it is likely to stabilise. It is

difficult to predict what path it will undertake but onethis is sure & certain that oil companies owningrefineries i.e,proven source of premium quality basestocks (an essential component for manufacture of quality lubricants), sound R&D set up with innovativebusiness plan, wide distribution network with somesystem of control & accountability and wideinfrastructure of professionalised technical services will continue to survive.

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Lubricant Market Globe vs India