We Are Trying To Balance Topline Growth With Bottomline Growth: Castrol India | CNBC TV18

Summary

In an interview, Mr. Sandeep Sangan, Managing Director of Castrol India, discusses the company's performance with muted Q2 results, revealing a 5% revenue growth and a 3% rise in PBT. He emphasizes Castrol's focus on balancing topline and bottom line growth, with investments in branding and new product launches like the Castol Edge portfolio. Sangan also highlights the potential of data center thermal management, where Castrol is investing in R&D for immersion cooling technologies, although the timeline for market implementation remains uncertain.

Takeaways

• 📈 Castol India's stock has performed well this year, but the second quarter showed low single-digit growth in revenue and flat profit margins.
• 🔑 Mr. Sandep Sangan, the Managing Director of Castol India, discussed the company's performance and future outlook.
• 📊 The company reported a 5% growth in revenue and a 3% rise in PBT in the second quarter, supported by brand investments and a new campaign featuring Shah Rukh Khan.
• 💡 Historically, Castol's topline growth has been around 2-3%, and the company is now focusing on balancing topline and bottom line growth.
• 🚀 Castol India launched new products in the second quarter, including Castol Edge for SUVs, hybrids, and European cars, which is a top-performing product globally.
• 📚 The company's volume growth was in line with revenue growth, and they aim to grow a couple of points ahead of the market, which is growing at about 4-5%.
• 🌐 Castol India is expanding its auto care range of products, which are now available in 45,000 outlets, aiming to scale the business further.
• 💰 Advertising expenses have increased by about 16% in the first half of the year, which is part of the strategy to continue building the brand.
• 🌡 The company is exploring opportunities in data center thermal management, investing in R&D for immersion cooling technologies.
• 🌐 The data center market is expected to grow, and Castol is testing and piloting its cooling products with big data center players.
• 🔮 While the data center opportunity is still in development stages, Castol sees it as a significant area for future growth and is investing accordingly.

Q & A

How has Castol India's stock performance been this year?

Castol India's stock has performed phenomenally well this year, despite the muted performance in the second quarter.

What was the revenue growth for Castol India in the second quarter?

Castol India delivered a 5% growth in revenue in the second quarter.

What was the rise in PBT (Profit Before Tax) for Castol India in the second quarter?

There was a 3% rise in PBT for Castol India in the second quarter.

What marketing campaign did Castol India launch to boost their brand?

Castol India launched a campaign featuring Shah Rukh Khan for Castol EDGE.

How does Castol India's topline growth compare historically?

Historically, Castol India's topline growth used to be in the region of 2-3%, and they are now aiming to balance topline and bottom line growth.

What new product did Castol India launch in the second quarter for specific vehicle types?

In the second quarter, Castol India launched the Castol EDGE portfolio for SUVs, hybrids, and European cars, which is a top-performance product in their global car portfolio.

What was the volume growth for Castol India's core business in Q1?

The volume for Castol India's core business, lubricants, grew by 5-6% in Q1.

What is Castol India's outlook on the core lubricants business growth?

Castol India's outlook for the core lubricants business is to continue growing at about 5-6%.

How does Castol India plan to achieve higher volume growth?

Castol India plans to achieve higher volume growth by beating category growth and adding revenues from playing in adjacencies, such as their Autocare range of products.

What is the current status of Castol India's data center thermal management opportunity?

Castol India sees data center thermal management as a big opportunity and is investing in R&D for technologies like immersion cooling, with products already available and in testing with big data center players.

How does Castol India maintain its profit margins amidst increased advertising expenses?

Castol India has maintained its profit margins at about 23-24%, and they plan to continue investing in brand building, as they believe in the long-term benefits of such investments.

What is the potential of the data center opportunity for Castol India in terms of profit margins?

While the share of volume for the data center opportunity might be low, it could potentially have a high share of profit due to its efficiency and lower energy consumption compared to traditional cooling methods.

Outlines

00:00

📈 Castol India's Growth and Brand Strategy

In the interview, Mr. Sandeep Sangan, Managing Director of Castol India, discusses the company's performance in the second quarter, which showed low single-digit growth in revenue and flat profit margins. Despite this, Castol India reported a 5% revenue growth and a 3% increase in PBT due to investments in branding, such as the Shah Rukh Khan campaign for Castol Edge. Historically, the company's topline growth was around 2-3%, and the current focus is on balancing topline and bottom line growth. The company also launched new products, including the Castol Edge portfolio for SUVs, hybrids, and European cars, which is a top-performing product globally. Mr. Sangan emphasizes the importance of driving topline growth while maintaining margins and hints at the potential for higher volume growth through market diversification and adjacency plays, such as the Autocare range of products launched the previous year.

05:00

🌐 Data Center Opportunities for Castol India

The second paragraph delves into the potential of data center thermal management for Castol India. The company is investing in R&D for cooling technologies, such as immersion cooling, which is more efficient than traditional air cooling systems. Castol India has access to its parent company's R&D facilities in the UK and is currently testing immersion cooling products with global data center players. While the market in India is currently small, it is expected to grow rapidly, offering Castol India an opportunity for expansion in this sector. Mr. Sangan highlights that while the volume share of this market might be low, the profit share could be high due to the efficiency and lower energy consumption of the immersion cooling technology. The exact timeline for the full deployment of this technology in Castol India is dependent on customer feedback and the outcome of ongoing tests and pilot programs.

Keywords

💡Castol India

Castol India is a company that is central to the video's theme, as it is the subject of the interview and discussion. It is a subsidiary of the global lubricant brand, Castrol, operating in India. The company's performance, product launches, and business strategies are the main focus of the conversation, indicating its importance in the Indian market and the global Castrol brand.

💡Revenue Growth

Revenue growth is a key financial metric discussed in the video, referring to the increase in income from the company's business activities. In the script, it is mentioned that Castol India has delivered a 5% growth in revenue in the second quarter, which is part of their overall business performance and strategy.

💡PBT (Profit Before Tax)

Profit Before Tax (PBT) is a financial term that represents the profit a company makes before accounting for income tax. The script mentions a 3% rise in PBT, indicating the company's profitability and financial health, which is a critical aspect of the company's performance analysis.

💡Brand Investments

Brand investments refer to the resources and efforts a company puts into promoting and developing its brand. In the context of the video, Castol India's management discusses investments in their brands, such as launching campaigns featuring Shah Rukh Khan, to enhance brand visibility and consumer appeal.

💡Topline Growth

Topline growth, also known as revenue growth, is a term used to describe the increase in a company's sales or revenue. The video script mentions that Castol India's topline growth has historically been around 2-3%, and the company is now aiming for a balance between topline and bottom line growth.

💡Volume Growth

Volume growth indicates the increase in the quantity of products sold by a company. The script mentions that Castol India's volume has grown at a level of 5-6%, which is a measure of the company's market penetration and consumer demand for its products.

💡Market Growth

Market growth refers to the overall increase in demand within an industry or market. In the script, it is stated that the market for lubricants grows at about 4-5%, and Castol India aims to grow a couple of points ahead of this market growth, showcasing the company's ambition to outpace the industry average.

💡Diversification

Diversification in a business context means expanding into different areas or markets to reduce risk and increase growth potential. The video discusses the possibility of achieving double-digit growth through diversification, suggesting that expanding into new areas could significantly boost the company's performance.

💡Advertising Spend

Advertising spend is the amount of money a company allocates to promoting its products or services. The script indicates that Castol India has increased its advertising expenses by about 16% in the first half of the year, which is part of their strategy to build brand awareness and drive sales.

💡Margins

Margins, specifically gross margins, refer to the amount of profit a company makes after deducting the cost of goods sold from its sales revenue. The video mentions that Castol India has maintained its margins at about 23-24%, which is a key indicator of the company's pricing strategy and cost management.

💡Data Center Thermal Management

Data center thermal management involves the technologies and systems used to cool and regulate the temperature in data centers to ensure optimal performance of IT equipment. The script discusses Castol's investment in R&D for data center cooling technologies like immersion cooling, which is a potential growth area for the company as the demand for efficient cooling solutions increases.

Highlights

Castol India's stock performance has been phenomenal this year, despite muted Q2 results with low single-digit growth in revenue and flattish profit margins.

Managing Director, Sandeep Sangan, discusses Castol India's performance and future expectations.

The company reported a 5% growth in revenue and a 3% rise in PBT in Q2, attributed to brand investments and the launch of the Shah Rukh Khan campaign for Castol EDGE.

Historically, Castol's topline growth was around 2-3%, and the company is now balancing topline and bottom line growth, with a focus on volume and revenue growth.

Castol India launched new products in the second quarter, including the Castol EDGE portfolio for SUVs, hybrids, and European cars, which is a top-performing product globally.

Volume growth for Castol's core business lubricants has been around 5-6%, with an intent to grow ahead of the market, which is growing at about 4-5%.

The company is investing in brand and product innovation, with a focus on driving topline growth and maintaining margins.

Castol India has launched an Autocare range of products, now available in 45,000 outlets, aiming to scale the business with a portfolio of five to six products.

Advertising expenses have increased by about 16% in the first half of the year, as part of a strategy to continue building the brand and supporting innovation.

Margins have been maintained at around 23-24%, with the intent to continue investing in brand and product development.

Data center thermal management is a significant opportunity for Castol globally, with an investment of 500 crores in R&D facilities in the UK.

Castol is developing immersion cooling technologies for data centers, which are more efficient than traditional air cooling systems.

The company is currently testing and piloting immersion cooling products with big data center players.

The data center cooling market in India is expected to grow rapidly, with new capacity and big players entering the market.

While the data center opportunity may be a small percentage of total volume, it could represent a high-margin product for Castol.

The exact timeline for the adoption of data center cooling technology in Castol India is uncertain, depending on customer requirements and test outcomes.

Castol India is committed to continuing its focus on innovation and brand building, even amidst market challenges.

Transcripts

castol India is the next company that we

are speaking with stocks done uh

phenomenally well this year and but the

performance in the second quarter was a

bit muted low single digit growth in

revenue and uh profit margins were also

kind of flattish we have Mr sandep

sangan managing director at castol India

to talk more about this Mr San great to

have you with us here good morning

thanks very much for your time Prashant

de side uh so you know so q1 has been uh

sorry this quarter has been muted even

H1 overall has not been all that great

could you give us an indication of what

we should expect for the full year in

terms of volume and value growth

F525 yeah first of all I think uh thanks

for having me on your

channel and let me give you a

perspective I think we've delivered a 5%

growth in Revenue uh in the second

quarter and a 3% rise in PBT on the back

of continued investments in Our Brands

uh we launched the Shah ruk Khan

campaign on castol edge and uh if I uh

also compare it to uh what we've done

historically is our Topline growth used

to be in the region of 2 3% and I think

uh what we're trying to do is balance

out Topline growth and bottom line

growth and we very happy with the

Topline growth volume and revenue

profile that we're building now okay and

uh our volumes have been pretty much in

the same level as Revenue growth and uh

the other thing is we continue to invest

behind Our Brands launch new products

for example in second quarter we

launched castol Edge portfolio for SUVs

for hybrids and uh European cars and

this is the top performance product in

our cars portfolio globally so uh muted

depends on which perspective you uh see

it from I think uh what we are focused

on is now driving Topline growth

balanced with maintaining our margins

that's that's way V so can you give us

the exact number sandep what was the

volume growth that you did in q1 and for

the rest of the fiscal what is the kind

of average volume growth that you are

expecting so so I think our volume has

grown in the level of 5 6% okay uh

that's the Core Business lubricants and

I think as far as the uh fer is

concerned we want to grow a couple of

points ahead of the market okay and this

Market grows at about 4 5% and I don't

know where the volume will

at the year end but our intent is to uh

Drive Topline growth through volume

growth so you're saying that there is no

scope of double digigit growth in the

lubricant industry uh not just for your

own company but even for the industry

overall this year I I think depends on

uh where uh we play and where our uh uh

competitors or other colleagues in the

industry play and I think uh we can get

to double digit growth levels but a lot

will depend on that diversification also

but the core lubricants business will

continue growing at about 5 6% that's

our Outlook and if you can beat that

category growth and then add on some uh

revenues on top uh from uh uh playing in

adjacencies I think that can get us to a

much higher volume growth profile just

to share an example we've launched

Autocare range of products last year

which are now available in 45,000

Outlets uh we we trying to scale that

business uh we've got good response we

have a portfolio of five six products in

that autoare range now which will

continue building so there are

additional leevers of growth uh which

will come in as we uh as we uh look at

the future okay all right hi sandep you

briefly mentioned that you know Shan's

on board as well that would mean higher

uh advertising spend so as a percentage

of sales what was it and where does it

settle at for the coming year and you

know putting that into context what does

it do to margins 22 to 25% is what

you've been talking about will you be

closer to the lower or the higher end of

it so uh let me start with margins first

uh We've maintained our margins at about

23% in the second quarter also and what

we've said is uh in some quarters it's

been 22 in uh in 23 but we are able to

maintain those margins at uh 23 24%

levels okay that's one thing yes

advertisement expenses will be higher

and they've been Higher by about 16% in

the first half of this year uh but

that's a part of the strategy it's not

something uh uh that we want to give up

typically we invest about four to 5% of

our uh Revenue in our uh brand

Investments and that'll continue going

forward if anything we may continue

investing more uh but castol has been

built uh it's a brand which is loved by

Indian consumers and customers for more

than 115 years in the country and we

have all the intent to continue building

that brand supported with Innovation uh

by bringing new products for our

customers and consumers okay all right

you know s uh the street got very very

excited about the data center

opportunity we had the management of Gul

oil who said you know given the entire

Matrix and the entire pie it's not such

a big opportunity though the stock

market is quite bullish that castol has

a big opportunity out there could you

give us your reading of this how big is

the data center opportunity for a

company castol and how do you look at

scaling that up yeah so I think uh let

me touch on that first of all we've

called out globally uh data center

thermal management is a big play for

castol and globally we investing about

500 crores uh that was announced uh in

R&D facilities in our parent company uh

in UK to which we have access uh the way

we see it is Data C the market is going

to grow okay uh in India and globally

also it's a function of what cooling

Technologies data centers adopt okay

right now most of the data centers use

uh something called air cooling or HVAC

systems traditional systems but I think

as the Computing part demand grows and

uh we need faster processes cooling

requirements will grow and castol as R&D

we investing in Technologies like

immersion cooling which can give us

opportunities uh in that uh space so

that's where uh I I think it's still in

develop stages we have certain tests

running with customers we tied up with

global players in data centers who

design and develop data centers so we

see this as an opportunity area and

that's the perspective you're coming

from Mr sangan so uh you're saying that

the parent already has a product uh is

it yeah we have liquid cooling products

for data centers which are already

available yeah for imers this is already

this is already being used uh immersion

Cooling your your product is already in

use so we working with some of the Big

Data Center players in terms of testing

and piloting these I cannot say anything

more than that but we have a data center

cooling product which is

available because in India the market is

about only a th000 megawatt right I mean

it's expected to grow rapidly uh because

a lot of capacity Etc is coming lot big

players conglomerates Etc are coming in

very fast uh but this is a are you

saying this is in testing stage or this

is a settled technology now I mean it's

much more efficient than air cooling

yeah it is much more efficient because

the energy consumption is much lower and

uh and it's far more efficient in terms

of space utilization also uh but as I

said uh we doing uh testing with some of

the uh big customers and uh we want to

uh continue developing this

further but by when can we see the

technology B you said you have access to

this by when can you uh get that

technology here in Castrol I mean for

castol yeah yeah so I think as uh as we

kind of uh further proof of Concepts uh

uh get verified uh depending on customer

requirements and customer uh uh

businesses we will be able to bring it

in I think to say which time is very

difficult for me I think it's again

depends on how the test and various

programs that we have with customers

develop over the next few months and

years you know we had the gulf oil

management and they gave us the total I

mean in in terms of volumes right if you

project Data Center capacity say 2,000

megawatt I mean you say all of it is be

becomes this emerging technology even

then as a percentage of total uh total

volume sold it is minuscule but I don't

know if that is a right way to look at

it I just wanted your perspective could

it be a high margin product so it's in

terms of share of volume it could be low

but share of profit could be high I I

don't know what the internal thinking is

Mr sangan

so first of all I I think you keep

referring to Gulf it's their View and I

would like to comment on that it's for

them to uh to judge uh as far as we are

concerned uh We've called it out

globally as one of our plays for the

future and uh we believe in this and we

continue working on this as an

opportunity area Okay uh we we' love to

get more details as you're not ready to

sh share those with us for maybe next

time uh and we'll have more updates on

this one uh really appreciate it

answering and taking all those questions

thank you very much for joining us uh Mr

tangan and good luck for the underlying

business as well as you go through the

rest of the financial year we'll take a