Future Outlook Indian Lubricant Industry

1. Future Outlook Indian Lubricant Industry

2. Presentation Structure • Historical Perspective • Current Scenario • Future Outlook • Challenges

3. Pre Liberalisation • Controlled Market. Size 810,000 tons • More than 90% of market controlled by Major PSUs • Less than 10% accounted by a independent lubricant brands viz. Castrol, Gulf, Veedol • 80 to 85 % of After Mkt product sold through Petrol Pumps • Administered Pricing Mechanism • Restricted supply leading to monopoly situation • Poor trade margin leading to poor availability & poor service to consumers

4. Pre Liberalisation Salient Traits • Commodity selling • Low pricing • Low media spends • Poor trade margins • Poor availability All the traits of an highly closed, controlled market

5. Post LiberalisationWinds of Change • De-canalisation of base oil imports • Gradual scrapping of APM • Dramatic reduction of import duty • PSU oil majors given a free-hand to form JVs • Entry of all major global oil companies • Market stocked up more than the demand • Rapid shift in lube business from Petrol pumps to Bazaar trade • Influencers & consumer needs started driving the strategy of companies • Brand Building efforts come to the fore • PSU Oil companies start losing ground Liberalisation changed the face of automotive segment of lube industry

6. The Present

7. Indian Lube IndustryGlobal Perspective • 5th largest market in the world • Currently, 1.1 MT market valued at Rs. 60000 Mil • Growing @ 3 – 4% vis-à-vis 0 - 2% globally • 2.5% of world lube market • Accounts for 10% of Asia’s lube demand • Per capita lube consumption of 1 kg p.a. vis-à-vis 31 kg. in U.S.A and 14 kg. in Western Europe

8. A Parallel Drawn Indian Lube Market World Lube Market

9. Indian Lube Market Construct Indian Lube Market - 1100,000 tons 120,000 no. Spare part shops, Lube shops & Workshops contribute more than 2/3rd of After Market business

10. After-Market Construct Introduction of higher & longer drain DEOs have lead to gradual decline in contribution of DEO

11. Market Share Analysis PSUs have lost more than 30% MS to other Brands in last 10 years

12. Market Share Analysis Bazaar trade the fastest growing segment continues to be dominated by BP Castrol

13. Current Market Dynamics • Highly fragmented and complex market • Mergers and acquisitions leading to consolidation • Brand & Network strength are the key differentiators in After Market • High Base Oil prices & intense competition leading to lower margins • Heightened threat from spurious lubes

14. Current Market Dynamicscontd.. • Higher media spends due to high decible advertising by PSUs and emergence of a new category in Four Stroke Motor Cycle Oil • Market witnessing a slew of brand and pack launches to cater to consumer needs • OEMs driving the demand for higher Spec. oils, leading to lower replacement cycles • Genuine & Co-Branded Oil as a concept gaining strong momentum

15. Current Market Dynamicscontd.. • Gradual shift of business from Petrol Pumps to Bazaar Trade continues • Channels of distribution witnessing a shift from lube shops to spare part shops, workshops etc. • Tremendous improvement in width and depth of distribution leading to wide spread availability Lube industry witnessing the severest of turmoil

16. The Future

17. Overall Perspective • Overall lube industry growth to remain at 3 - 4% in the short term • 4SMCOs & PCMOs will be the main drivers for growth • Despite expected robust industrial & infrastructure growth DEOs segment will continue to stagnate • Divestment of HPC / BPC will bring new dynamics to lube industry • Higher OEM focus on fuel conserving engine & transmission oils • Industry to witness consolidation and stabilisation • Focus on higher sales productivity & supply chain mgmt. • OEM Tie ups & organised commercial segment will acquire larger role • Stronger Shift from volume maximization to value maximization • Environmental concerns will gather momentum

18. PRODUCT PRICE PLACE POSITIONING & PROMOTION

19. PRODUCT PRICE PLACE POSITIONING & PROMOTION

20. Product • Stricter emission norms to hasten the general shift to premium higher specification oils • Accelerated shift in DEOs from mono to multi • Launch of high-end niche products in 4SMCO and PCMO • 2TOils sales to decline faster in coming years • Gradual shift of transmission oils to multi grade • Rationalization of product / pack

21. PRODUCT PRICE PLACE POSITIONING & PROMOTION

22. Price • Driven primarily on international prices of base oils • Industry to move to uniform pricing structure • Rationalisation of MRPs for select products & packs • Increased level of trade discounts will continue to keep margins under pressure

23. PRODUCT PRICE PLACE POSITIONING & PROMOTION

24. Distribution • Shift in business from petrol pump to bazaar to continue • De-regulation of petrol pumps to open an alternative channel to the private players • Organised workshops will emerge as the next most important distribution channel • Introduction of independent QSCs • Direct marketing initiatives would be pursued for commercial segment

25. PRODUCT PRICE PLACE POSITIONING & PROMOTION

26. Positioning & Promotion • Brand building and brand image would form the core for significant players • Media spends will revolve around 4SMCO and PCMO • DEO segment will continue to have strong BTL bias • Increased focus on CRM activities in the commercial segment & trade partners • Industry will operate largely on the FMCG fundamentals • Joint promotion initiatives will increase

27. Growth Drivers – Challenges Ahead • Overall performance of the economy • Movement to higher spec – longer drain oils • Rationalisation of Taxes & Tariffs • Unorganised Sector & spurious trade • Increasing thrust on Genuine Oils by OEMs • Servicing mammoth retail network • Efficient supply chain management • Educating trade & consumers on environment issues Need for long term commitment and not sheer opportunism

28. Thank You