Indian Oil Corp. Ltd., one of the key players in Indias lubricants market, is upbeat about prospects there, expecting continued growth spurred by demand for automobiles and expanding industrial and construction activity.
The publicly owned company aims to consolidate its position in finished lubes, to build more blending capacity and is considering investments in base oil production, K.L.Murthy, executive director for lubricants at Indian Oil, told Lube Report in an email interview.
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IOCL markets lubricants under the Servo brand, which is the top-selling brand in both the automotive and industrial segments. Murthy explained that the company has an important mandate within India.
Indian Oil Corp. Ltd. was incorporated with an objective of making India self-reliant in refining and marketing of petroleum products, he said. In the lubricants market, the primary role of Indian Oil is to ensure that high quality lubricants and greases are made available across all nooks and corners of India at most affordable prices.
Indian Oil has been in the forefront in adopting latest lubricant technology and launching of many premium lubricants including environmentally friendly lubricants such as energy-efficient and fuel-efficient lubricants, bio-degradable lubricants, long-life lubricants and greases, food-grade lubricants and high quality synthetic lubricants.
India is the worlds third-largest lubricant market and is growing faster than any other large market. Murthy said it is good to be in such a place.
The Indian lubricants market itself is growing at a steady pace and offers tremendous scope for further growth, he said, predicting that demand will continue expanding thanks to explosive growth in the automobile population, improved road networks, expansion of the countrys manufacturing base and increased disposable income.
Indias per capita lube consumption today is just around 2.4 kilograms per annum, far less than the estimated world average of 5.8 kg/y, he said. With the emergence of the Indian economy into a developed one, per capita lube consumption is bound to catch up.
Within this setting, IOCL is working to consolidate its position. Some of the important initiatives include cost transformation of the entire value chain, route-to-market transformation, modernization and automation of lube plants, augmentation of base oil manufacturing capacity and extensive leverage of technology.
Murthy did not elaborate, but many suppliers of lubricants and other types of products in India are rejiggering supply chains after last years implementation of the Goods and Services Tax regime. GST was supposed to reduce overall taxation on businesses, and it eliminated incentives for companies to maintain warehouses in every state.
He likewise did not elaborate on any plans to augment base oil capacity. IOCL operates a base oil plant in Haldia with capacity to make 130,000 metric tons per year of API Group I stocks and 120,000 t/y of Group II. The company also owns 51.89 percent of Chennai Petroleum Corp. Ltd., which has a 270,000 t/y Group I plant in Chennai. India is one of the worlds largest net importers of base stocks, and most of its capacity is Group I.
Murthy noted that IOCL is also trying to increase overseas sales. In recent years it has expanded into a number of developing countries, but it is taking a slower approach to developed markets.
Servo has already spread its wings to 30 overseas markets, he said. We do intend to make Servo a significant player in South Asia, [Southeast Asia], Gulf Cooperation Councilcountries and African regions. For our entry into the developed markets, however, we are still evaluating various options and we are also open to acquisition of overseas assets.
The size and growth rate of the Indian market are attracting lubricant marketers from around the world. That translates into more competition, but Murthy said IOCL faces some of its toughest competition in areas with fewer suppliers.
The institutional market [large public or semi-public enterprises] has fewer competitors compared to the retail market, yet competition is more intense in this segment, he explained. This, of course, is a result of buying nature of the customers, who mostly procure lubricants through tendering and competitive bidding.
In the absence of an objective system of differentiating real quality standards and service levels, Indian Oil finds it difficult to compete against companies with unproven credentials.
IOCL operates 10 blending plants across India with combined capacity to make 500,000 metric tons per year of lubricants and greases. Murthy said the company plans to increase capacity and replace older facilities by opening two grassroots plants by 2019. He was unable to provide more details by deadline.