Against the current trend in the Indian lube industry, its recent half-year results (April through September 2004) recorded an impressive growth of 29 percent. Aggressive promotions and working closely with the trade have shown results and we have notched volumes of 21,600 kiloliters [5.6 million gallons] in the first half, beams Chief Executive A. Raghuram.

In a scenario where spiraling international crude prices pushed the cost of SN 500 base oil in the fall to an all-time high of Rupees 26 per liter (U.S. $500 per metric ton) and an acute shortage of bright stock nudged its price to a mind-boggling Rs. 33 per liter ($670/metric ton), Tide Waters numbers are quite remarkable. Adds Raghuram, Generally speaking the second half of the year is a better time for lube bottom lines, and with the growth in two-wheeler sales and a good monsoon resulting in the agro sector looking up, we confidently project a target of 42,500 kiloliters for the year.

Disinvestment Days

The past two years have kept Tide Water in the news as the hip-hop of Indias public-sector disinvestment cornered headlines. Highly profitable large and medium-sized oil companies with enviable reserves and infrastructure were up for grabs. The government-owned public sector undertaking Andrew Yule & Co. Ltd. holds around 27 percent of Tide Waters paid-up equity, which the then-government in 2000 wished to divest. Not surprisingly, major international and public sector players alike submitted expressions of interest in July 2002; Indo Burma Petroleum, Hindustan Petroleum Corp. Ltd., Bharat Petroleum Corp. Ltd. and Caltex all threw their hats into the ring. Industry sources were certain that Indo Burma would be the eventual winner.

Then, in June, the disinvestment policy itself turned turtle. The Congress Party-led United Progressive Alliance took the helm in Delhi – and declared that profit-making PSUs would not be privatized.

Incidentally, Tide Water was not the lone oil corporation caught in the disinvestment crosscurrent; oil majors Hindustan Petroleum and Bharat Petroleum, and greasemaker Balmer Lawrie had been targets as well.

Clearly, Tide Water was an attractive acquisition: A professionally managed corporation with five strategically located plants, a turnover upwards of Rs. 200 crore ($46 million), profits of Rs. 10 crore ($2.3 million), employee strength of 500, and a 12 percent market share in the bazaar segment with a firm presence in diesel engine and four-stroke oils. It always had functioned as a private entity, with no kid-glove treatment from the government despite being categorized as a PSU by virtue of Andrew Yule & Co.s indirect control.

Tide Water began its journey in 1928, informs S. Basu, company secretary and manager of corporate affairs, as an importer and marketer of lubricants to cater to the substantial captive needs of the Andrew Yule group of companies, Indias largest managing agency house. Managing agencies performed the three basic roles of entrepreneurs, financiers and business managers. In 1966, Tide Waters first plant for blending oils and making grease was established in Howrah; in the early 80s the Veedol brand was launched in the bazaar segment, a network of lube, spare-parts, car accessories and vehicle repair shops (gasoline stations being the exclusive terrain of national biggies like Indian Oil and Hindustan Petroleum).

Base oil available under the quota regime then dictated the output of the company, explains Basu. Post-liberalization, in 1992, Tide Water at last could directly import base oils, and it leveraged its experience and reach in the bazaar. Volumes grew dramatically, from 15 million liters a year to the present level of 40 million liters.

The Inside Story

Tide Waters total installed capacity of 87.2 million liters is distributed among its five plants in Mumbai, Silvassa, Faridabad, Chennai and Howrah. All except the one at Faridabad have ISO 9001:2000 certification. The ISO 14001 certified state-of-the-art Silvassa facility with a fully computerized, distributed-control system, accounts for half the total output. The total yearly greasemaking capacity of 4,370 metric tons is divided between the Chennai and Howrah plants. The main grease sold is lithium based as per market demand, although we have the full range for all applications, says Basu.

Two modern R&D Centers, in Mumbai and Chennai, help in the development of new products, field testing, analysis of competitors products, and fee-based testing of samples from outsiders.

Our consistent product quality, brand equity, attractive dealer returns, salesmen subsidy schemes and long association with dealers and distributors have stood us in good stead – dealer loyalty is a big advantage in the bazaar, stresses Raghuram. With 56 consignment depots, 56 distributors/dealers and 10,000 retailers, the bazaar accounts for 90 percent of Tide Waters sales, and it has a historical rural penetration particularly in Indias western and southern regions.

Tide Water today corners approximately 10 percent of the countrys tractor oil sales. Our strength and niche of a rural focus is almost three decades old and probably began through our exclusive servicing of sugar mills, says Raghuram. Our strategy, adds Basu, has been to maintain close touch with tractor owners, mechanics, service centers through our dedicated sales and service teams and consolidate the historical association with this segment.

While Veedol, the mother brand, is presented on the dependability platform, sub-brands Prima (for the diesel segment) and Take Off (for two-wheelers) are promoted through the mass media and grass-roots activities such as mechanic meets, owner meets, wall paintings, retailer and customer reward programs, video-on-wheels campaigns and village fairs.

Products are available across the entire performance level range and advertisement spend for the current fiscal is Rs. 6 crore. In order to consolidate our presence in the truck segment we launched HDB Prima superior diesel engine oil, meeting API CF performance levels, with a successful television commercial, says Basu.

OEM Friends

On the heels of lube sector deregulation, in 1993 Tide Water entered into an agreement with Mitsubishi Oil Co. to manufacture and market its new-generation lubricants. The objective of this collaboration was to obtain access to the latest technology and to cater to Japanese OEMs in the country, says Raghuram. After Mitsubishi Oil merged with the Nippon Oil Corp., the products were relaunched under the Eneos brand name, in line with international markets. In the diesel and gasoline segments, engine oils meet API CF and API SJ performance levels respectively, both being available in 15W-40 and 20W-40 multigrades.

Genuine oil tie-ups with original equipment manufacturers – including Eicher Tractors, Swaraj Mazda, Royal Enfield, Hero Honda and L&T Komatsu – are another path to market, leveraging each OEMs service and distribution networks. In the four-stroke arena in particular, co-branding with market leader Hero Honda, the largest motorcycle manufacturer worldwide, has reaped rich dividends, and talks are ongoing for a tie-up with Yamaha. We are upbeat on the two-wheeler 4T [four-stroke] market and our products like Veedol Take Off 4T Plus meeting API SJ and JASO MA specifications are cornering substantial market share, claims Raghuram.

A few years ago Tide Water decided to exit from the unrewarding industrial lubricants business, which is typified by slender margins and extended credit periods. Margins in this segment are squeezed, especially so in an appreciating cost regime where selling prices are negotiated for a year at a time, clarifies Raghuram. While this has reduced sales volume, concentration on the bazaar has given better sales realization and improved margins, he adds.

Confidence, Turbulence

Ask any Indian lube maker about immediate concerns, and the universal response is the chaotic price of base oil. Lube prices across the board inched upwards both in June and September last year in an acutely price-conscious market.

U.S. light crude should stabilize around $40 per barrel, Raghuram opined in November. Base oil [SN500] should start coming down from the current Rs. 26 per liter to Rs. 24 per liter by February 2005 but there will be pressure on bright stock prices and availability. Growth in tractor, car and two-wheeler sales, Indias ongoing four-lane highway construction (the so-called golden quadrilateral project), and general economic growth of 6.5 percent ought to bode well for the lube business – but base oil volatility makes holding on to market share challenging.

What about the immediate and long-term future of the company and employee morale given recent disinvestment issues? Raghuram is confident and candid: There is a possibility of our company becoming a part of one of the PSU oil majors in the near future and this does not appear to be inconsistent with present government policies; our employee morale is high and upbeat as we shall continue to be in the public sector.

Raghuram has ambitious plans for Tide Water: By developing appropriate new grades in the evolving automotive segment, strengthening and extending retail infrastructure, exploring virgin areas, adding more OEM business and reenforcing brand equity, we expect to be a 70,000 kiloliter, Rs. 500 crore [$115 million] corporation within the next five years. He adds for good measure, And that is a very modest and achievable target, as growth will be even faster if in the meantime we become an integral part of a PSU oil major.

Not too tall a claim perhaps, considering Tide Water has sailed through the turbulence of a 76-year voyage.