Its automotive lubricants market is also on an upward trajectory that seems unlikely to stall anytime soon, according to Geeta Agashe, a veteran observer of the market. India is the largest manufacturer of two-wheelers, three-wheelers and tractors worldwide and the fourth- and sixth-largest producer of commercial vehicles and passenger cars, respectively, the president of Cedar Grove, New Jersey-based Geeta Agashe & Associates told the ICIS Indian Base Oils & Lubricants Conference in Mumbai in April. Meanwhile, purchase power is growing and vehicle ownership rates are increasing. In terms of todays automotive lubricants market, India certainly is the land of milk and honey.

Comprising around 2.4 million metric tons and worth around U.S. $5 billion, Indias finished lubricants market encompasses a lot more than just vehicle oils, according to Parsippany, New Jersey-based consultancy Kline & Co. Industrial oils make up 24 percent of its demand, for example, and process oils alone account for a whopping 30 percent of the market.

Indias potential for growth beckons suppliers of all types of lubricants, and its no surprise that more players than ever are answering the call. For instance, United Kingdom-based Morris Lubricantsrecently established a subsidiary in Mumbai to handle its domestic sourcing of raw materials and production of automotive oils. German firm Kluber Lubrication has made investments in research and development in Mysore as it banks on growth there. Earlier this year, Japans Moresco established in Ahmedabad a local base for selling specialty metalworking fluids. Malaysian national oil company Petronas Lubricants International aims to supply at least 5 percent of the countrys total demand within five years of opening a $50 million blending plant in Patalganga early next year. The list goes on and on.

But the enthusiasm from foreign players somewhat belies the challenges abundant in Indias lubes market, which is as crowded as Mumbais Marine Drive in rush hour.

The countrys new Goods and Services Tax system, for one, roiled the market both leading up to and immediately after its rollout in July. Moving from a system that had been in place for more than a half-century, in which myriad taxes were levied federally and by each of the 36 individual states and territories, GST pivoted to a single nationwide tax.

Buying nosedived in June in anticipation of a rebalancing of prices under the new system, and many suppliers first-quarter profit took a hit as a result. As the new policy unfurls, a modicum of confusion is likely still to exist for months to come, Apar Industries Chairman and Managing Director Kushal Desai saidduring an August conference call with investors.

GSTs biggest impact is that it switches taxation from the destination of a sale to the source. The previous regime offered sellers value-added tax credits on sales made within a state where product is located, but not on sales made across state lines, said Shailendra Gokhale, managing director of Mumbai-based lubricants consultancy Rosefield DAA International. Interstate sales, therefore, werent always profitable.

Now, many companies that market products nationwide will likely consolidate networks of warehouses and instead rely on fewer supply points in central locations, Gokhale told LubesnGreases. Many suppliers are undergoing the cumbersome process of moving to a hub-and-spoke model of distribution.

Another cloud lingering ominously over the countrys lube suppliers comes in the form of emissions regulations. With some of the worst air pollution in the world, India in recent years decided it lagged too far behind the West in efforts to keep fuel emissions in check. So rather than progressing gradually through the Bharat Stage automobile emissions standards (which correspond to the European Unions Euro standards) the Indian government announced last year that it will enforce a transition from its current BS-IV standards directly to BS-VI norms by 2020. The move has compelled forward-thinking formulators such as Gulf Oil International and Infineum India Additives to invest heavily in research and development to rise to the occasion.

All of a sudden, the notification came that we are leapfrogging from BS-IV to BS-VI because the requirement from the fuels side was very close in terms of BS-V and BS-VI, said Tapan Sahoo, senior vice president of R&D at Maruti Suzuki India Ltd. From the [original equipment manufacturers] side, it is a very challenging task.

Gulf Oil International Chief Technology Officer Y.P. Rao echoed the sentiment in an interview with LubesnGreases earlier this year. The industry has just two years to alter formulations to meet changing requirements and receive OEM approval, and thats a major challenge, he said.

One things certain: In the coming years, you will find that the use of high-quality base stocks is going to play a very strong role within the industry, said S.K. Raghuram, country director, Infineum India Additives.

In Indias passenger car motor oil segment, Klines Anuj Kumar noted, demand is mounting for SAE 5W-30 and SAE 5W-40 grades and for synthetic blends-all of which are more commonly formulated with API Group III base stocks. Hence, from a future demand perspective, the Group III base stocks will witness growth on the back of the growth in lighter grades of PCMO, Kumar told LubesnGreases.

Yet Group III is still a niche base stock in India, accounting for at most 4 percent of the total used for lubricant applications, continued Kumar, a project manager in Klines Energy Practice. Indias finished lubricant market primarily uses API Group I and Group II base stocks.

Higher prices for Group III have been a hindrance to the switchover from Group I and Group II, Kumar said, but that may all change in coming years. There is just no shortage of availability of Group III base stocks from locations in Europe, the Middle East and throughout Asia, which are geographically advantageous for supply to Indian formulators, who imported approximately 2.5 million tons of base oils and process oils in 2016.

With the opening of Abu Dhabi National Oil Co.s new refinery in Ruwais, United Arab Emirates, last year, another 500,000-ton slug of Group III capacity descended upon a market already saddled with a sizeable global surplus of that category of oils. As a new entrant to the global market, Adnoc found in India a large, nearby destination to sell volumes of its base stocks, even if the returns were less than a Group III refiner would have liked. Its clear that Indias base stock supply scene is evolving rapidly.

But after weathering the big, sweeping changes shaking up the Indian marketplace, suppliers must still learn to throw elbows to clear some space to grow among major global brands, mid-tier international firms, a quartet of strong national oil companies and a plethora of active independents. That, or find their niche, said Agashe.

To succeed in India, marketers need a specific business model, a long-term development and investment plan and a local management base. Dont assume that a strategy that works in China will work in India, she emphasized. Also, dont plan to jump into the market and make a quick buck, and dont think that you can succeed in India via headquarters in North America or Singapore.

India is huge, Agashe continued, and the first mistake a supplier can make is to treat it as one homogeneous country. A segmentation, targeting and positioning strategy should always be the first step in India. Successful marketers have different strategies for different states and regions.

Most newcomers wrongly target big cities, she suggested. Instead of setting up shop in urban areas, where growth is actually stagnating, marketers should focus more on Indias vast rural sprawl, where 65 to 75 percent of the population lives. The biggest competition there will be state-owned companies, which do particularly well in rural areas.

But product type may be the most important choice for marketers in India to make. Two-wheelers make up three-fourths of the nations roughly 155 million vehicles, according to a presentation by Kline project manager Sushmita Dutta, also given at the Mumbai conference.Motorcycle oils account for roughly 10 percent of Indias annual lubricants consumption, more than passenger car motor oil.

With India being the largest motorcycle market in the world, its no wonder that Agashe would point out, The most successful lube suppliers of late have been ones that sell motorcycle oils-the most profitable segment.

The tractor market is another major lube consumption sector. India sold more than 600,000 tractors in 2016 and consumed nearly 80,000 tons of tractor fluids, which account for another 10 percent of the countrys total lubricants market, according to Harshad Jambaulikar of Afton Chemical India, who also spoke at the conference.

Jambaulikar projected the countrys annual tractor oil demand to grow by around 22,000 tons to more than 106,000 tons by 2020. Approximately 80 percent of tractor lubricants are sold in the bazaar segment, as Indias farmers often dont have access to service stations or workshops, he continued.

Agashe agreed. In most all segments, instead of direct sales, strong suppliers focus on Indias bazaar market, which includes small, independent workshops and spare part shops, she explained. Finding and keeping motivated distributors with good micro-distribution models and maintaining a tight credit control policy is key.

Finally, Agashe made the case that while technology can be a big differentiator in any lubricants market, its not necessarily the most important one in India. Because the highest-performance base oils and additives packages and additive components are readily available, technology is not as important as a differentiator. Companies that focus on differentiating themselves through marketing strategies are more successful.

Mumbai-based LubesnGreases freelance reporter D.S. Nag and LubesnGreases Executive Editor Tim Sullivan contributed to this article.