Castrol India Ltd (BOM:500870) (Q2 2026) Earnings Call Highlights: Revenue Surges 25% on ...

Q & A Highlights

Q: Can you provide a breakdown of the revenue growth between volume and pricing, and what is the current utilization level at the Silvassa plant after the recent flooding? A: Saugata Basuray (Managing Director): We maintain our growth trajectory in line with the market. We have taken pricing actions in the low double-digits during the quarter, with two price increases implemented between January and June to manage supply chain volatility and inflation. Volume growth is broad-based across our consumer, industrial, and institutional businesses. Regarding the Silvassa plant, we ceased operations for a couple of days in July due to heavy rainfall as a safety precaution, but the plant is fully operational again with business continuity plans in place, and operating levels are back to the peak levels seen in Q2.

Q: What is the expected timeline for the conclusion of the open offer following BP's divestment of its stake in Castrol? A: Mrinalini Srinivasan (Chief Financial Officer): The transaction is progressing well, with Stone Peak emerging as the lead bidder. The deal is large and spans multiple countries, requiring the necessary licenses and operating permits. We must wait for the formal deal closure statement to be issued as per compliance. Following that, the company will notify SEBI and shareholders, after which the open offer will go live according to prescribed timelines.

Q: Are the two price hikes taken in the last two quarters sufficient to offset the raw material cost increases expected in Q3, especially given the recent cooling of base oil prices? A: Saugata Basuray (Managing Director): We have modeled our pricing actions based on a certain cost of goods scenario for Q2 and the second half of the year, which includes both raw material prices and foreign exchange impacts. The environment remains volatile, and we stand ready to take further pricing action if costs move adversely. Additionally, we are actively working to reduce structural costs in our raw materials and other areas to balance pricing with our market share growth ambitions.

Q: What is the company's dividend policy, and can we expect a payout ratio of 80-90% of earnings? A: Mrinalini Srinivasan (Chief Financial Officer): Our dividend policy is guided by our capital allocation framework. We typically split dividends into interim and final, with a dividend yield in the range of around 5%. While we have not set a fixed percentage, we have historically paid out in the 80-90% range over the past three years. We may deviate from this if there are alternative use cases for cash. We have also issued special dividends in the past, such as during Castrol's 125-year global anniversary.

Q: Can you provide an update on the company's data center cooling solutions business, including which technology (immersion cooling or direct-to-chip) is the focus and the status of trials? A: Saugata Basuray (Managing Director): We are positioned to participate in both immersion cooling and direct-to-chip technologies, with products ready for both. The choice of technology will be determined by the OEMs and developers setting up data centers. Some trials have resulted in business, but many are long-range. While there are many announcements of data center developments, we need to see them convert into operational centers that consume cooling solutions. This is currently not a material part of our business.

Q: Was there any inventory gain benefit in Q2, and will this continue into Q3? A: Mrinalini Srinivasan (Chief Financial Officer): We did benefit from consuming inventory purchased at lower costs during the peak period, which is normal for any business. However, we pride ourselves on a lean inventory profile and churn our inventory fast. The inventory we will use in Q3 will be purchased at the end of Q2, reflecting the higher costs. Even excluding these one-time inventory benefits, we have grown profitability healthily this quarter.

Q: What is the current mix between B2C and B2B business, and is there a strategic shift planned? Also, has the sourcing mix changed? A: Saugata Basuray (Managing Director): Our B2C and B2B businesses are not an either/or proposition. The B2B business works closely with institutional partners like OEMs, and we will participate in their growth. In B2C, we see significant opportunities in rural India as mobility increases and in urban India through portfolio premiumization. Our industrial business, contributing about 15% of overall revenue, has been growing at high double-digits. Regarding sourcing, the 55-45 domestic-international mix broadly remains, though we take tactical calls during volatile quarters to ensure product availability.

Q: Can you explain the loss of around Rs 66 crores in Other Comprehensive Income (OCI)? A: Mrinalini Srinivasan (Chief Financial Officer): This is not a loss but a revaluation of our investment in Key Mobility. Our accounting policy requires us to revalue this asset every six months based on external market conditions, using similar competitive companies as benchmarks. External companies have experienced volatility, impacting the valuation. We will continue to reflect this valuation in our balance sheet, and it may fluctuate in future quarters.

Q: What are the major CapEx plans or strategic investments over the medium term? A: Mrinalini Srinivasan (Chief Financial Officer): We spend our capital on manufacturing units to maintain health and safety standards and for capacity expansion, as well as on market initiatives for dealer and workshop visibility. This is typically in the range of around Rs 100 crores annually, split roughly equally between the two areas. We are always evaluating strategic investments as part of our regular journey, but there is nothing specific to share at this moment.

Q: How is the transition to fully synthetic lubricants progressing, and what is the impact of E20 fuel on lubricant requirements? A: Saugata Basuray (Managing Director): The transition to fully synthetic products is gradual and driven by consumer uptake and vehicle technology evolution. We are introducing world-class products and investing in brand premiumization. Group III base oil prices are elevated due to Middle East tensions, but our pricing actions are guided by our EBITDA margin target of 21-24%. Regarding E20 fuel, it does not specifically impact the lubricant used, and we will monitor how OEMs respond. Most of our passenger car brands are already compliant with E20 fuel requirements.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .