Trends

Greased for Growth

Greased_For_GrowthThe market for construction equipment lubricants in India is going to be fuelled by the growing number of equipment OEMs and by a proliferation of equipment owners at the user end. And lubricant manufacturers are gearing up for this by expanding their product lines and refining facilities.

With the recessionary tide turning around on the back of India's trillion dollar budget to modernize its infrastructure, there's going to be robust demand for construction equipment and machinery. This is going to generate a concomitant demand for industrial and construction machinery lubricants in India. In a market that was depressed last few years, the expected demand is a good news. However, the rise in demand this time will not just be in volumes but also for new high-end specialty products required to service sophisticated construction machinery. There is also going to be substantial demand for automotive lubricants from the off-highway vehicles' segment. Apart from this OEM market, the MRO segment will also generate significant demand.


Fluid Dynamics

As the machines get more sophisticated their lubricant needs become more demanding. Most refiners are developing innovative products with niche applications. Nitin Prasad, Managing Director, Shell Lubricants, Shell India says, “Our focus has always been to provide solutions that help improve performance, productivity and profits. Our product innovation is put to work by our world-renowned industry specialists who create the world’s best performing solutions." Adds Akhil Jha, Vice President Technical (Lubricants), Shell India Markets Private Ltd, “Shell continually strives to develop technology leading products and services that help meet deadlines, reduce operational costs and maximize equipment availability. We are investing enormously on R&D to develop market leading products and solutions for our OEMs and customers across sectors." Shell's synthetic product portfolio includes the range of Shell Tellus, Shell Omala, Shell Corena and Shell Turbine oil (Shell Turbo) in fluids and greases from the Shell Gadus range. Most global majors have a substantial presence in India with their own refining and blending facilities. Indian oil marketing PSUs are also entrenched players and have managed to corner a substantial market share.

Another entrenched player in the Indian market is Gulf Oil. The global major is so upbeat on the Indian market that it recently demerged its lubes division into an independent company Gulf Oil Lubricants India Ltd (GOLIL), which was recently listed on the Bombay Stock Exchange (BSE). GOLIL will manage the standalone lubricant business in India under “Gulf Oil” brand. According to the company its lubricant business has reached the size and scale to take up its future growth journey independently with a pure lubricants play in the Indian market. Sanjay. G. Hinduja, Chairman, Gulf Oil International, says, “Gulf Oil Lubricants India Ltd. aims to realize its vision of becoming one of the top 3 lubricant brands in the industry with expected support from the growing Indian economy. The company will continue to outperform the industry’s growth by enhancing its distribution, investing in the brand and securing more OEM tie-ups. Further, this is in line with our global vision of being one of the largest independent downstream players in lubricants and specialty chemicals in the world.” Commenting on their growth rate Ravi Chawla, Managing Director, GOLIL, says, “ In the past 5-6 years, our strategies of leveraging our longer drain technological prowess, increasing our distribution reach and innovative brand building initiatives have resulted in volumes, revenues and profits growing multi-fold. The lubricant business has attained CAGR growth of about 15% in revenues and about 42% in profits before taxes over last 6 years. The Lubricant business has delivered an EBIDTA margin of over 12% consistently and volume growth rates are more than double the industry growth rates during this period, to emerge as one of the fastest growing lubricant majors in India. With this demerger we have plans to further expand our current 7% market share in the ‘open market’ namely the bazaar channel and in the B2B related – OEM, Industrial & Infrastructure segments.”

Most players in the Indian market have adopted branding as a strategy to corner more market share. Well known brands include; Shell's Helix, Castrol's GTX, Gulf Oil's Superfleet, Tide Water Oil Corporation's Veedol, Indian Oil's Servo, Bharat Petroleum's MAK. In addition to their branding strategy, lubricant manufacturers need to have a strong sales and marketing network to maintain a pan Indian presence in order to capture more market share. With construction sites in far flung remote areas, it is essential that your brand be available in the local retail outlet. Indian oil marketing PSUs have an edge over foreign players in terms of their market reach.


Demand drivers

The demand for industrial lubricants in India is currently driven by OEM tie ups for lubricants as per their specifications, and at the user end demand is driven largely by the replacement market in the institutional and retail segments. According to industry estimates, the present size of lubricants' market in India is pegged at around 1.8 million tonne. The demand for lubricants in India is projected to cross 2.2 million tonne by 2014-15 as per industry estimates.

According to a report published recently by industry consultant Kline, 'Opportunities in Lubricants: India Market Analysis,' India is ranked third after the United States and China, as among the most important markets in the world. The report says, “We estimate India’s current overall lubricants market to be approx 2 million metric tonne. Out of this on-highway segment is estimated to account for approx 0.53 million metric tonne and off-highway segment approx 0.28 million metric tonne. Off-highway segment consists of both construction and mining.Industrial lubricant is the largest market segment in India, accounting for over 54 per cent of the total market. Power generation, chemicals, automotive and other manufacturing, railways, marine, and metals are the leading end-use industries, together accounting for nearly 80 per cent of the industrial lubricant consumption.

And according to another leading consultant Ken Research, the Indian lubricants market is one of the fastest growing markets in the world, clocking a CAGR of 17.8 per cent during FY 2008-2012 and expanding from $1,044.87 million to $2,014.85 million during the same period. The overall lubricants industry in India is expected to grow at a CAGR of 11.5 per cent to $7,713.7 million by FY’2017.

As per lubricants producers' data, the equipment demand market is mainly served by public sector undertakings (PSU) and a few leading private players. Out of these four oil marketing PSUs account for a combined market share of close to 46 per cent. Plus there are approximately fifteen major lubricant companies in the private sector which command a market share close to 54 per cent. In the overall lubricant industry, 55-60 percent constitutes the retail market, which also covers the aftermarket, while 40 -45 percent constitutes institutional market segment. The market is dominated by three public sectors refinery companies. Bharat Petroleum leads the race, followed by Indian Oil Corporation and Hindustan Petroleum. Global players like Shell, Mobil, Gulf Oil, Caltex, Castrol, Lubrizol, etc are also major players in the Indian market.


Challenges

Volatile oil prices, currency fluctuations, product shortages and overages, changes to oil-derived products and petrochemical flows and a continuing emphasis on energy efficiency, the environment and sustainability are all factors that present challenges to the lubricants industry. As a consequence the profit margins of lubricant manufacturers are under severe pressure. Since 2011, the average raw material prices increased by 21 per cent for lubricant manufacturers. Kline projects that the overall lubricant consumption in India will grow at an annual rate of 2.5 per cent over the next five years. The consumer segment will grow the fastest at a projected 6.6 per cent per year. The commercial and industrial lubricant segments will exhibit a moderate growth of 2.3 per cent and 1.6 per cent per year, respectively.


Future prospects

In short, the lubricants market in India is getting more lucrative as demand turns robust in the near future. Consequently global majors are setting shop in India, and the entrenched ones are consolidating their position by expanding their market reach across the country and resorting to branded products to increase their market share. These emerging trends, of intense competition and branding are resulting in better quality at reasonable prices, to the benefit of India's construction sector.

 

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