Castrol will go for third price increase: Omer Dormen

Omer Dormen, managing director of Castrol India Ltd, in an interview with Shahkar Abidi, speaks about over several issues facing the industry including the push for electric vehicles, shortage of raw materials for lubricant-making, challenges in the BS-VI era for automobiles, etc.

With the rise in crude prices, especially with most of the base oil and additives which are imported, and rupee declining, what has been the impact?

There are two hits, one is the crude increase. Almost half of the base oil is imported, half is bought locally, but even the local one is adjusted to what's happening to different prices. So there is an impact of crude prices in base oil and base oil also has its supply and demand. Last year, for example, crude was lower but base oil was higher because there was supply disruption; refiners were down, there were fires. Now, additive prices are also increasing. The other hit is, of course, all these are dollar-dominated commodities. If the dollar goes up, the cost goes up. Even if we buy it locally, it's in dollars. It's a twin hit. Our rough estimate on an annual basis for Castrol is about $40-50 million, which is about Rs 300-350 crore. So it is a major hit on an annual basis.

How are you tackling it?

We have had a price increase in anticipation of what was happening. But actually, the crude went up even further than what we anticipated, what the estimates were saying. And the base oil went up even higher than that. So we made another intervention in the second quarter with a price increase and now we are going for a third one, which is to respond to what's happening to rupee depreciation.

Your annual report mentioned there still exist some uncertainties over goods and services tax (GST). Please elaborate.

That was referring to 2017 because we close our books at the end of December. There was some uncertainty, there were two areas. One was claiming back the GST because in terms of the input credit we managed it in 2018 but there were a lot of unknowns in terms of how to book the invoices, what happens if the invoice is not matching and all that. The other thing was the rules of some of these were not clear.

Government oil companies are still aggressively trying to expand their market share. In fact, they are trying to have a separate division for lubricants. How well are you positioned to face them?

We have been here for 110 years. We stayed in India and we believed in India when none of the MNCs was here. When all the foreign companies were vacating – evacuating, in a way - there were only the government companies as well as Castrol. Castrol was not allowed to supply to petrol stations in the 90's. So Castrol responded by creating a bazaar trade (supplying via retail channel). That was the strength of Castrol and still is. The market is large enough for everyone to play in.