Make in India: Mantra for Indian lubricant industry

Sah Petroleums

K Murali expects the Indian lubricants market would grow at a considerable CAGR rate thus exceeding $7713 million by 2017. Also the industrial lubricant business foresees a simultaneous growth as all the manufacturing sectors gear up for its ‘Make in India’ campaign and the government keen to shape business friendly policies, especially in the oil sector, which is set to open anytime now.

 

K Murali

K Murali

The Indian Prime Minister Mr. Narendra Modi launched the ambitious “Make in India initiative” on September 25, 2014 with an aim to make manufacturing a key engine for India’s economic growth. His dream is to make India a manufacturing hub albeit with the support of foreign investment which will create jobs and ultimately raise the purchasing power of us Indians.
The 25 sectors in which India has the potential of becoming a world leader includes automobiles, chemicals, information technology, pharmaceuticals, textiles, ports, aviation, leather, tourism and hospitality, wellness and railways, all of these are crucial for the industrial lubricant business.
Thus industrial lubricant business foresees a simultaneous growth as all the manufacturing sectors gears up for its ‘Make in India’ campaign and the government keen to shape business friendly policies, especially in the oil sector, which is set to open anytime now.
It is believed that lubricant industry is prolonged to witness a structural shift of volume growth to value growth and gaining market share. India is the third largest lubricant market globally in volume terms behind the US and China.
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. These all together account for nearly 80 per cent of the total lubricant consumption in India.
The Indian Scenario:
The lubricants industry in India is dominated by national oil companies namely IOC, BPCL and HPCL that account for almost half of market share. Rest of the market comprises of private multinationals like Shell, Exxon Mobil, Total, IPOL and numerous smaller and loyal players.
As demand in the sector is expected to rise in the recent future, foreign companies are keen to invest investing in India. In the light of the recent events, Gulf Petrochem made an opportunistic approach in investing in Indian lubricant market. Gulf Petrochem acquired Sah Petroleums Ltd and now plans to take the brand IPOL international.
Volume consumption of lubricants in India has consistently declined over past few years as a result of improving lubricant and engine quality. In addition the year 2013 was accompanied by slower GDP growth rate and subdued industrial activity that also affected the industry margins.
The rate of growth is at 2.3 and 1.6 per cent per year vis-à-vis 0 – 2 per cent globally 2.5 per cent of world lubes market, perhaps, amongst the highest in the world. The Indian lubricants market would grow at a considerable CAGR rate thus exceeding USD 7713 million by 2017. India is a massive market for process oils.
Process oils are the biggest contributor within industrial lubes. India is a huge market for process oils as well, accounting for 53 per cent of the overall industrial lubricant demand.
Rapid expansion of the power generation and distribution infrastructure has created a strong demand for transformer oils in India. Industrial engine oils including marine and railroad, metalworking fluids, and hydraulic fluids are other important product categories. Industrial lubricant demand is dependent on industrial production and growth trends in the economy.
The per capita lubricant consumption in India is quite low compared to developed countries. However, a comparison with other developing countries like China and Indonesia reveals significant potential in India for growth in lubricant consumption.

Copy of ipol profile final 2013_Page_10Make India: A Boon!
Manufacturing ventures are absorbing best practices from around the world. In this process, they are changing their approach from buying the cheapest lubricants to reducing the overall cost of lubrication. This takes into account the life of the lubricant and cost of downtime. This portends well for higher-performing lubricants—especially synthetics and semi-synthetics.
Power generation, automotive manufacturing sector, higher investment in infrastructure division and project execution by construction companies generate excellent demand in machinery manufacturing, metals and other core industrial segments.
Industrial lubricants are majorly used in the core industrial sectors such as spamming cement, coal, steel, engineering, sugar, marine, defense, railways, power, surface transport, fertilizer and others. The business is driven by growth in infrastructure investments, manufacturing, mining sector and increased manufacturing exports.
In this segment demand for high performance lubricants are driven by applications such as compressors, textile machinery windmills, captive power plants and others.
One of the essentials in lubricant science is world-class technology. Lubricant technology is driven by the changing needs of the customers and stakeholders. Different models will require different types of advance technology lubricants as stress factor will vary from model to model.
Development in power, automotive, manufacturing and construction sectors generate excellent demand in core industrial segments.
As the global lubricants market volume expected to grow from an estimated 38,635.3 KT in 2014 to 42,780.7 KT by 2019, with a CAGR of 2.4 per cent between 2014 and 2019, India is set to put its foots into the path of economic growth as well.
On the other hand, there has been a shift in the preferences amongst the consumers in buying lubricants. Brand name, price, accessibility and services offered are becoming the deciding factors for choosing between brands.

Thus, the strategy in the Indian automotive segment has progressively been shifting from the sales push, commodity type marketing strategy to a brand pull, fast moving consumer good (FMCG) product type of marketing strategy. This is especially in case of the Bazaar trade, which currently accounts for around 40 per cent of the sales of the automotive lubricants in India.

With the product definition of a lubricant is undergoing a change from a commodity to a FMCG, a wide distribution network and a good brand image are the most important success factors in the automotive lubricant industry.

In the medium term, the players are expected to increase advertising expenses with a lot of focus on development of brand image and improving brand equity.

With the slower growth rate in the automotive segment, declining margins on account of rising base oil prices and increasing competition on account of the presence of a large number of players in this segment, players are expected to focus on Industrial lubricants as the key area for future growth in the Lubricant Industry.

Thus, with the competition in the industry intensifying, a period of price competition followed by consolidation is expected over the medium term, with smaller players either exiting the industry or merging with larger players.

(The author is Country Head – India, Gulf Petrochem.)

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