Case 2: Castrol India Limited: A Journey from Market Growth to Market SaturationSample Page

Introduction

As the story of any other sector in India, the lubricant industry has witnessed growth after 1992 when the lubricant market was deregulated. The lubricant industry in India was mainly dominated by three major public sector companies (Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited) capturing almost 90% of the market share. This scenario started changing by the year 2004, as the share of these public sectors started shrinking with the major part taken over by a private sector player, Castrol India Limited (CIL). Apart from these four major players, many multinationals have also entered the market to make the competition tougher. The Indian lubricant market, which was mainly driven by three public sector companies, is now operated by 40 players in the market

There is no doubt that the lubricant industry is witnessing a phenomenal growth in the last few years. Table 2.01 lists the past and future demand for the lubricant industry

CIL: A Key Player of the Market

The lubricant industry in India is broadly divided into three major sectors: automotive, industrial and marine, and energy applications. The industry is led by four major players: Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited, and

CIL. These four companies constitute more than 70% of the total market share. There are several players including global majors operating in the balance 30% of the market, leading to an extremely competitive market. CIL is the subsidiary of Castrol Ltd, an UK-based British Petroleum (BP) group company. In 1979, Castrol amalgamated its business in India with Indrol Lubricants and Specialties Ltd. (A producer of automotive and industrial lubricants.) In 1982, this merged entity was converted into a public limited company. CIL acquired its present name in 1990. Over the years, the foreign parent expanded its stake from 40% in 1979 to 71% as on 30 September 2007.1

In the year 2000, Castrol was acquired by BP. It has become the leading brand within BP’s lubricant business. Castrol was selected by BP because it was seen as one of the great lubricant brands in the world with a name that is synonymous with superbly engineered products of the highest quality. Its success can be witnessed by its vision and mission, “We will sustainably enhance the profitability of our customers by developing innovative products and services offers. As a result, we will become the manufacturing partner of choice within the Equipment Manufacturing and Industrial Maintenance market spaces.”2 Table 2.02 exhibits sales and profit after tax (in million Rupees) of CIL from Mar-98 to Mar-09.

Challenges Faced by CIL

As discussed earlier, Castrol witnessed a tremendous growth rate from 1991 to 1996. The market share of the public sector oil companies decreased from 90% in 1993 to more than 65% in 2004; CIL’s market share has gone up from 6% to 20%.3 After 1996, CIL focused on consolidation and efficiency rather than growth. As a measure of consolidation, CIL has initiated several initiatives such as computerization, total quality management, balanced scorecard performance management system, working capital management, and brand management.

The challenge faced by CIL is to succeed in an industry that has evolved and made the transition from the growth stage to the maturity stage. The period of rapid growth in demand accompanied by rapid expansion in revenues and profit is over. The growth in demand has slowed down because of the factors such as hike in oil prices, introduction of Euro II compliant vehicles, and problems in the agriculture sector. Competition has also increased. New competitors have entered the market— the MNC competitors—and new invigorated public sector units (PSUs) are fighting for market share.⁴

In a multiplayer environment, customers shifting from one brand to another are common. All the companies are coming up with unique offers not only to retain its customers but also to encroach in the customer base of other companies. Suppose CIL is also willing to examine “brand shift” from Castrol to other companies and from other companies to Castrol. What kind of research strategy will it be opting? What should be the steps of this research programme?