We will definitely be able to give better services in the south, Gulf Oil Managing Director Ravi Chawla told Lube Report Asia in an interview in April. We will be able to meet the needs of the OEMs that are in the South in a much better manner. Plus, commercially there will be freight savings.

The Mumbai-based lubricant maker currently supplies across India from its Silvassa blending plant, which has capacity to produce 90,000 tons per year. The average freight for supplying to the southern market comes to between Rs 4.50 and Rs 5 per liter, while supplying from its Chennai plant would cost around Rs 1 per liter, according to Gulf Oil.

Chennai will supply to the East and the South and a bit of exports, while Silvassa will focus more on western, northern and parts of eastern regions, which are also growing quite well, Chawla said. The company sells a wide range of automotive and industrial lubricants and greases in Indias 2.4 million tons finished lubricants market.

Gulf Oil, a part of Hinduja Group, first discussed plans to build a second blending plant near the southern industrial hub in 2014, but the project hit a snag because of delays obtaining clearances from local authorities. Those obstacles were finally cleared last year, and now several key aspects of the facility have been completed or are near completion.

The company has so far spent close to Rs 75 crore for the plant, Chief Financial Officer Manish Kumar Gangwal said on a conference call with analysts and investors on May 17. Gulf Oil had earlier projected to spend Rs 150 crore but the total project cost has now increased to Rs 175 crore as the company opted for more advanced blending technology, he added.

The plant is going to have much higher quality standards. You will see a lot in terms of quality control and in terms of faster time for changing grades, Chawla said. He added that the manufacturing and research and development facilities at the Chennai plant will be slightly bigger than in Silvassa. The Chennai plant will start commercial operations by November, Chawla said, and will provide breathing room for the Silvassa plant, which is currently running close to capacity. The companys total lubricants output surpassed 80,000 tons in the 2016-17 fiscal year.

Discussing the companys goals for sales growth, Chawla said Indias lubricant industry is growing at an annual rate of 2 to 3 percent, but Gulf Oil has been consistently achieving a more than 10 percent compounded annual growth rate for the past eight years. Chawla credited the companys investment in brand-building, tie-ups with OEMs, and its adherence to the segment-wise strategy to drive growth. We have gone on to strengthen our brand in many ways. We now invest 6 to 7 percent of our business revenues into brands. Earlier it was 3 percent, said Chawla, who wants Gulf Oil to grow 2 to 3 times faster than the Indian market.

He noted that Gulf Oil, whose competitors include Castrol, Shell, Valvoline and Hindustan Petroleum Corp., has been aggressively expanding distribution by branding independent workshops into Bike Stops and Car Stops. The universe of [retail] outlets is about 175,000 in India,” Chawla continued. “The market leader is at about 100,000 plus. We are at 55,000, so we see a large opportunity for us to increase our touchpoints because our brand has been doing well.”

He added that Gulf Oils global presence also gives it flexibility to supply to other regions, and the company has already begun exporting to countries like Bangladesh, Nepal and the Philippines. Chawla said the company sees huge growth potential in scooter, car, tractor, synthetic and semi-synthetic segments.

Y.P. Rao, chief technology officer at Gulf Oil International, agreed. He said four-stroke engine oil demand is growing very fast, and with India surpassing China to become the worlds largest market for two-wheelers, the growth potential is enormous. We are looking at [two-wheelers with engines] above 250 cc. That is the segment where we see an opportunity. We are ready with our fully synthetic motorcycle oils for that segment, Rao told Lube Report Asia in an interview in April.

The governments focus on infrastructure development has also been very positive for the company. We had no business [from road construction] in 2008, and now we have 9 percent of our volume coming from road construction, Chawla explained. Today, India is building more than 35 kilometers of highways per day, compared to 15 to 16 km/day in the past, he noted.

The tractor sector is another that offers great opportunity because of the governments focus on agriculture, rising farm mechanization and use of tractors in non-farming applications like transportation and haulage, Chawla said. Gulf Oils share of the tractor lube market is currently less than 5 percent.

Asked about challenges that the company faces, Chawla and Rao cited the federal governments plan to implement a national goods and services tax on July 1. The GST will be Indias biggest tax reform since its independence in 1947, and while generally seen as pro-business, the change-over from various state and federal levies is expected to cause headaches for companies.

Beyond the tax overhaul, Gulf officials said the lubes industry is being challenged by rising expenses. Input cost is one major [concern] this year. Prices for base oil and additives are going in the northern direction, and we dont know where it will stop, Rao noted. The company meets its base oil requirement mostly through imports.

Another key challenge for OEMs and the lubricant industry is shifting from Bharat Stage IV emissions standard to BS VI as the window available for validation of products is just two years, Rao stated. The Indian government plans to implement the BS VI emissions standard, which is modeled on the EUs Euro 6 standard, in April 2020, leapfrogging the Euro 5 equivalent in response to rising air pollution in the country. We have to recalibrate what we are doing, Chawla concluded.