India is the sixth largest lubricant market in the world with estimated revenues of Rs. 65 billion in 2000.

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The Indian automotive lubricant market is the sixth largest market in the world with revenues of approximately $1.30 billion in 2002. It is also one of the fastest growing retail markets in India. Until 1993, it was a highly regulated market with a clear dominance of the public sector. Companies like Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), and Indian Oil Corporation (IOC) held more than 75 percent of the market share. In recent years, with the advent of the increasing number of multinationals in the Indian market there is a growing presence of private companies. Companies like Castrol, Elf Total-Fina, Gulf, and Shell Oil have made their presence felt in the market. Market Size Total production of automotive lubricants in India is approximately 8 to 10 percent of global lube production. Unlike other countries where lubricant demand has witnessed stagnation, the Indian market has been growing at approximately 7 percent per annum for the past 2 years. The public sector contributes to over 60 percent of the revenues for this market. MNCs have 5 percent market share and the remaining share is held by the unorganized sector. Automotive lubricants are further divided into diesel lubes and petrol lubes. Diesel lubes comprise 70 percent of the market and petrol based lubricants cover the rest. As diesel lubes are used by commercial vehicles, which have to cover greater distances, their market share is higher. Engine oil constitutes around 83 percent of total sales volumes. Gear oils, transmission fluids, hydraulic brake fluids, and engine coolants contribute to the balance. Competitive Analysis The first seeds of competition were sown in the early 1990s when following the liberalization of the Indian economy, the government decided to open the Indian market to foreign competition. Import of base oil, the key raw material, was de-canalized with IOC losing its status as the sole canalizing agent. Pricing of base oil was deregulated in a phased manner and currently it is market determined. Basic custom duty on base oil stock was also reduced from a peak of 85 percent to a level of 25 percent. All quantitative restrictions were also removed. These developments naturally encouraged the entry of foreign players on Indian shores who were already facing a slowdown in demand in their local markets. The coming in of foreign participants created an excess supply situation in the Indian automotive lubes market, which made it more difficult for the Indian lube manufacturers to survive. Recent deregulations in the lubricant market have promised many new opportunities for the private lube manufacturers. With the dismantling of Administered Price Mechanism (APM) the burden of subsidies is now being passed on to the government. Private participants will also gain a presence in the Indian oil and gas sector and hence there will be competition between participants that will ensure the growth of the sector. In the next couple of years, the industry is going to witness sea changes. Retail networks, logistics management, and risk management are going to be the crucial factors. The stand-alone refineries will have to be merged with the marketing companies, as they do not have the distribution infrastructure to sell their products in a deregulated market. Companies like Reliance are already selling their products through petrol pumps. The monopoly of the public sector holdings will no longer exist. MNCs will be able to sell their products through petrol pumps. Lubes manufactured by Reliance Petroleum, Castrol, Elf, Gulf Oil etc, which are now sold at petrol pumps. In medium to long term, Frost & Sullivan expects private sector companies to have a market share of around 25 percent.

Distribution Structure There are two key markets for lubricants in India. Given high levels of competition original equipment, linkages are gaining importance. The original equipment market contributes almost 70 percent and 30 percent of the market is comprised by the retail sales segment. The channel for replacement market or the retail segment is petrol pumps or retail stores. Almost 70 percent of the lubricants in India are sold through petrol pumps. Most of the MNCs have tied up with oil majors for marketing their lubricants like Castrol with Escorts and Tata BP with Telco. After the deregulation of the petrol pumps companies are keenly watching the developments in the lubes market. The distribution channel adopted by public sector units is through the petrol pumps. Other private participants have had to set up an independent infrastructure comprising of distributors, stockiest and retailers through out India. MNCs and private companies sell through retail stores. To compete with dominant public sector distribution, concepts like "Bazaars" and "Super Stores" have also been developed. Castrol developed the concept of "Bazaars." These are outlets meant only for lubricant sales. The concept of "User Outlet" is another new concept developed by Castrol. In this, the consumer selects his own brand of lube after giving his vehicle for service in the same outlet. Convenient stores and highway stops for vehicles are being built from where the vehicle owners can get their vehicles repaired and get their supply of lubricants. In the lube market, Indian Oil Corporation Limited is leading the market with 30 percent market share. Castrol is next with 25 percent of the share and HPCL and BPCL are next with about 20 percent and 15 percent shares respectively. Other private companies hold the remaining market share. Key Success Factors Frost and Sullivan believe that the key factors for success in this highly fragmented and competitive industry include: Brand Image With lubricants becoming a fast moving consumer good and the brand preference of the consumers witnessing a change, brand image plays a key role in affecting the consumers decision to buy a lubricant. In a recent study by Frost & Sullivan, it was found that vehicles owners decision to buy a certain lubricant is affected by a garage mechanic, retail storeowner, or the advertisements. Hence, it becomes important to have a good brand name in the market, which can affect the customers decision to buy a certain brand. Distribution Channels With increasing number of players in the market, it is vital for the companies to reach a wider segment of customers. The lubricants market in India is very highly fragmented and complex. Public limited companies selling primarily through petrol pumps manage to achieve a deeper penetration. Most of the MNCs have tied up with oil majors to market their brands like Castrol with Escorts, Tata BP with Telco. This will help the private companies to establish a wider access, brand awareness, as well as preference. Margins and Discount Schemes Private companies mostly sell their products through stockiest, dealers, distributors, mechanics, and retail stores. Maximum sales are achieved through mechanics and retail stores. Margins and discount schemes offered to the storeowners and mechanics prompt them to sell and promote a particular brand. Prices and Promotion The transformation from the administered pricing mechanism to free pricing has increased the importance of providing cost effective product to the users. Thus product costing and competitive pricing are key factors affecting the market.

Market Trend In the recent past, the Indian lubricant market has witnessed a phase of consolidation. Multinationals with better technology, brand name and finances have the power to launch themselves on their own in the market. However, with increasing number of competitors it is not possible for every one to carve a nich in the market. This sector has witnessed considerable amount of mergers and acquisitions. British Petroleums not so recent acquisition of Castrol is one example. The Indian lubes market is a combative market place and lubricant companies find themselves fighting a tough battle for survival. In the OE sector also lubricant manufacturing, companies are entering into collaborations with vehicle manufactures. Maruti Udyog, Hyundai Motors, Hindustan Motors, TAFE, Toyota, and Skoda have entered into collaboration with IOC and Castrol for some of their models. Outlook In the future, growth in the automotive lubricants industry will largely depend on the overall performance of the economy. In the past one and a half years, the scenario has improved with higher sales of commercial vehicles and two-wheelers. However, in the future volume growth will be affected because of use of better quality, long drain lubes. This will increase the replacement cycle for lubes. In the shorter term, one will witness intense competition in a slow growing market marked by a consolidation activity, which has the potential to change the face of the lubricant industry. Given the rising competition, success of a product would largely depend how well it is branded and distributed.