Ladies and gentlemen, please stay connected. The conference call will begin in the next few minutes. Thank you. Ladies and gentlemen, welcome to our 3Q 2025 earnings conference call for Castrol India Limited. Please note that all participant lines will be in the listen-only mode, and you can ask your questions after the opening statements. If you need assistance during the call, please press star then zero on your touchtone phone to reach the operator. Please note that this conference call may contain certain forward-looking statements which are based on the belief, opinions, and expectations of the company as of the date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. We have with us Mr. Kedar Lele, Managing Director, Castrol India Limited, and Ms. Mrinalini Srinivasan, CFO, Castrol India Limited.
I now hand the conference over to Mr. Lele. Thank you, and over to you, sir.
Good afternoon and [Foreign language] everyone. Thank you for joining us to discuss Castrol India's performance for the third quarter and nine months ended 30th September 2025. As you are aware, we are reporting follows the 10-December calendar year, and hence this is the third quarter for us. I am pleased to announce that we delivered another quarter of steady, consistent growth backed by a strong focus on profitability and a portfolio that continues to work hard for us to serve our customers across spaces. As we look ahead, our priority remains the same: to accelerate volume growth, deliver market share gains, maintain the profitability, and stay ahead by building solutions that serve the evolving needs of our customers. With that, I'll hand over to Mrinalini to take you through our financial performance this quarter and the nine-month period.
Thank you, Kedar. Good afternoon to all of you. Let me first talk about the external environment. The market conditions this quarter remained volatile, with base oil fluctuations and out-of-range forex movements adding pressure. Despite this, we've remained nimble, adapting quickly to the changing market dynamics through innovation, operational excellence, and deeper customer connection. We are managing it with discipline, staying focused on cost, driving operational efficiencies, and making prudent decisions to protect our value. Let me talk about our revenue from operations. It came in at INR 1,363 crores, which represents a 6% year-on-year growth, and it's primarily driven by higher volumes that grew 7% during this quarter. EBITDA for the quarter was INR 323 crores, which is up by INR 37 crores, while profit after tax was INR 228 crores, which is 10% higher than the same quarter last year.
In the nine months to September 2025, revenue reached INR 4,282 crores, which is up 7% year-on-year, with EBITDA at INR 980 crores, up 9% versus the same period. Profit after tax is at INR 705 crores, which is up 8% versus the comparable period. Year-to-date volume growth stands at 8%. Underscoring that our growth is sustainably driven by a combination of volume, price, and portfolio. We continue to invest with intent in our brands, in digital capabilities, and in innovation to stay competitive and future-ready. Our balance sheet remains robust, giving us the flexibility to navigate near-term volatility while preparing us for emerging opportunities in an evolving mobility landscape. I hand it back to you, Kedar, to walk us through the details of our performance and share some significant business developments. Over to you.
Thank you, Mrinalini . These results reflect our continued performance momentum. Our strategic focus on volume-led growth is beginning to yield sustainable results. We have expanded our reach in rural markets and bolstered our industrial segment presence, which are the two key speedboards driving our growth. This strong growth momentum from rural and industrial areas validates our emphasis on penetrating Bharat markets and leveraging infrastructure and manufacturing uptakes in line with the Viksit Bharat vision of the Prime Minister of India. We are also maintaining our market leadership position, holding the number one share across key categories, which speaks to the strength of our business and the deep trust that customers reposed in Castrol brand. On the operational front, we continue to strengthen our core business while expanding our portfolio. A highlight of the quarter was the launch of new products tailored to emerging consumer needs.
Let me talk about the Castrol All-in-One Helmet Cleaner, an innovative foam spray solution addressing helmet hygiene for two-wheeler riders. This product sees the real market gap. Most riders had no specialized solution for helmet cleaning, and it reinforces Castrol's position as a complete auto care brand beyond traditional engine oils. As I shared during the launch, the helmet cleaner is a natural extension of our auto care portfolio, solving an everyday need for riders while opening a new repeat-use category for our business. Early response has been very encouraging, and we hope to expand this across the country and channels in the time to come. We are looking at transforming Castrol from a lubricant provider to a full-service and maintenance company. Many of our new endeavors are in line with this vision of being a one-stop shop for services and maintenance providers beyond just products.
During Q3, we signed a notable MOU with VinFast Auto, the Vietnamese EV manufacturer, to support their foray into India's EV market. Under this agreement, VinFast will leverage Castrol's workshop network, select Castrol auto service outlets, if you will, to provide after-sales service for VinFast EV customers nationally. This collaboration not only generates a new revenue stream for our workshops but also aligns with our commitment to support India's transition to sustainable mobility by ensuring EV owners have service support across the country. It exemplifies how we can leverage our network and expertise in lubricants, and when I say lubricants, it includes EV fluids, of course, to play a broader role in the automotive ecosystem. With a vast network of 750+ Castrol auto service centers, over 12,000 multi-brand workshops that we work with, and 33,000 independent workshops working towards making Castrol a beyond-product brand.
The MOU with VinFast actually marks a key step in expanding beyond the lubricants into what I call the service and maintenance space. We have launched EV fluids under the Castrol On range. We spoke about it in the last calls also. Going forward, we shall be leveraging our technology center to formulate EV transmission and thermal fluids suited for India's environment. This localization of advanced EV fluids is part of our preparation for the future, ensuring we are ready to serve the growing electric mobility ecosystem as well. In addition, we rolled out upgraded lubricant variants, and when I say updated, it means Castrol magnetic engine oils compliant with the latest specification API SP. We are the first one to do so and other auto care products during the quarter to broaden our offerings.
You can see that we have been relentlessly expanding our distribution reach and service network to get closer to our customers. I am proud to share that Castrol India's products are now available through over 150,000 retail outlets across the country, an important milestone in our accessibility drive. This includes a footprint of 40,000+ outlets in rural India. As we deepen penetration in smaller towns and villages to capture untapped demand, about 500 or so rural express, these are Castrol oil change kiosks, and focused mechanic programs are also helping us convert the first-time users and accelerate repeat buying with bikers. This push for rural penetration is reflecting in our performance as volumes continue to grow across sectors. Equally significant is the growth of our branded service network. We now have.
More than 750 Castrol auto service, what I call CASS centers, across 300 cities, up from about 580 a year ago. Around 33,000 independent bike workshops and about 12,000 multi-brand workshops further strengthen our service delivery network. These workshops, along with our brand distribution base and distributor base and 150,000+ retail touchpoints, position us to serve our customers wherever they are with the right products at the right price. Our expanding network is a testament to making Castrol more accessible and affordable across the length and breadth of India. It also strengthens our partnership with mechanics and independent workshops who are critical stakeholders in our success. Alongside distribution, we are also executing strong marketing and customer engagement initiatives that reinforce our brand leadership and relevance. Let me talk about a few.
Activation across key markets engaged more than 5 million biking enthusiasts with Castrol Power 1, a brand that stands for ultimate performance in our portfolio. Additionally, our super drive with Castrol EDGE, a campaign this quarter offered consumers a unique chance to feature in a drive with a celebrity, which created buzz amongst EDGE lovers. They even drove thousands of consumer trials across key cities, and the two-wheeler segment, Power 1 sponsored events like premium bike races, rider academies, and that energized the biking aficionados. We also celebrated the unsung heroes of our industry, the mechanics, through initiatives such as Super Mechanics Sapta, a week-long engagement program recognizing mechanics across the country when 5,000+ mechanics participated.
These programs, along with digital outreach, and I have always spoken about Castrol FastCan app with a lot of appreciation, which targets mechanics, and Castrol Connect platform for consumers, which are strengthening our brand connect and loyalty. They ensure that Castrol remains a trusted, top-of-the-mind brand for both B2C and B2B consumers. Importantly, our journey is powered by our people and our value-driven culture. We have invested in multiple people and cultural programs. This year, from technical and leadership training to diversity and inclusion initiatives aimed at empowering our talent and fostering innovation. Consequently, we are proud that Castrol India is regularly recognized with industry accolades, reflecting our team's excellence. For instance, Castrol India ranked among the top 30 supply chain champion teams in the coveted 2025 Institute of Supply Chain Management rankings.
Our RRBO-based engine oil for BS4 vehicles co-engineered with Tata Motors received Tata Motors' Sustainability Excellence Award in 2025, and we also won several honors at the E4M IDMA 2025 for career excellence. To summarize, Castrol India continues to fire on all cylinders. We are executing our onward, upward, forward strategy with discipline and passion, focusing on core automotive growth, pushing into high-opportunity industrial and rural markets, and investing in future-ready adjacencies like EV fluids and auto care. With our CMS services gaining momentum, we are well-positioned to offer a wide gamut of services beyond the traditional auto applications. We are exploring untapped sectors such as cement, steel, glass, etc., catering to sectoral demands through new product introductions and localization. Our volume-led growth approach, supported by continuous product innovation and network expansion, is building a solid foundation for the future.
We believe the Castrol brand has never been stronger, and our broadening portfolio and associations position us well to capture evolving market opportunities. Looking ahead, we remain optimistic yet vigilant. We see significant runway for volume growth as India's vehicle park expands and the economy remains on a strong footing. We will continue to drive market penetration, especially in rural markets and industrial segments, bringing new customers into Castrol's fold and increasing usage of our products and services. At the same time, we are mindful of the external environment, including the global macroeconomic headwinds and shifts in technology. We are preparing for the future of mobility, which means ICE and electric alike, and are confident that our customer-centric strategy and agile execution will enable us to navigate challenges and capitalize on these opportunities. Castrol India's focus will remain on delivering sustainable, profitable growth and creating value for all our stakeholders.
Our aim is clear: great products backed by great service, whether that's the mechanic in a rural market, the technician at a CASS bay, or our CMS team deployed on a factory shop floor. In closing, Q3 2025 was another quarter of steady, profitable growth for Castrol India, and despite a dynamic environment, we have maintained margin stability and delivered growth, a dual achievement that not many can claim easily. This underlines the strength of our business model and execution. As we move into the final quarter of 2025, we remain focused on sustaining this performance and will continue to invest in strategic priorities like industrial segment and rural penetration and exercise cost and cash discipline like we have done so far. We are confident that these levers will allow us to navigate any near-term headwinds.
With that, I once again thank our employees, distributor partners, mechanics, and customers for their trust and contribution to our performance. Thank you very much, and we can now open the floor for any questions.
Thank you, Mr. Lele. We will now begin the question and answer session. If you wish to ask a question, please press star and one on your touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, let us wait for a moment while the questions come in. We'll take our first question from the line of Hersh, an individual investor. Please go ahead.
Hello. Am I audible?
Yes, please go ahead.
Yes, sir.
Yeah, so congratulations to the team for another good quarter. I was just seeking some clarification.
In terms of the direction of the company. Obviously, we had a leadership change recently, and then we are expected to have another leadership change, right? We saw with the leadership change how we now are trying to tap into new products, aftercare products, as well as building up our industrial portfolio, so on and so forth. I just wanted to know, with the new leadership coming in, should the investors expect a change in the direction, or will we continue to focus on our new products as well as the old segments?
Thanks, Hersh. I should first thank you for your kind remark. I must also tell you that Mr. Saugata Basuray, who is going to be taking over from me as of the 1st of January, is a quality product of Castrol, having spent 26 years in the company.
This year, we did not change the direction of the company. We simply brought alive what we had been seeing for a while with a lot more execution focus. Saugata is part of the leadership team which designed, deployed, and executed that strategy. It is working for us. We have seen now six quarters of growing momentum, and with that, a good balance between volume growth, profitability delivery, as well as innovations. As far as I see, there is no change of strategy in the near or midterm. Of course, there will be some decisions that will happen based on the strategic review outcome of Castrol, which should strengthen our play in India and South Asia. I am more than excited about what the future holds for Castrol in this geography.
Fair enough. Thank you for the confirmation.
My second question was, we have some INR 400 crores-INR 500 crores invested in Key Mobility Solutions. So could I just get an update on how that investment is performing and any basically quarterly or yearly updates on that?
Yeah, that's another great question. Now, I think it's been over two years since we invested in KMS. And like any prudent organization, every year twice, we look at the value of that investment. And it gets audited by our auditor as well. We are maintaining the value of that investment as Key Mobility goes through its own expansion plan as well as pivots that they are having. As you know, Key Mobility is one of the largest multi-brand service networks, opening new outlets. They've also gone into a corporate franchisee route and building a very sharply differentiated.
Ecosystem of digital services, which includes digital spare parts catalog, ordering app, as well as integrated workshop management systems. It is allowing us to learn a lot about what happens in the service environment. It is also allowing us to make our brand and our products available in those workshops. Of course, we use them as our partners as we start expanding CASS offerings. No change from what the blueprint of our investment was, and we continue to remain committed to Key Mobility Solutions.
What about the revenues and profits, if any, from that?
See, it is a private company, and our investment is protected, as I said. The revenue that we get is from sale of lubricant into that network. We also get a small commission on sale of spare parts in that network, and so on.
That is a small part of our revenues, and we do not identify that in our results as yet. It is consistently meeting the expectations that we had set aside for that business, for both revenues as well as learning.
Fair enough. Thank you. I will just remove myself.
Thanks, Hersh.
Thank you. We will take our next question from the line of [Daval Popat] from Choice International. Please go ahead.
Yeah, congratulations on a good set of numbers and also on the margin expansion. I understand the industrial lubricants will take over the automotive over the next three to four years. The company is already present, I understand, in the premium segment of the industrial lubricant section. How would you ensure that the margins do not dilute from here on as far as the overall, on the back of industrial lubricants component, is concerned for Castrol?
That is one question I have.
Okay. You have another one also, Daval?
Yeah. The second part I wanted to understand is that. The key investor question, of course, which of course lubricants faces is the EV penetration. I understand that the company already has EV fluids, but it is just 30%-40%. Lubricants that are being used as compared to engine oil. What is the company's strategy? Or I would like to hear your thoughts about the same.
Okay. Thanks, Daval. I always remember you come up with great questions. Last quarter, you asked about strategic pricing. Let me first clarify that industrial is a very large segment when you look at the universe of industrial lubricant requirement, right? Our play is limited into higher end of that. Industrial lubricant.
We do not play general industrial, which is an undifferentiated product, which is almost 60%-70% of the volume. Now, what do we play? We play high-performance lubricants. We play metalworking fluids. We play rust preventers, and so on and so forth. We also play something that I call as CMS services, chemical management services, which in one line takes lubricants off the mind of manufacturers, reduces the total cost of ownership, reduces the breakdowns, and hence efficiency goes up. That is really the offerings in industrial. We are also expanding into newer sectors, which are the growth sectors for India, which could be steel, cement, glass, and so on, like I mentioned in my prepared remarks. Having said that, you must know that about 12%-14% of our volumes come from industrial, and they are growing in double digits.
Over the next 10 years, how much faster we grow industrial, I do not see industrial being larger than automotive, right? It is a good emerging part of our business, which we want to focus on because industrial will remain protected from EV transition, and it is a very long-term strategic focus of the organization to expand. Having said that, you would appreciate, Daval, that industrial lubricants, how muchever high performance they may be, will never make the same money or margin as automotive lubricants do, right? Because it is an industrial cost. Hence, I keep saying that we have to balance how much growth we get from industrial versus the profitability growth that we must get from ICE engines as well as EV fluids. I should give you a good sense to understand.
If automotive lubricant gross margin is 100 index, then lubricants in industrial will be less than 25-30. Yeah? That's a good way to understand the profitability headwind that you will have from pure industrial guys, right? If you look at some of the global majors in industrial lubricant, they make single-digit EBITDA versus what you are used to seeing with Castrol in the 21-24 kind of a range, correct? We will have to remain cautious, smart, and balance the requirements of the business while we make this business future-fit by investing into industrial as a pillar of growth. Now, your second question is about EV fluids. See, I'm also concerned about it because if you drive an EV car, there is no engine. So you're not going to replace the engine oil like you do once or twice a year.
An EV vehicle also uses fluids. For example, there is a transmission fluid. There are greases that you have to use. An EV vehicle tends to be heavier than a normal vehicle, which means that the rotating parts require more frequent maintenance. If your battery tends to use a coolant, then we also make that coolant. I'm not getting into profitability just now, but if I were to do a broad CLTV analysis, customer lifetime value analysis of lubricant in a vehicle for five years versus transmission fluid as well as coolants in an EV for five years, it will be a comparable number. It won't be too way off.
As long as the organization is clear and committed to ensuring that our innovation, our range offerings, and our products are available for this energy transition, EV transition that is taking place, we should keep seeing a business that grows with time.
I appreciate it. Yeah. Thanks. Thank you a lot for this.
Okay. Thanks, Daval.
We will take our next question from the line of Nitin Tiwari from Philip Capital India. Please go ahead.
Hi. Good afternoon. Thanks for the opportunity. I am sorry I joined the call a little late, and if you already answered this, I am sorry for this. I just wanted to understand the volume number in this quarter and if you can also provide some color on that volume in terms of how much of that was automotive and how much was industrial and within automotive breakup between personal mobility and commercial vehicles.
That would be the first one.
Yeah. Nitin, thanks. I'm sure you will look at the recordings later again. Volume growth has always been the focus of Castrol. In recent years when we started playing for sustainable volume growth of the business to get benefit of scale and also to get a higher number of consumer franchise across our brands. Now, this quarter, specifically, we have delivered 7% volume growth, which brings our YTV volume growth to 8%, right? If you remember the industry numbers, it is way ahead of the industry bottom line volume growth. We are growing faster than the industry consistently. That's the first good news. Second, if you were to break it into personal mobility, CVO, and industrial, which is typically the flavor of growth that you are interested in, our personal mobility has grown at over 6%.
CVO has grown at about 8%, and industrial is in good double digits.
I'm sorry. You're sounding muffled, Nitin.
I'm sorry.
Nitin?
Yeah? Am I audible?
Yes. Please go ahead.
Yeah. I was saying that if you can provide me a breakup of volume in percentage terms and the percentage of the volume in terms of automotive and CVO, etc. I really appreciate you provided the growth number. Yeah.
Yes. You heard the growth number. See, we have put these numbers every quarter in our conversations with analysts, and the numbers do not change too much. Industrial and marine does about 13%-14%, CVO does about 38%-40%, and our personal mobility is balanced, which is 48%-50%. Depending on the quarter, many a time you will know that the Q3 is a quarter when there is low agri, low CVO.
Q2, summertime, is the high CVO month and high agri month. Q4 will also be high agri months. That's why I'm giving you a range in %, and hence these numbers are usually range-bound and stay within that.
Really appreciate the color that you provided. I mean, this is something that, I mean, at least to me, that quarter three is not heavy on agri and on this good enough. So thanks for really.
Thanks. Thanks, Nitin. Let's go to the next.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. The next question is from the line of Kirtan Mehta from Baroda BNP Paribas Mutual Fund. Please go ahead.
Thank you, sir, for this opportunity. One question on the strategic review of Castrol. Would you be able to share at what stage the exercise is and when is the outcome expected?
At the India level, have we participated in any data room exercises or something where buyers have started to look at it in a bit more granular details?
Yeah. As you would appreciate, Kirtan, I am committed to expressing any update that comes to me to the regulator and the market within 24 hours. You know exactly what I know as of today. I will repeat, BP announced the strategic review of our Castrol business globally around February in this year, if I remember right. The intention was very simple, that they accelerate Castrol's next phase of value delivery while BP retires some of its debts by getting the value of the asset called Castrol. We have significant growth ambitions across the world, which includes growing our core mobility business, expanding our participation in industrial lubricants, enhancing our mobility services, as well as diversifying to data center fluids.
We believe that this strategic review outcome considers all those options with a focus on true value creation. It is a good opportunity to determine how we can become even more effective and innovative business partners to our customers. We aim to ensure that any outcome of this review helps us continue to accelerate our growth momentum and ambition, not just for India, but beyond. Like you said, all parts of the performance units, India or South Asia is one of the performance units. We have been supplying data into a data room for potential investors, and that gets run from our central team, bound by the NDA and administered by BP's global M&A team directly. I do not participate in any of that transaction.
Thank you for this color. A couple of more questions on the operations.
You shared sort of growth across three different verticals. Would you also be able to share growth in terms of the rural, how much it contributes at this point of time, and what is the growth that we are seeing from our rural penetration? The second question was about the base oil. In the opening remark, we referred to the base oil volatility. Last year, when we were seeing it, I think base oil price sort of had a bit of delinked with the crude oil price. Are we now seeing this sort of responding to the crude oil, and does it open up opportunity for sort of reducing the cost levels?
Yeah. I should tell you something about the second part of your questions first, right? If somebody asks me, is base oil price connected with crude oil, I'll say there is definite causality.
Correlation is low, right? If the crude goes to $100, would base oil be expensive? For sure, 100%. It will take some time. If crude oil drops to $50, will it become cheaper tomorrow? The answer is not tomorrow. Eventually, it will. How much? Time will tell. This year, we have had about 3.5%. It is range-bound, but I think it is about 3.5% reduction of our cost of base oil is what we have seen, year to date. A similar inflation is what we have seen in forex. Net-net, we have had a small, very small, reduction of our COGS based on base oil and the forex combination, right? That is the first point I thought I should tell you. Second is the question that you asked. I think I have answered that.
You can give if there is a color in that.
Yeah? Second question was about how much do we get out of rural? Now, I can tell you that there are about 40,000 odd outlets in rural that we service directly. We also have close to about 500 rural service express that we call as Castrol. Pure, right? I spoke about that. These two put together give us a sustainable double-digit growth year on year. Rural volumes, if I were to just think about what kind of rural volume do we get, it is a sizable 25%-30% of our B2C numbers. I would not, of course, put an absolute number out there because competitors are always watching for my recording of analyst calls.
Suffice it to say that close to 25% of our B2C volumes are now beginning to come from rural and growing in double digits.
Thank you. Thanks for this color.
Thank you. We'll take our next question from the line of Vipul Shah from [Sumangal Investments]. Please go ahead.
Thanks for the opportunity. What percentage of our base oil requirement is imported, and what percentage is domestic sourced?
Yeah. Maybe let me take that, Vipul. Thank you for the question. Today, almost about 50%-55%, slightly more than half of our base oil comes as an import. The balance is all procured locally. What was interesting for us as we navigate the supply chain is that actually base oil is a commodity globally traded, and hence prices are almost globally landed.
What we're able to do when we get it locally is we're able to get it at a lower lead time, and there's a little bit of logistics cost that we're able to save. On the imports, we actually buy from some of the large players in the market, and we hence are able to negotiate a good rate because our buying scale goes up as well. While there's a split of domestic and import, I think on a cost basis, we have found the right advantage of sourcing.
Ma'am, my second question is, can you give the volume in million liters for this quarter and same quarter last year and last quarter also?
Are you looking for overall top-line volume or base oil volume buying?
No, volume in liters, sir.
Yeah. Overall looking at volume liters, in fact.
I am very delighted, Vipul, you ask this question every time. Last time also, we were telling you we did 62, 66, and 61 million. Again, I should tell you, if we were to look at this year's three quarters, 63 million liters in Q1, 66 in Q2, and 60 million liters in this quarter.
It is zero in this. Hello? Yeah?
Yes, that's right.
Okay. Thank you, sir.
Thank you. I hope you understood what Mrinalini was trying to explain. In base oil, there is no advantage of buying locally. That is the point that she wanted to make so that all of you appreciate it because base oil, whether you buy from imported stores or local, pricing is the same. What could benefit is just-in-time supplies, so we do not need to hold on to that in our working capital or in our storage.
Base oil in India is short supply, and hence we have to rely on international providers of base oil, and that will continue. Like Mrinalini said, a great strategy is to get a right combination, 56, 44, 58, 42, depending on the quarter and availability, to suit the requirements for the business. Thank you. Let's go to the next one.
Thank you. We'll take our next question from the line of Mandar Pawar from Kotak Mahindra Asset Management Company. Please go ahead.
Hi. Good afternoon. Congratulations to the team for excellent numbers. Wishing you all the best for your next interview and also to solve the whole big core. I have two questions, yeah? First is on the previous question where you talked about the cross-market expansion. You talked about the benefits of the sum data of net benefit on the COGS.
At the same time, there is also, we have seen the realizations have improved on a sequential basis. Can you confirm if there have been any pricing actions which have been taken in the market because this area which is to expand? The COGS benefit also, whether that is sustainable going forward because we are comparing this with the peer reported and their such benefit is not visible. I understand there is a mix change, but if there is anything different other than the mix change, if you can confirm that. Second question is, we have previously, the calls also been talking about the data center opportunities. Even in recent months, we have seen more announcements coming on that front. Within that, we have the adoption of liquid cooling as compared to air cooling. Are we in a position to.
Analyze as to what could be that opportunity in terms of the units of meter opportunities, etc., or realization how different it can be as compared to the current average realization ?
Mandar, let me take your first question, and then maybe for the second question, I'll ask Kedar to also pitch in, of course. You very rightly spotted in the results that indeed we have improved our overall gross margin. Our cost of goods sold has gone down. While our volume grew 7%-8% in the quarter, our cost of goods has only grown 2%-3%. That's the benefit that you are talking about. I thought it's good to clarify for the rest of the listeners also. Now, you asked if this is sustainable. I think this is one of the very important focus items for us in the company.
We want to make sure that we are able to improve our overall product cost ongoing structurally. Part of it will come through best rate negotiation. We just spoke about it in the previous question. Part of it really comes by optimizing our raw pack material sourcing, optimizing our formulation, optimizing the costs that we incur in our manufacturing location. As a result of all of this in this quarter, my cost per liter of lubricant has gone down by about 5%. If I look at it on a nine-month basis, it has actually gone down, I think, 2%-3%. This is intentional. This is what we use as a muscle to improve our overall profitability, and this effort should continue even in the future.
Now, part of it is really company's effort, but this part of the P&L is also exposed to the macro environment, and that's also important to be aware of. We spoke about base oil, which is a commodity, and hence part of my COGS is defined by that market. We buy in dollars. The price is maintained in dollars, and hence we are exposed to the U.S. dollar/rupee exchange fluctuations also. While we put an effort on making sure the cost goes down, we are exposed to this macro environment, and we try to find the balance always. You also asked a question on realization. Net realization for us, it is evolving. It will evolve also. Minimization, I think, is a strategy. We definitely want to do that in each of the space that we operate in.
We are very aware that we have expanded our portfolio and entered into the essential segment, Castrol essentials. You might be familiar if you are familiar with our portfolio. We have that in many spaces for our bikes, for our CVO part of the portfolio as well. That comes at a lower realization versus a comparable product. We are actually ready for a realization drop, a mixed drop in a way. We do fund part of it with the savings formulation optimization so that at a gross margin level, each of these products give us a good realization. You also asked a question on pricing. I think pricing for us is a strategic lever.
Every year, every once in a year, we sit down and we look at those pockets where there is an opportunity, and we think we can offer the consumer a better value and price for it. On the contrary, we also look if there is an opportunity and we need to consider pricing down, and we need to pass on either via promotion or strategic price down. It is a strategic discussion. We do not do that on a knee-jerk basis or on a shock basis, but yes, we do consider that ongoing.
Yeah. Yes. To talk about data center opportunity, Mandar, this is my favorite part of the answer because there are no numbers to talk about, only principles and concepts. Data center opportunity is real. It is a global opportunity which runs into millions of liters of coolant. Whether we do a liquid.
Cooling directly to chip or liquid cooling through containers where the processors and CPUs are dipped into the coolant. Now, I have been waiting for my first announcement to be made in India because these testings go on for a very long time. We work with hyperscalers as well as data center operators, and they are running very long tests. Not just with the coolant, but also with the technology to prove the heat management promise that the coolant does over ambient management, which happens through air conditioners. These tests would last nine months to a year, and we have a sizable amount of liquid coolant now available in India, which we are ready to supply.
You'll be the first one because we'll not leave a chance to make a media blitz once we win our first customer on the coolant business. We believe it makes our entry into data centers and the future of digital technology makes our products and services relevant to a totally new sector. I had said last time that in coolant space, the accepted margin in the Western world is about $1 per liter. If we are able to get some of this business coming in, it will add a good amount of delta to the business, which will not replace anything else that's happening in automotive or auto care sectors that we are currently focusing on. Watch the space is what I will say.
I'm waiting like you are for our first set of customers to finish the trials and order the liquid. Thanks. Let's go to the next one.
Thank you very much.
Thank you. Before we take the next question, we'd like to remind participants to ask a question. Please press star and one on your phone. Next question is from the line of Nitin Tiwari from Philip Capital India. Please go ahead.
Hi, Kedar. Thanks for the opportunity again. Actually, my two questions are also related to, one, your raw material cost, and another is the data center opportunity. So on the raw material cost, have we factored in any discounts or rebates from the suppliers? I suppose we typically do that in the fourth quarter. Is there any time you have?
I'm hearing your voice is sounding muffled. Can you use your handset mode, please?
Is this better?
A little better.
Nitin, I'm going to speak slowly because the voice is muffled. It's difficult. Just speak slowly. As in pace slowly.
Nitin?
No, you're sounding muffled again. No, we can't hear you at all now. Till then, should we take the next question, sir, because we are unable to hear you?
Yes, yes, yes. Yes, please.
Thank you. We'll take the next question from the line of Kirtan Mehta from Baroda BNP Paribas. Please go ahead.
Thanks for the opportunity again, sir. We spoke about sort of transitioning from you provider to full-service and maintenance providers, so adding beyond just products. So over the next five years' time, how do we want the mix to evolve? What could be the probable mix that we are looking at?
Yeah.
Kirtan, good question, but this is too early for us to start giving guidance on mix because if you remember, we used to have just about 300-400 cases. Now that number has moved to 750. Our recent tie-up with VinFast has taught us that we can make this network available as a source of reliable and accessible after-sales support for even EV customers and smaller manufacturers and OEMs. We are looking at the network effect coming into play in the future, and it will take a lot of effort and a lot of, I should say, resources from our side, whether it is in people, technology, network, guidance, services, spare parts, lubricants, and all of that put together will make the service and maintenance offerings complete. You will see this organization transform over the next three to five years.
Every quarter, you will start seeing some small numbers coming in, and over a period of time, it'll add to a sizable number. Just for sake of comparison, I could offer, these are not numbers but an inspirational case. I was in the U.S. with the leadership team, and I saw how Valvoline Quick Lube Change network of 2,000 outlets across the U.S. is a very large business that Valvoline did not sell along with its lubricant brand when they did the transaction. We believe that something, a Cast network which offers a reliable service, could become a strategically very important lever of our future growth. No numbers as yet for me to share.
Sure. Is this ambition primarily at the India entity level, or does the global Castrol also have similar ambitions?
I think what's relevant for the CN listed perspective is the ambition in India, which is being tested out, should see light of the day and get scaled up. It will have to be supported globally with both ways of working, technology, and processes. That is not relevant for CIL investors or for this conversation.
Sure. Thank you.
Thank you. We'll take our next question from the line of Parimal Mithani, an individual investor. Please go ahead.
Can you hear me?
Yes.
Yes, Parimal.
Thanks for the opportunity, sir. Sir, this is regarding your data cooling business. I would like to know, sir, how competitively are you going to be priced in terms of your competitors in the similar space and who have their products out? How do you see it?
What's the difference between the Castrol coolant versus the existing companies like Motovol, which have, if you can throw a light on it. Much better, sir.
Yes. First is, as I explained just in the last question to Mandarji. That these are very long gestation period sales, which happens not because you offer a price, but you offer a technology, a formulation, and then the assurance of supply over a period of time, right? It's not just about a data center deciding, but also the equipment that gets dipped into the liquid or coolant or the processors which get cooled with your coolant. There's a lot more that goes behind the scene here in formulating the product and then delivering it to the promise. It wouldn't matter whether we offer at X value per liter versus somebody else who could be offering at Y liter per value.
What is important is that we get these contracts and we remain with those customers for a long time to come. I gave you a benchmark number of gross margin, which also is yet to be realized and seen in Indian context. Those were the two answers so that if somebody is modeling to see what it could be, you have some numbers to work with because those are the numbers that we are also working with for the time to come. That is where this would be. Time will tell how sustainable this product advantage would be and how we will continue to work with our customers closely to offer value in their systems and processes.
Okay, sir. Thanks. Thank you. Thank you.
Thank you. Next question is from the line of [Daval Popat] from Choice International. Please go ahead.
Thank you for the opportunity. Again.
I want to understand if the company plans to expand into the space of diesel exhaust fluid. I understand the company is already doing certain numbers and whether they would be able to ramp up from here on. I understand the company is already hedging about 80% of its forex exposure. If the currency depreciates from here on, does the company have a plan further on to protect its margins and ultimately see? I understand the EBITDA margin guidance of 21%-24%, but does the company see it breaking out of this 24% and moving it higher? I do understand lubricants as a commoditized business, but Castrol is doing it so well. Can it break into the next level of EBITDA margin?
Okay. Daval, you are really pushing hard on this. And if I said.
DEF is not something that we want to expand only because you expect us to be at the higher end of that margin, that would be an appropriate answer. Because DEF is a commodity. You will not take your vehicle to a Castrol store to choose Castrol DEF if I charge you INR 2 per liter more because I have to deliver in the guidance. DEF is an undifferentiated product. We are present there, but we would not want to expand it aggressively. That is the answer for DEF. Forex exposure, I will ask Rani to let you have the answer. Realize the fact of our life is that RBI is sitting on a very large cash or forex reserve, over $650 billion, if I am not mistaken. RBI will do enough to keep it within a permissible limit.
If it keeps it within the permissible limit, I think we should be good with our assumptions for 2026. I will let Rani give you specific answers. If I were you, I would be really, really happy with Castrol as long as Castrol delivers the EBITDA in 2021, 2023, not even 2024, and consistently delivers the volume growth of 78% and the sales growth of 67%, which means you are seeing an EPS growth of 6%-7% on a very, very solid base instead of then asking, saying, "Can you do more?" In the comparable universe of a listed company, you can see where their EBITDA margins are. As a matter of fact, we are almost at a level where no lubricant company has been able to operate for such a long time. Going back to Mrinalini on forex.
Daval, good question on the forex.
When it comes to forex volatility, I think of it in two parts. What we at Castrol do is we ensure that the volatility doesn't give us any shocks in the P&L, which is why while in the July, August, September quarter, the rate went from, I think, 86, and it even touched 90 at a point in time, our P&L was protected because we had hedged for the quarter, and we didn't see any shocks, and we didn't have to respond with any shocks. We definitely focus on ensuring that the volatility doesn't impact us. On a longer-term period, will I increase my hedge cover to a longer period? I don't know. We keep looking at these efficiency models. We look at what all forex is to cover, how much period to cover. I think if at any point in time it comes with.
It shows us that that level of discipline will help us. Additionally, we may. As of now, the focus is to ensure short-term shocks are avoided by our hedging strategy. In the long term, we plan for it because it becomes a structural cost for me to incur.
Yeah. Thanks a lot on the effects. Yeah, really happy to see that Castrol may not expand in DEF. Yeah. Good to hear that. Thank you. Thank you for this.
Thank you. We'll take our next question from the line of Hersh, an individual investor. Please go ahead.
Thank you for taking another question. If I'm not wrong, we have some seasonality in our profits due to the bonus or the incentive that we get, right, once a year. From our parent, essentially. I wanted to know if/when Castrol is sold.
Will that jeopardize our incentive? So essentially, does the incentive come from Castrol, or does it come from BP directly?
Hersh, thanks for the question. I must say it's good to interact with you when you have gone through the results in detail and you have spotted this correctly. You're right. On our employee costs, because of certain base effects which happened in the same quarter, comparable quarter last year, it appears that the employee costs have gone down. Now, while I think Kedar said, I think the result of the strategic review will be announced when it does, and all the changes that, if any, have to happen will be announced there. I think what is very clear is we in Castrol India want to invest in the organization, especially as we prepare to deliver the onward, upward, and forward strategy. We invest in two forms.
One, we invest in making sure that there are people staffed to do the job, and the people who are staffed already are motivated and retained for the longer term. An average tenure in Castrol is 10+ years, which means that we are really invested in our employee costs. There are no really knee-jerk shock reactions expected on how we manage our employee cost base, but you are right in spotting that there was some base impact.
Also, I am talking about, I think there was some discount or something like that that we receive once one quarter every year.
I will answer that. I think she was meaning to tell you that. No, BP globally does not make any base oil. Castrol is the one across the world for our 2.2 billion liters-2.3 billion liters of sale.
We do buy base oil from multiple suppliers. These global deals are with Castrol, and we get benefited because we also consume a lot of that material, and we get appropriately discount coming into our numbers because of what we buy as part of global Castrol. No, none of these discounts that we see in Q4 will get affected by any strategic sales. You can be rest assured.
Understood. Thank you.
Thank you.
Okay. Thank you very much.
Ladies and gentlemen, we are in time, and hence we are closing this call. On behalf of Castrol India Limited, we thank you all for joining this call. You may now disconnect your lines. We wish you a good day ahead.