With continued dominance of PSUs and entry of new players, how does Shell plan to grow in lubricants?
It’s at the core of what we debate every day. However, we feel we have our strengths in three areas. First, we always ask what is there for customers. It’s in our DNA to question if we are servicing their needs or not, whether we are impacting them with right products, and if the products have right carbon footprints. We are not always stuck on financials. It’s my personal belief that if we focus on what’s right, the financials will come along. Second is our technology. Globally, we spend around $1 billion on our R&D, which is much higher than any competitor. We have invested in technologies like flexibonds, gas-to-liquids and we have close to 1,300 patents in our name. We are working on technologies that are going to come in five years. We have always performed better than our competitors in all our field trials. Third, our focus is on people, their capability and our systems. We believe in growing talent. We are focussing on growing India as a talent hub and are investing a lot on that. It will give us a lot of edge vis-a-vis competition.
Shell has been present in India for 70 years, but has only 5% market share. Is this going to change?
For the majority of 70 years, the company was under a joint venture partnership, which had a lot of terms and conditions about what can be done or not. If that’s kept aside, in the last 5-6 years we have grown from strength to strength. From a low 2% market share we are now 5%, which is pretty sizeable in terms of where we want to be. That’s on the volume part. If we look at the internals such as processes, systems, customer satisfaction and revenue streams, they have improved dramatically too. Also, we never look at ourselves as transaction suppliers, but how we work closely with OEMs and end customers to optimise their total cost of ownership. We have seen the approach improve our relationship with customers in the last 5 years. This momentum will continue. Our ambition is: We are number one globally, and nothing will stop us from becoming number one in India as well.
Will competitive pricing pressure hurt your margins as you grow in India?
Our strategic intent is to provide the best product at a price point. For a fleet operator we may not recommend a synthetic product if it’s not required. However, we believe with CO2 legislation, there is a steer towards optimisation of energy and fuel usage, not only in automotive space but in industry space as well. That is where we see lubricants play an important role in reducing friction and reducing fuel consumption, correspondingly reducing CO2 emissions. The future is all about moving into fuel efficient and energy efficient products, hence pricing would be need driven.
You said the industry will shift to synthetic lubricants. How much of your portfolio is synthetic and how soon will this shift happen?
Currently, 13% of our business is synthetic, up from 6% three years ago. In comparison, the Indian market is only 5% synthetic. In future we would want to lead in synthetic business across all categories. However, a lot will depend on consumer awareness and orientation. Markets like Russia are 78% synthetic, China 27%, while European markets are between 40% and 42% synthetic. We believe as India’s economy and GDP grow, affluence will come through, pushing the entire trajectory towards synthetic.
What’s your current lubricant output in India? Are there any plans to expand?
The growth rate in the last few years has been around 20% and we expect this to continue as we aggressively plan to expand our business in India. At present, our production is around 150 million litres, and we expect it to rise by 20% in coming years too. We also plan to take our total fuel retail outlets from 100 to 1,000 in the next few years.
Source: Financial Express