INTRODUCTION This report provides a detailed analysis on India, providing an overview of its political, economic and business environment, represented both textually and in graph and ...India Business Forecast Report Q1 2008 by Business Monitor InternationalThe Growing Political Problem Although we forecast that the growth momentum of Asia’ssecond largest economy will subside,it is still expected to remain robust.
The Indian automotive lubricant market is the sixth largest market in the world withrevenues of approximately $1.30 billion in 2002. It is also one of the fastest growing retailmarkets in India. Until 1993, it was a highly regulated market with a clear dominance of thepublic sector. Companies like Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), andIndian 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 agrowing presence of private companies. Companies like Castrol, Elf Total-Fina, Gulf, andShell Oil have made their presence felt in the market.
Total production of automotive lubricants in India is approximately 8 to 10 percent of globallube 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 2years. The public sector contributes to over 60 percent of the revenues for this market.MNC’s have 5 percent market share and the remaining share is held by the unorganizedsector. Automotive lubricants are further divided into diesel lubes and petrol lubes. Diesellubes comprise 70 percent of the market and petrol based lubricants cover the rest. Asdiesel lubes are used by commercial vehicles, which have to cover greater distances, theirmarket share is higher. Engine oil constitutes around 83 percent of total sales volumes. Gearoils, transmission fluids, hydraulic brake fluids, and engine coolants contribute to thebalance.
The first seeds of competition were sown in the early 1990’s when following theliberalization of the Indian economy, the government decided to open the Indian market toforeign competition. Import of base oil, the key raw material, was de-canalized with IOClosing its status as the sole canalizing agent. Pricing of base oil was deregulated in a phasedmanner and currently it is market determined. Basic custom duty on base oil stock was alsoreduced from a peak of 85 percent to a level of 25 percent. All quantitative restrictions werealso removed. These developments naturally encouraged the entry of foreign players onIndian shores who were already facing a slowdown in demand in their local markets. Thecoming in of foreign participants created an excess supply situation in the Indian automotivelubes 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 theprivate lube manufacturers. With the dismantling of Administered Price Mechanism (APM)the burden of subsidies is now being passed on to the government. Private participants willalso gain a presence in the Indian oil and gas sector and hence there will be competitionbetween 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, andrisk management are going to be the crucial factors. The stand-alone refineries will have tobe merged with the marketing companies, as they do not have the distribution infrastructureto sell their products in a deregulated market. Companies like Reliance are already sellingtheir products through petrol pumps. The monopoly of the public sector holdings will nolonger exist. MNC’s will be able to sell their products through petrol pumps. Lubesmanufactured by Reliance Petroleum, Castrol, Elf, Gulf Oil etc, which are now sold at petrolpumps. In medium to long term, Frost & Sullivan expects private sector companies to have amarket share of around 25 percent.