The lubricants industry is highly correlated to GDP as it provides solutions for many different parts of the economy. Hence, a strong progressive government that is able to grow the economy will mean strong growth for the lubricants industry in India. Nitin Prasad, in an email interaction with Renu Rajaram, talks about the potential and growth drivers of the lubricant sector.
What changes do you expect in the lubricants market in the next 10 years?
A big challenge which the industry is currently facing is the awareness about available lubricants and right lubricant for right application. We expect increase in awareness and use of condition monitoring equipment in coming years. We will continue to see new technologies that assist in refining programmes from testing lubricant properties to determining how the lubricant gets to the equipment.
In India, users will continue to stress on product performance. We believe these technologies enable lubricant manufacturing companies and independent lubricant consultants to stress lubricant performance rather than price. Hence, due to increase in demand for high performance products, condition monitoring and knowledge of product performance will increase.
Has the change in government given a boost to your business plans?
Regarding the change in government, the lubricants industry is highly correlated to GDP as it provides solutions for many different parts of the economy e.g. auto, agriculture, construction, steel, cement, mining etc. Hence, a strong progressive government that is able to grow the economy will mean strong growth for the lubricants industry.
Another key decision for the government is the future of BS-V and the new CAFC emission standards that have been proposed. The timing and levels set will mean the industry has to develop new low viscosity solutions in collaboration with the OEMs to meet the new standards (similar to the journey that was needed in Europe to meet the Euro V and VI levels).
The Indian lubricants market is the fifth largest market in the world in terms of consumption volume after the US, China, Russia and Japan. How do you look at this market in India?
The market for lubricants is strong in India with rising opportunities. The growth of the industry is highly correlated to GDP growth. At present, India has a rational gross domestic product of 4.8 per cent. With a GDP of $1,825 billion in 2012, India is the third-largest economy in Asia, after China and Japan. Historically, India has been one of the fastest growing major economies. However, since 2010, the economic growth rate has successively dropped from 9.3 per cent in 2010-2011 to about 5.3 per cent in 2013-2014. Services provide the largest contribution to GDP, accounting for nearly two-thirds of the economy. However, the majority of the Indian population is dependent on agriculture.
The per capita lubricant consumption in India is quite low compared to developed countries. However, even a comparison with other developing countries like China and Indonesia reveals that there is a significant potential for growth in lubricant consumption in India. If the economy improves further with the required investments then the entire lubricants industry is expected to witness a much positive growth in the coming years.
In India, approximately 55 per cent of the lubricants are being consumed by the automobile sector and the rest is being used by industrial and marine industry. A major trend within the industry is the shift towards higher value, technologically advanced energy and fuel efficient low viscosity oils.
What are the key growth drivers for the lubricant sector in India?
The Indian lubricants industry is one of the fastest growing lubricant industries in the world. The key growth drivers of the lubricant industry in India are:
* Rising disposable incomes, soaring population of automobile users and increased industrial activity will result in increased spending on lubricants in India.
* Industrial lubricants are majorly used in the core industrial sectors such as spamming cement, coal, steel, engineering, sugar, marine, defence, railways, power, surface transport, fertiliser and others.
* Consummation of industrial lubricants is driven by growth in infrastructure investments, manufacturing, mining sector and increased manufacturing exports.
* Demand for high performance lubricants in industrial segment is driven by vitality of application which is used in critical applications such as compressors, textile machinery windmills, captive power plants and other such applications.
* Strong demand from power generation, automotive manufacturing sector, higher investment in infrastructure division and project execution by construction companies generate excellent demand in machinery manufacturing, metals and other core industrial segments.
Trends shaping the Indian lubricants industry are: oil marketing companies are shifting focus to the untapped rural market; emergence of bio-based lubricants; changes in engine technology; OEMs introducing own brands; and focus on energy efficiency and total cost of ownership leading to adoption of more leading edge products and solutions.
Have the volatile global oil prices affected your business in India?
Base oil prices have been pretty volatile and that does create exposure in the marketplace. As an integrated oil and gas business, we participate in the full value chain and are able to manage this through our trading organisation. On the demand side, the key is to continue innovating value adding solutions, product and services, for our customers; as it’s less about volatility and more about value that a customer sees in the product.
What is the technology scene in India like?
One of the essentials in lubricant science is world-class technology. Lubricant technology is driven by the changing needs of the customers and stakeholders. Different models will require different types of advance technology lubricants as stress factor will vary from model to model.
The demand from OEMs and end customers for better quality lubricants with longer life, leads to technology developments in the lubricants industry. Engineering technology has improved significantly in the past few years with a corresponding impact on the improvement of lubricant quality. Improving engine and lubricant technology has resulted in the decline in the lube for fuel ratio. In India, improving lubricant technology has progressively increased the drain life of lubricants.
As industry faces the challenges of lower production, a key requirement is to lower the operating costs and total maintenance costs. Hence, we see more rapid adoption of leading edge lubricants that provide energy efficiency benefits and lowers the total maintenance costs (cost of ownership).
Can you brief us on your recently completed technical centre in Bengaluru?
The Bangalore facility was established in 2006 and is one of the top three facilities in the world for technology after Houston and Amsterdam in the Projects & Technology business. It aims to provide new opportunities for collaboration across discipline and departmental boundaries, promoting innovative thinking. We have recently announced an expansion of the Bangalore facility with another technology and innovation centre spread across 40 acres in Bangalore itself.
We have been investing quite heavily on R&D in India and have employed 900 research and development staff in both centres, expanding to 1,500 by 2015, to develop the next generation of technology.
What are your efforts towards energy efficiency?
Energy is vital for producing food, fuelling transport and offering communication channels across the world. As the global population rises, more people are gaining access to energy. All sources will be needed to meet growing needs in a sustainable way.
At Shell, energy efficiency is broken up into three different areas: technology innovations, wherein we need to lower emission products; technology partnership which will help us to work closely with OEMs; and lastly, the application. We have partnerships with Tata Motors, Daimler, Maruti etc. for fuel efficiency and emissions. Shell works closely with customers to understand their requirements, usage patterns etc. and further guide them on the energy-efficient benefits.
Can you take us through Shell Lubricants’ business in India over the past few years and the way forward?
Shell has a very strong legacy of more than a century. Its legacy to Asia is focused and it has clear focus to invest more to grow the Asia-Pacific businesses. Lubricant is the oldest businesses of all Shell business in the country. In India, we are focusing on nine prominent sectors, namely automotive, auto components, agriculture, power, construction, metals, mining, manufacturing and fleets. Other potential sectors we are looking at are chemicals, textile and paper.
We make a significant investment each year in the research and development of new lubricant products at cutting-edge laboratories in Asia, Europe and North America. We have recently opened a new R&D centre in Shanghai. Shell Lubricants collaborate with leading companies and manufacturers that have some of the most exciting technology challenges, gaining expertise in lubricant technology and then applying it in a way that benefits customers.
We engage with our customers at the initial stage and work together towards co-engineering the best lubricant and services suiting their requirements so that optimal performance can be obtained. Shell Lubricants work with OEMs to develop lubricants to address environmental norms or technological changes. For instance, we designed Shell Turbo J for Mitsubishi Heavy Industry (MHI) which is specifically developed for their turbine applications. These are the cases where the OEMs themselves give us feedback and talk to us about the characteristics of oil that they are looking for. We work with their engineers directly to make this happen.
Shell Lubricants has a comprehensive range of products and services that are designed to add value to our customers’ operations. Our synthetic lubricants offer outstanding protection, long lubricant life and system efficiency which are continuously proven in real-life applications. We can help businesses reduce their total cost of equipment ownership by maximising the value of using Shell Lubricants.
We have an ambitious plan for India. We have 10 to 15 per cent market share in what we call an accessible market in India. Globally, we are the largest with about 12 to 13 per cent market share and in India too we plan to continue growing at double digit rate over the next three to five years. Also, we have plans to increase and intensify the adoption of leading edge energy and total cost of ownership efficient technology.
How would you like Shell Lubricants India to grow, say, three years from now?
Since its commencement in India, Shell has continually showcased its commitment towards customer satisfaction and value delivery by offering technology-leading product portfolio, and a range of service solutions that make difference to its customer’s businesses by improving energy efficiency, lowering total cost of ownership etc. even under the most challenging conditions.
Shell has been ‘first to market’ with many lubricant innovations and the company’s commitment to research and development reflects that it is well placed to introduce the next generation of world-leading lubricants.
We have recently launched new products and will continue to build the product portfolio like the Rimula R4 which is an excellent solution at this juncture considering scenario of rampant oil adulteration. We will continue to evolve semi-synthetic and synthetic oil lubricants that build on our Gas to Liquids (GTL) unique properties.
Finally, as the CAFC standards are evolved and platforms, fuel mixes continue to change we are already working with our OEM partners for the next generation product and service solutions that meet this requirements.