Castrol India looks to counter impact of rising raw material costs

The rising cost of crude oil prices is a cause for concern for Castrol India Ltd. “Base oil prices for the quarter have averaged at US$1,050 per ton against US$900 per ton for the corresponding period last year. By the end of the year, they had risen to US$1,075 per ton,” stated Ravi Kirpalani, chief operating officer for Castrol India. Crude oil is the key raw material for Castrol’s lubricant business. To address this issue, Castrol has recently raised prices by 7% to 8%. However, volume growth has been flat in the last quarter and the projected volume growth is projected at only 2-3%. In addition to rising base oil costs, the company is reporting higher advertising costs due to an increase in sponsorship of sporting events. Operating profit margins have improved by 160 basis points on a year-to-year basis to 22.5%, but there has been a four percentage point sequential decline in margins. (February 23, 2011)