2006 - Looking back upon 2006
I am pleased to inform you that your company has joined the Rs 2000 crore club, registering revenue growth of 22% over 2005. In a year marked with an extremely difficult environment of high raw material costs, your Company maintained underlying performance while improving EBITDA (earnings before interest, depreciation and tax). Cost of goods (COGS) increased by 37% over 2005, coming on the heels of an 8% increase in 2005 over 2004. Most of this was neutralized through margin management by trading up consumers with new technology and product positions. The continued patronage of our discerning customers to pay substantially enhanced prices for your Company’s products demonstrates their confidence in our brand. It also proves the sustainability of our business model. The performance was well rounded with growth in all focus segments. This result gives credence to your Company’s ability to keep growing in our core lubricant business as we continuously update and respond to changes in consumer preferences and channel shifts.
The achievement of 2006 can be attributed to strength of our brands and strong, enduring customer relationships, backed by the commitment of the Castrol India team. Our people have achieved these results in the face of fierce competitions. Over the last twenty-four months, competition has continuously lagged in price increases due to neutralize escalating COGS. This has often led to price premium pressure with some volume impact on our business. Collaborative effort and effective cross functional engagement was the key to your company’s ability to combat costs and competitive challenges and manage risks proactively. The industry business delivered a record performance in profit terms, a clear endorsement of the segmentation model adopted in the previous years. New initiatives like order to cash and pricing accelerator added value. Automotive lubricants segment reviewed its portfolio and took a bold step to exit several unprofitable Business to Business Customers. In context for overall growth revival for Castrol India, Automotive Lubricant segment refined its strategy and identified innovative market access approaches. The game changing activity of the year was the rollout of Castrol BikeZone – the motorcycle servicing business. As yet BikeZone is in early stages but shows great promise. Going forward we hope to build this business to a material part of Castrol India.
We ended 2006 on a high note last quarter, moving into the New Year and more stable COGS outlook. With buoyant automotive and industrial sectors, the 2007 outlook for your Company is positive. Our challenge this year is to unfailingly interpret and respond to volatile market dynamics, making tradeoffs between margin and volume. This will also be a year of capturing greater value for lubricants and building new business options. We are confident that your Company will be able to achieve these twin goals because of our distinctive competitive advantage in brand, customer relationships, people and organizing talent. Looking to 2007 and beyond, we are ideally “poised for growth” and we have shared some of our plans in our annual report. .