BS-VI Transition Experience
When India leapfrogged from BS-IV to BS-VI, industry experts were sceptical about this move but the transition was quite smooth with ready availability of BS-VI-compliant fuels, lubes and DEF in the market. We work in two products which are major contributors driving this BS-VI change – lubricants and DEF (AdBlue). We being the largest DEF manufacturer in India have seen a sudden surge in requirement from all major automotive OEMs. Fortunately, with 11 plants spread across India, we had created enough lead capacity to cater to this demand. However, this demand could have been much higher without the pandemic.
With engines above 1.8 litre capacity going in for SCR technology, new and smaller pack sizes had to be introduced in the market of 1, 2, 5 and 10 litres. This involved design and development of new containers – right from concept to delivery. On the lube front, we had to undergo a rigorous approval process from OEMs for getting our CK4 engine oils approved. We were one of the first lube manufacturers launching the CK4 oil for BS-VI-compliant engines. The aftermarket demand for CK4 oils will only pick up in the coming couple of years.
Challenges and Takeaways
The BS-VI transition happened on April 1 2020 right on the heels of the pandemic-driven lockdown which was made effective March 23, 2020. As India started coming out from nationwide lockdown to partial lockdown, the demand started picking up. Post the pandemic the demand has picked up beyond industry expectations. Though we had prepared ourselves by installing lead capacities, we faced acute shortage on availability of manpower and raw material coupled with logistics issues. In order to continue with uninterrupted supplies to our OEMs, we had to take extra precautions and safety measures compliant with the new social distancing norms laid down by the Government of India which put additional pressure on our employees, cost and systems.
We had to operate our plant 24 x 7, spreading the workforce evenly by defining new SOPs while addressing the ‘new normal’. With 11 plants spread across India, we could risk mitigate any unforeseen closure of any one or more manufacturing locations. The current situation is much improved regarding availability of manpower but with the demand-supply gap growing, the industry is still facing an acute shortage on account of raw material such as technical grade urea and polymer. With multiple supply sources, we are trying to minimise the impact on supplies.
Opportunities
BS-VI has introduced new products and business models for the market. Products like CK4 engine oil, AdBlue and various components related to diesel emissions control system have been launched. We as a company had seen these opportunities well in advance, and hence invested in enhancing both our capacities and capabilities. Today we are India’s largest DEF (AdBlue) manufacturer, supplying to almost all major automotive OEMs. With CK4 engine oil approval in place, we are geared up for the current OEM requirements and future aftermarket demand for this latest oil technology.
We are looking at newer business models like automated dispensing units and intermediate bulk containers to add value to our customers and subsequently giving end-users genuine products at the right place and at the right price. With these new business models we are minimising the impact on environment by reducing usage of plastic packing materials. The new engine technology and diesel emission control system has increased market potential for all automotive component suppliers in both OEMs and aftermarket domains. Existing players like us and many more have expanded their product offerings to capture this increased market potential.
Current and Upcoming Financial Year
For FY 2020-21, NPL as a group registered double-digit growth in spite of losing the initial couple of months due to the pandemic. Post lockdown, the demand for lubricants, especially in the two-wheeler and tractor segments have shown a strong demand. In the diesel exhaust fluid domain we could see demand picking up in the second half of the financial year. Primarily due to vehicles sales picking up and with smaller engines coming up with SCR technology, the demand for smaller packs has substantially increased. Also, with the freight movement returning to normalcy, there has been an opportunity for organic growth in the second half.
Going ahead, in FY 2021-2022, NPL foresees a strong market demand in both lubricants and diesel exhaust fluid product lines. ICRA expects strong revival in FY 2022 with the automotive component industry likely to register revenue growth of 18 -20%. With easy availability of AdBlue (DEF) through automated dispensing units at fuel stations the market potential for companies like NPL BlueSky will grow, eliminating spurious products currently available in the market.
Growth in the Indian lubricant sector will be driven by stronger emission norms, demand for fuel efficiency, farm mechanisation and infrastructure development projects. India has also become an export hub for many global players who are demanding higher specification engines and engine oils to meet the stringent international standards. NPL strongly believes in offering technology and innovation-driven products through passionate people striving towards business excellence. These have been our growth drivers and the same will continue.