Castrol India Ltd

NSE:CASTROLIND

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, good day and welcome to 2Q 2022 Earnings Conference Call of Castrol India Limited. We have with us Mr. Sandeep Sangwan, Managing Director, Castrol India Limited; and Mr. Deepesh Baxi, CFO and Wholetime Director, Castrol India Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sandeep Sangwan. Thank you and over to you, sir.

[Sandeep Sangwan, executive]

Thanks. Good afternoon, everyone, and thank you for joining us today. I hope you and your family are doing well and are safe and healthy. We're pleased to share that Castrol India Limited has delivered strong performance in the second quarter and half year ended 30th June 2022. I'd like to highlight once again that we follow the Jan. to December period for our reporting. In second quarter 2022, Castrol India registered revenue from operations of INR 1,242 crores and profit before tax of INR 280 crores. Our second quarter performance was in the backdrop of a volatile market environment where we had to balance rising input costs while maintaining an optimal price and volume mix.

And I'm sure all of you have kind of been reading the news and the volatility that the businesses have seen in the first half and slated to possibly continue in the second half also. So to take care of the rising input costs, we effected 2 price increases in the first half of the year, which enabled us to deliver a resilient performance and help our business stay ahead of second quarter 2021 though we felt a bit of pressure on volume and margins as compared to the first quarter of 2022, which is the sequential previous quarter. As we progress further into the year, we'll keep balancing the need to drive growth and serve our customers' needs while protecting our margins as inflationary and ForEx pressures are likely to continue in second half 2022.

I'll now invite Deepesh, our CFO, to take you through our numbers and financial performance in a bit more detail. Deepesh, over to you.

[Deepesh Baxi, executive]

Thanks, Sandeep, and good afternoon to all. Hope everyone is doing good. Let me share key highlights from our second quarter and 1H 2022 results, which we declared yesterday. In 2Q 2022 we reported a strong financial performance. Our revenue from operations was INR 1,242 crores, which marked a growth of 40% compared to INR 890 crores in the pandemic impacted 2Q 2021. This was higher by 0.5% from INR 1,236 crores compared to the sequential quarter 1Q 2022. Our profit before tax was INR 280 crores and this was up 47% from INR 190 crores in Q2 '21, but a drop of 11% from INR 311 crores in the sequential quarter of 1Q 2022. With our 2Q results, our 1H performance looks good with half yearly revenue from operations of INR 2,477 crores, about 22% growth and profit before tax of INR 591 crores and profit after tax of INR 435 crores so that's up 13%. The Board of Directors of the company have declared an interim dividend of INR 3 per share. Overall, we remain confident of our strong business fundamentals and long-term profitable growth in India.

I'd now like to hand over back to Sandeep. Over to you, Sandeep.

[Sandeep Sangwan, executive]

Thanks, Deepesh. Besides the financial performance, I'd like to draw your attention to some key business developments at our end. First of all building on our strategy to be future-ready, we are foraying into service and maintenance with new formats such as Castrol auto service and Castrol Express oil change outlets. In second quarter, we expanded our Castrol auto service reach to 163 multi-brand passenger car workshops in 90-plus cities across India and our Castrol Express oil change outlets, which are present at Jio-BP mobility stations across India, expanded to 39 and the plan is to further grow both these formats. The outlets offer 2-wheeler consumers swift and reliable oil change on the go and this is the Castrol Express oil change outlets. In addition, we are also exploring collaborations with electric vehicle OEMs to help advance electric mobility in India while continuing to launch new superior performing products in the traditional lubricant space.

We strengthened our product portfolio with the launch of CRB PLUS CI-4 for agriculture vehicles and GTX diesel CI-4 plus variants, upgrading the specifications of the products to offer better protection and performance. We launched Castrol Power 1 3-in-1 with synthetic technology. The new formula provides excellent acceleration, excellent protection and smooth riding. The second quarter also saw the launch of our integrated campaign on Castrol MAGNATEC leveraging mass media platforms, digital, connected TV and digital innovations. The campaign highlights the superior protection offered by Castrol MAGNATEC from every start. I'd also like to draw your attention to a strategic global announcement made by BP yesterday where BP plans to invest up to GBP 50 million, which is roughly about INR 500 crores, in a new global battery research and development center in Britain.

This is of strategic importance to Castrol as the new facility will be housed at Castrol's Global Headquarters in Pangbourne, Berkshire in U.K. and the technology center is expected to open in 2024. This will give us new muscle to be far more relevant and competitive in the EV future, which is beginning to unfold across geographies now. And the new facility will also help us to work with car manufacturers around the globe to co-engineer future battery technology and associated thermal management fluids. It will also look to develop future technologies required to help to enable ultrafast charging. This significant new investment will now allow us to build additional strategic technologies and capabilities to further advance EV fluids for the future as I said before and this facility will also be an amazing showcase to demonstrate our integrated technology expertise to customers as we help drive the transition to EVs.

On that note, I'd like to open the session for your questions.

[Operator]

[Operator Instructions] The first question is from the line of Parthiv Jhonsa from NVS Brokerage.

[Parthiv Jhonsa;NVS Brokerage, analyst]

Congratulations on a great set of numbers, I'd say, for half year. And sir, my questions are quite simple. The first question is will the growth momentum continue for the next 2 quarters that is till December of this year considering the vehicle sales have been improved and the overall scenario as far as the 4-wheelers are concerned, it is showing some kind of an improvement? Point #2, sir, with you entering into this new agritech -- agri space of lubricants, what is the potential there? And sir, my third question is how do you perceive this entire EV -- because you gave quite a good description at the start, but just wanted to understand in detail how do you perceive the entire EV space and the lubricants in EV space going forward?

[Sandeep Sangwan, executive]

So let me try and answer all the questions that you asked. The first question is do we continue foreseeing the growth in the balance 2 quarters. I'd just like to remind that this quarter, the second quarter results should also be looked at in relation to the second quarter last year, which during April if you remember, the nation went through the horrible thing of COVID second wave or the pandemic second wave. So April in last quarter was a bit subdued. So while we expect growth to continue, it may not be at the same level in the third and fourth quarter, but our intent is to continue driving growth. That's point #1. Second is as far as EVs are concerned, I think EVs will come. It's a question of when and how fast not whether they'll come or not, but I think we are fully prepared for an EV future. I think I'd just like to remind everyone on the call that we foresee based on our projections given the low penetration of 4-wheelers in India, especially cars in India, we expect the lubricants market to continue to grow well into 2035, 2040.

So the traditional legacy business will continue to be strong while the world transitions and we'll see faster transitions on 3-wheelers and 2-wheelers. From a fluids perspective, we've launched a global brand of EV fluids called Castrol ON. Currently it is being supplied to OEMs because in the aftermarket, there's not so much of demand given that the car park or the vehicle park is very small. But we have a range of e-coolants, e-transmission fluids, we have a range of e-greases which are relevant for the EVs. Your third question was around agricultural sector. I think we've always played in agricultural sector. It's not that we are entering the agricultural sector now. It's an important part of our business. I think what we've done is we've introduced some new products in that segment, which help our customers get better performing products and also the latest specification. So agricultural sector was and will continue to be an important sector for us.

[Parthiv Jhonsa;NVS Brokerage, analyst]

The market share of our company as on date in the market?

[Sandeep Sangwan, executive]

So market share are -- is it Saddiqui again? Can you say your name?

[Parthiv Jhonsa;NVS Brokerage, analyst]

Parthiv from NVS Brokerage.

[Sandeep Sangwan, executive]

So Parthiv, our share is around 20%, 21%, 22% and typically it stays in that range. And last year we grew our share. This year is also at similar levels. There are some segments which are up, we've gained share on cars. There are some segments which are under pressure due to all the rising cost inputs and the pricing pressure in the premiums. But it is in the range of 21%, 22% in the automotive aftermarket, retail.

[Operator]

The next question is from the line of Girish Shetty from Banyan Tree Advisors.

[Girish Shetty, analyst]

Sir, firstly, if you could help me out with the volume numbers for the quarter?

[Sandeep Sangwan, executive]

Deepesh, do you want to take that?

[Deepesh Baxi, executive]

I'll take that, Sandeep. So volume this quarter was around 56 million liters.

[Girish Shetty, analyst]

56 million right? Okay. And sir, just wanted to understand on a long-term basis. My first question is like in the last 5 years if I see your revenue growth of say around 4.5%, most of it has come from realization and very few was around volume growth. So I just wanted to understand the future trend. How is the growth likely to come from and you could just give an idea of how the realization will tend to move and the volume would tend to move in the future? Would it be on the same lines or are you expecting something different?

[Sandeep Sangwan, executive]

So maybe I'll take that at a very top level I think and then, Deepesh, you can expand on that. I think if you talk of the last 3, 4 years, last 2 years have been COVID impacted and that's why in 2020 and in 2021, the volumes actually were lower if you compare it to 2019. But I'm very happy to kind of state that actually this year in the first half, our volumes are ahead of 2019, which is a pre-pandemic normal year. So the intent is definitely to grow volume and also grow turnover and we made some interventions in some of the product categories where we thought we were too premium. So going forward our intent is not only to focus on realization per liter, but also drive volume growth -- top line growth through a combination of volume and turnover. I know, Deepesh, you want to add something.

[Deepesh Baxi, executive]

Sandeep, I think you've covered. I was going to make the similar point. And then going forward, clearly there is a focus on the area that Sandeep had initially explained in his opening remarks around we have got into the service and maintenance space, we've got these outlets which is growing month-on-month. So the focus is to find new avenues on how we can grow volumes and at the same time clear focus of growth in market share.

[Girish Shetty, analyst]

Okay. And my last question would be in the annual report, you also mentioned about implementing a big change in your B2C sales model. So if you can elaborate or just give an idea on what is it and how is it progressing right now?

[Sandeep Sangwan, executive]

So I can take that. I think what we've done is we moved all our distributor sales reps, which are around about 1,100 odd people, to an agency sourced model so a professional sales agency which is kind of hosting all our distributor sales -- who used to be distributor sales people and I think that's giving us very good results based on a number of factors.

First of all, I'm really happy to say that we've been able to move all these 1,100 odd people through a formal employment structure. Because in distributor businesses, many of these were getting social benefits, but some of them were also not getting. So we moved them to a more formal employment structure where they get benefits such as insurance, social security.

So I think from a community perspective, it's a very good thing. The second is it's also helping us professionalize feet on street. So we are able to give them much better professional training, make them much more capable and also improve the discipline of operations. So as a result, we've seen key positive influence on factors such as our coverage, our sales productivity. So overall, I think it's moving in the right direction and we are very satisfied with the change.

[Operator]

The next question is from the line of Sabri Hazarika from Emkay Global.

[Sabri Hazarika, analyst]

So I have 2 questions. Firstly, regarding this global -- this U.K. center of BP. So how important is it or how substantial is it versus what BP has done so far in the battery and EV space?

[Sandeep Sangwan, executive]

So I think it's a significant investment. It's quite a significant investment because so far we were researching on fluids and, as I said earlier, we already launched a range of EV fluids based on our current kind of technological capabilities. So this GBP 50 million investment or INR 500 crore investment will definitely give us much more muscle to work with OEMs because a lot of European OEMs like the VW, BMW, Mercedes; they're all based out of Europe and it gives us much more robust capability to work with them as EV technology advances. And if you will allow me to say I think battery technology will be a key driver of future EV adoption because the issue such rains anxiety, the issue such as thermal management or fast charging. So I think it's a huge step and significant step from BP or Castrol to become far more technologically advanced and be able to help our customers in the EV space. And how it helps India is globally Castrol has our headquarters in U.K. and we get access to all the R&D that our global innovation center does. So we will have access to better technology and better products for EV vehicles.

[Sabri Hazarika, analyst]

Okay. So this is more like an integrated thing rather than just being restricted to EV fluids. Is that right?

[Sandeep Sangwan, executive]

Yes. So one is it will focus on battery because we already have engine testing center and R&D capability as far as traditional internal combustion engines are concerned and now we're kind of investing in future technologies and battery is a key area of technical innovation as far as EVs are concerned. So we're making the business future-ready and that's why we're doing that.

[Sabri Hazarika, analyst]

Are you in any way further seeing that battery manufacturing for E-vehicles is something which might be looked into in the say medium term?

[Sandeep Sangwan, executive]

No, I wouldn't like to speculate. I think as far as our intent right now is to support the EV fluid development. And battery, as I said, thermal management of battery, I think that's the scope of the conversation. What may happen or not happen in the future is pure speculation.

[Sabri Hazarika, analyst]

Right. And just one small second question. With respect to your non-lubricant businesses, whether it's like car care or other segments. So do you have a certain sort of revenue or EBITDA target -- EBITDA share target to be more specific say 5 years or 10 years down the line? So how do you see about it? And how do you feel that in terms of the size? Considering that's still a small market in India, what makes you confident that it can be like substantial probably 5, 10 years down the line?

[Sandeep Sangwan, executive]

So responding to the first part of your question, we do not set any target for EBITDA for the next 5 years or 10 years. I think as yourself was saying, it's a very small category in India, but a category we believe will expand. It's like the decorators or when iPhone came, there was no accessories market for mobile phone. But suddenly when iPhone came, there's a huge accessories market. And I think as the ownership of cars grows in India, I'm sure there'll be a huge play for car care products and that's why we're kind of pacing with this. Just to share with you, we expanded our presence to about 10 cities as part of that learning experience. We've learned about products, which products sell, which products don't sell. Also we've made our broader play much more sharper and the intent is to kind of continue building that category. All categories start small end of the day, but we believe there is potential in the strategy.

[Operator]

The next question is from the line of [ Himanshu Upadhyay from O3 Investments. ]

[Unknown Analyst]

So my first question is -- I have 2 questions. First is on the consumer behavior, okay? Whenever we see the effective price hikes, are people doing or prone to go to lower price points or down trading or people defer the engine oil change and how difficult is to get back the customers if they do down trading? Can you elaborate historically how the mindset of people have behaved?

[Sandeep Sangwan, executive]

So I think you will see a multiplicity of behaviors, Himanshu. As you said, some consumers would postpone their servicing of their vehicles and some consumers would potentially look at cheaper options. I think the way we address that market is first of all, we believe in giving the right value to our consumers from a product performance perspective and it's not the only our category which is inflationary, I think there's inflation all across.

I think as long as we would give customers the assurance of a good product that protects their asset, in this case it could be a car or a motorcycle, and helps build longevity of that asset, consumers are willing to pay a premium. And I think we have enough technological superiority in our products to deliver that value to our consumers.

The second thing I'd say is we just don't have premium products, we also have a portfolio of products across spaces which gives consumers choice of various price points, various products across the segment. So that's how we kind of -- but end of the day, I think consumers trust a brand. If they believe the brand is giving them good value for money, they're willing to pay the premium that we have.

[Unknown Analyst]

See, there are instances where people use their vehicle for commercial purposes and there are categories where we use it for personal purpose. Is down trading more evident in commercial or is that the case or you find whatever happens, the deferring happens in both the segments?

[Sandeep Sangwan, executive]

I think I won't like to segregate commercial or personal because at the end of the day, vehicle is an asset. In case of commercial vehicles, that asset is providing livelihood to people so they want to take care of that asset. In personal mobility, that asset is for their own use so they want to protect that asset. So I think the down trading behavior or deferring of services potentially occur I think more in the personal space. Commercial vehicle, the vehicle has to keep running, that's why maintenance is so important. Any downtime on a commercial vehicle is a loss of revenue for the asset holder. So I think it's a very complex kind of a situation. But again let me reiterate if consumers or customers see value in our products, they'll continue buying us and that's where we focus on.

[Unknown Analyst]

And second question stated in our annual report that on industrial side, there was strong momentum but second half momentum got reduced. So how is that? And one more thing. On B2C we are making a lot of efforts to grow the business which may have eventual challenges, very long-dated challenges. But on the B2B segment on industrial and marine where the challenge is not going to be there at least in the foreseeable future, what special or what efforts can you do to meet that bigger and more profitable and sustainable? Are you thinking about putting more services on that business and what is the traction in the business on the industrial side?

[Sandeep Sangwan, executive]

So pretty long question and I do want to kind of give time to others as well to ask the question. In summary, I think in the second half of last year the industrial sales are related to manufacturing activity in the country and I think we just felt a bit of a slowdown in the second half in the overall kind of environment and that's why we saw a slowdown.

I think, as I said, the traditional lubricants market in automotive also will continue to be strong till 2035, 2040. That's our projection, time will tell. But we're also focusing on industrial products and like automotive, our focus on industrial is in segments where we can give a differentiated value proposition to industrial customers and where we can make a difference in performance of their machines or their equipment or their assets.

So there are specific sectors we play in where we can be differentiated on premium and this is an area where we will continue investing. And even in industrial, we're also kind of moving from products to products and services so giving digital solutions, working on areas such as predictive maintenance so that we can help create value for our customers. So Industrial will continue to be a focus area.

[Operator]

[Operator Instructions] The next question is from the line of SM Kumar, retail investor.

[Unknown Attendee]

First, congratulation to Castrol management to provide excellent numbers and good dividend. Sir, I'd like to know about what are the future plans regarding EV? How much capital allocation towards the EV research space? Can you throw some color on that?

[Sandeep Sangwan, executive]

Deepesh, do you want to take that?

[Deepesh Baxi, executive]

Sure Sandeep. So I mean as Sandeep mentioned earlier, EV is front and foremost as part of our strategy, right? And the way we are investing in EV is twofold. Firstly, the investment is happening at a global level and the benefits of those investments is also taken by growth countries like India where the advent of EV is going to be much faster than what it has been in the past. So that's one and building up this technology center is purely an example of that. On the other side, we are constantly in conversations with the OEMs and this is that whatever investments we need to make in the plant or in terms of the business side, we have cash on hand and that's clearly a part of our strategy. I'm unable to give you at this stage a clear number of that's what we're looking for. But in our forward-looking plans and strategic goals, this is at the core of our strategy.

[Unknown Attendee]

Okay. Sir, and my second question regarding on Jio and BP partnership. How much charging center can we expect next year same time, any numbers?

[Sandeep Sangwan, executive]

So I think I wouldn't like to talk about Jio-BP. My request would be to reach out to Jio-BP press office. They have a press office and they'll be able to answer your questions. I cannot answer on their behalf.

[Operator]

Next question is from the line of [ Aksha Dhare from Green Portfolio. ]

[Unknown Analyst]

I have 3 questions. My first question is based on EV mobile. EV transition is very much visible though still on a small scale, but with rapid growth. And just reference, can you please tell me how much rupee was for various oils like engine, brakes, gear oil, et cetera used in ICE against EV in a year?

[Sandeep Sangwan, executive]

I don't have those numbers because the market is still evolving and I think depending on the kind of technology that EVs will evolve to will determine the number of fluids because you could have in future, let's say, liquid immersed batteries for better thermal management. So right now what I can say is in the dry battery spaces, the requirement of E-fluids is much lower than what you use in an internal combustion engine because these vehicles don't use engine oil. But I don't have any rupee comparison or rupee numbers to share at the moment.

[Unknown Analyst]

Okay. And my second question is also on EV. Like assuming that ICE vehicles stop running on road and EV has taken over 100% further assuming that we have same share in EV fluid market as we have today in lubricant market, what will be our sales on full year basis?

[Sandeep Sangwan, executive]

Too early to start speculating on that. I would say our intent is to also have leadership in EV fluids as that market evolves. As I said earlier, as far as India is concerned, I think even in 2035, '40 there will be robust lubricant demand. Just to give you a number. Our car penetration in India is about 22 cars per 1,000 population; in China, it's in the 300s; in Europe, it is in 600; and in U.S., it is in 900s per 1,000 population. So there's a lot of room for growth in penetration and all this cannot be fulfilled by EVs because EVs have to be a combination of infrastructure and everything. So that's why we see pretty robust growth getting into 2030s of early 2040s as far as India is concerned. And how EV technology will evolve in 2040 could be very different from what we see today. So that's our view right now. While we're working on a future EV-ready business, too early to start kind of projecting on total sales volumes and how will 2050 look like. I think it's too early to say that.

[Operator]

Next question is from the line of Vipul Kumar from Sumangal Investments.

[Unknown Analyst]

Congratulations for a good set of numbers. My question is what percentage of turnover right now we are getting from EV related products like fluid and et cetera and where do you see it 5 years from now?

[Sandeep Sangwan, executive]

So first of all, thanks for your comment. I think just to put things in perspective. Last year only 0.2% of total vehicle sales were EV sales. So currently we supply EV fluids to 2 of the larger car manufacturers which is in India. But in terms of numbers, it's still very, very small, it's insignificant to our total business.

[Unknown Analyst]

Okay. And where do you see 5 years from now that number, any guess, sir?

[Sandeep Sangwan, executive]

They'll still be pretty small.

[Unknown Analyst]

Pretty small. And my second question is, sir, base oil prices must be coming down with crude oil prices. So benefit of that, which quarter will it get reflected?

[Sandeep Sangwan, executive]

Deepesh, do you want to answer that?

[Deepesh Baxi, executive]

Yes, I'll take that, Sandeep. So firstly, I just wanted to clarify that not always do you find crude linkage with the base oil in terms of the price increase and decrease. And if you've followed some of the comments we've given last year, it was the opposite last year. But having said that, from the projections that we're sort of looking at, it feels like in third quarter -- our third quarter, the pressure on the base oil price will continue so it will continue to be increased and towards the end of the last quarter, early next year is when we will start seeing softening of the base oil. I think the other factor that's worth considering is foreign exchange is clearly an element of the overall input cost and with rupee at all-time high, that definitely puts a bit of pressure on the margins. But we have a hedge strategy, we are covered for 3Q so from that point of view, we are well placed. But in summary seeing today's projection, fourth quarter -- late fourth quarter is I think base oil will come down.

[Operator]

The next question is from the line of [ Nimesh Maheshwari from RS Ventures. ]

[Unknown Analyst]

Congratulation on good set of numbers. I have one question only. Can you share the split of revenue among the 2-wheeler, 3-wheeler or like 4-wheeler EV and commercial retail space? How much revenue you generate?

[Sandeep Sangwan, executive]

Deepesh, do you want to take that?

[Deepesh Baxi, executive]

Yes. So I'll probably talk about the core business breakup. We'll keep EV separate. EV, as Sandeep mentioned, it's early days so that's a small part of our revenue portfolio. But in terms of the turnover, almost 50% comes from personal mobility which is cars and bikes and the commercial vehicles is roughly around 35% to 40% between and then the balance is the industrial portfolio.

[Operator]

Next question is from the line of Hemang from Kotak Securities.

[Hemang Khanna, analyst]

Sandeep, I have a couple of them. So this focus on base oil prices that is to get some more sense of that. Towards the second -- sorry, towards the previous quarter, we had indicated base oil prices being about $900, which had increased to about $1,000 per tonne or $1,100 rather. Could you please help with what base oil prices have averaged roughly for this quarter? And when we look at base oil prices easing out towards 4Q, in the previous year base oil prices averaged about $1,200 to $1,300 per tonne.

I understand you can't give an exact number on that. But what would your sense be where should that number settle around? And the second part is on the realization front. If you look at realizations in the previous few quarters or even on a Y-o-Y basis, you'll have done a really fantastic job action and you'll are raising realizations like give or take INR 20, INR 25 odd. How do you'll look at realization going forward?

Has there been any price hike which you'll have taken do you now to pass on base oil prices in the current quarter? And when you look at that from a possibility from a demand elasticity point of view, how does that actually work out? Do you'll have enough pricing power to be able to continue with these price hikes or does it start impacting personal mobility at a particular point and how is it also working out in the EV space?

[Sandeep Sangwan, executive]

So I think I'll answer the second part of your question on pricing, demand elasticity. I think we monitor the situation very closely and I think as I've always maintained, it's a fine balance between volume expectations and margin protection and we'll continue doing that and we'll continue taking action. For example we took price increases, but somewhere on 2-wheeler segment we felt a bit more pressure so we gave a price or promotion, which is in public domain so there's nothing secret about it.

So we gave INR 50 off per liter on Activ, which is one of the largest brands. And we'll continue monitoring the situation as we go forward into second half of this year and the situation is going to stay volatile. The base oil prices haven't really started coming down. As Deepesh was saying, it's a multiplicity of factors: it's availability, it's what refiners do because they're getting better margin on diesel now so the base oil versus diesel.

So they're all kind of kind of factors that go into base oil pricing. On the first part, average prices, et cetera; let me hand over to -- pass it on Deepesh to take that part of the question.

[Deepesh Baxi, executive]

So you're right, I think initially last time I said something around 1,100 is where we were looking at and that's exactly where we kind of landed in 2Q. I just wanted to clarify, I mean this is not -- I'm not just talking about our consumption rate. I mean this is really the market rate as well. We have a medium-term contract and we do lots of activity to make sure that we get the best rate.

But just to give you an idea, $1,100 is what the base oil was averaged around this quarter and going forward it is expected to go up in 3Q, it will come down in 4Q. From a pricing point of view, we again don't look at it very practical. We took one in March and by the way that quarter that we are talking about something like $900, $950 and we knew 3 months going forward, this is the range of the base oil.

So we put that into our pricing strategically. Again if base oil is going to go up in the next couple of months, we will decide looking at the next 3 to 6 months horizon whether we want to take a price increase or not. But if you just go back last 4, 5 quarters, you will see that our sales per liter and our base oil COGs per liter, we manage our margins in a way that we are able to recover but make sure that we don't become high premium and plus that we make sure that we protect our margin.

[Operator]

The next question is from the line of [ Hemang, ] individual investor.

[Unknown Attendee]

I actually have similar 2 questions actually. Your other expenses increased a lot this quarter-on-quarter. What was the reason for that? And if you can share where you believe like how much of a rise do you think the base oil will have in quarter 3 like $50, $60 or even higher than that?

[Deepesh Baxi, executive]

Yes, sure I can. So other expenses includes various elements; it includes interest rate, it includes insurance, travel. So when you look at previous quarter, clearly there are variable costs which are dependent on volume increase and freight is one such, which has actually been a double whammy. Of course volume and freight goes up, but then is a [indiscernible] cost increase. So freight is one element of that. Then last year not everybody was traveling both from the sales side and we are all in the market. So from that point of view, all of this is within our plan so we don't see a reason to worry about that cost has gone up. And the other element is general inflation; insurance costs, term insurances, the health insurances, the transport insurances; there's a huge upside on -- downside on that cost. So those are the 3 or 4 main reasons why the other expenses has gone up.

[Unknown Attendee]

And on the -- where do you expect the base oil price to go next quarter? As you're saying it's expected to rise, what is your estimate?

[Deepesh Baxi, executive]

I mean about anything between kind of $100, $150. Maybe more and it's very difficult to predict. See, I mean because there is an element of ForEx as well, right? And I just wanted to say something more. Base oil is one part. But when you look at the overall COGS portfolio or input costs, there are other elements as well like additives, packaging and sometimes when base oil goes up, there is a corresponding effect on some of the other aspects of the input cost also. So it's a mixed bag in terms of the overall increase. So we wouldn't want just base oil to be a key element for when you take pricing decisions because then we also have some forward buying so we leverage on that as well.

[Unknown Attendee]

And absolutely, sorry, final question. What is the volume growth here? You said 56 million liters was the volume. What was the -- I don't have the last year's numbers so if you can tell me last year's number what's the volume growth?

[Deepesh Baxi, executive]

So we grew 20% -- 22% actually over last quarter 2Q '21.

[Operator]

Thank you. Ladies and gentlemen, due to time constraint, we'll take that as the last question. I now hand the conference over to Mr. Sandeep Sangwan for closing comments.

[Sandeep Sangwan, executive]

Yes. Thanks, Madhavan. Thanks to all the people who ask questions and thanks for your interest in Castrol. And I think as management of this company, we will continue to focus on top line growth which has been one of the areas where we are putting in some programs and initiatives, which are beginning to bear fruit. So top line growth will continue to be a focus and it will be a combination of volume and realization. And I think we are committed to also protecting our margins, but giving fair value to our consumers and customers and keeping that balance right. And have a good day and hope to see you at the end of the next quarter. But our sense is the second half will also continue to be very volatile, but we have good capable team as in the management team and the people that we have in our business to face those challenges. So thank you for your interest and have a good rest of the day and stay safe. Thank you.

[Deepesh Baxi, executive]

Thank you.

[Operator]

Thank you very much. On behalf of Castrol India Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.