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Castrol India reports 22% increase in net profits despite sluggish income growth

Owing to the volatility of the rupee and the global trend of high crude oil and base oil prices, Castrol India reports a sluggish growth in net profit and predicts a negative impact on short term growth and margins

Castrol India, India’s second largest manufacture of automotive and industrial lubricants, delivered a decent profit growth for the September quarter, with profit after tax growing by 22% at Rs104.5 crore as against Rs85.7 crore during the same period in the previous year. The improved result was on account of higher sales realisation, lower base oil price and prudent cost management. 

 

The net income stood at Rs2370.1 crore for the quarter ending on 30 September 2013 compared to the Rs2360 crore last quarter ending at 30 September 2012.

 

Commenting on the third quarter results, Ravi Kirpalani, managing director, Castrol India Limited, said “Despite the unfavourable economic scenario, including significant rupee depreciation, the third quarter results show improved gross margin on account of higher sales realisation, lower base oil prices and effective cost management strategy.”

 

“Continued economic headwinds, rupee volatility and high crude and base oil prices are likely to impact the growth and margins in the short term”, said the company in a press release. The company remained positive about future growth opportunities given its strong brand, strong relationships with key stakeholders, and commitment of its employees.

 

During the quarter, the company re-launched Castrol Power1, a premium two wheeler engine oil in collaboration with its key partner, Tata Motors.

 

The company share price has gone up by 0.24% at Rs 308.30 while the BSE stock exchange stood at 20,570.18.

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Incentives for shale exploration are a wrong step!

Let the shale resources lie buried in the bowels of the earth, until we find better methods to extract them. It is well known that the extraction of shale gas is likely to cause serious environmental problems

The government took the first major step in offering customs duty exemption for importation of drilling rigs and chemicals to promote shale oil and gas exploration in the country, traces of which were found almost ten years ago. This has been prompted by an assessment made by US Energy Information Administration (EIA) which has now estimated that the recoverable shale resources may actually be around 98 trillion cubic feet (tcf) as against 63 tcf made earlier. This is a substantial amount of gas that would certainly help in meeting the growing fuel requirements. It is well known that extraction of shale gas is likely to cause serious environmental problems.

 

First, is the non-availability of water resources needed for "fracking" which is followed by the disposal of this dirty water that needs to be "cleaned" and declared scientifically "fit" for reuse. It appears that six basins have the potential shale resources located in Cambay (Gujarat), Assam-Arakan (North-East), Gondawana (central India), KG on shore (Andhra Pradesh), Cauvery on shore and Indo-Gangetic basins. The process of recovery is very different from conventional methods of extraction of oil and gas. Both ONGC and Oil India have been allotted on land-based blocks before NELP (New Exploration Licensing Policy) was introduced in 1999.

 

Until the discovery and successful exploitation of shale gas production, it may be noted, that US was a net importer. And now, thanks to shale gas, it has turned the table for that country to become a surplus exporter in the world, set to reach this status much before 2017-20.

 

According to the present estimates, if the shale resources are properly tapped, this 96 tcf of gas is adequate for India's requirement for 26 years! Of the two licensees in India, it was ONGC that was first to discover gas reserves in Icchapur, Durgapur-Ranigunj area, covering an estimated 12,000 sq km. This was announced in January 2011 and it was achieved thanks to the efforts of scientists in the KD Malviya Institute of Petroleum Exploration. The gas was discovered when ONGC drilled a 2,000 metre deep well and the pilot project has been awarded to Schlumberger.

 

Both USA and Canada are the leaders in shale exploration and 17% of the gas produced in the US comes from this sector. ONGC's record has been disputed by Gujarat State Petroleum Corporation (GSPC) and the latter claims to be the first in India to actually discover shale gas. The discovery was made way back in 2004, seven years before ONGC, and having drilled several exploratory wells in Tarapur, Ahmedabad, Ankaleshwar, Sanand and Miroli blocks. The wells were 2,500-metre deep wells. However, due to the lack of clear-cut policy announcement by the government on shale, they did not take further steps in this direction, though, they shared the findings with ONGC, which has been exploring in the Cambay basin for some five decades!

 

The other major oil and gas producer, Reliance Industries, has not shown any interest in shale discoveries or its development in India. Instead, they have taken a different approach by taking a direct business interest in investing $1.7 billion in Atlast Energy's lease hold in Marcelllus shale gas in the eastern US, thus securing a 40% stake in the company. In the long run, this will give them the advantage of knowing more about "fracking" and maybe, alternative methods to avoid use of water. This is not a pipe dream. It remains to be seen as to what may happen in the years ahead.

 

Although Moneylife has covered the shale resources before, it is worth repeating that the process of recovering shale oil and gas — "fracking" — is a new technology that has been used extensively and successfully in US and Canada, both of which have enough water resources, as a start. Unless and until this dirty chemically contaminated water is purified and "certified" for reuse, the discharge is definitely injurious to surrounding areas, and environmentalists are up in arms to prevent this happening. Under these difficult circumstances, what should India really do? It should actually continue to explore and discover our reserves and carry on research to find out if there are any other better methods of "fracking", perhaps by greater use of "mud-chemicals and the like", rather than water, and learn to "purify" the same for reuse. Let the shale resources lie buried in the bowels of the earth, until we find better methods to extract them. We need to save mother earth from wanton destruction in this "fracking" manner!

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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