RIL, Essar Oil capture 3% of fuel retail market

Mumbai: Private fuel retailers Reliance Industries Ltd (RIL) and Essar Oil Ltd have captured 3% of the local market in the last one year since diesel prices were freed from government control.

It is similar to the rate at which these companies expanded their presence in the fuel-retailing business between 2002 and 2005, when they cornered almost 12-13% of the market over three years. After that, most private fuel retailers exited the market since subsidies on products such as diesel made it unviable to compete against state-owned firms.

While in 2002-05, private firms had exploited gaps in the distribution network of state-run oil marketers, this time around, it’s the increase in demand that is helping them get a foothold in the market.

Over the past one year, due to an almost 50% fall in the price of crude oil, the price of diesel has come down by almost 18%. It has led to an increase in demand, some of which private retailers are capturing, say company officials and analysts.

“Post-deregulation, private players have captured a 3% market share in auto fuel retailing. Going by the current trend, the company expects the private retailers to capture close to 8% over the next three-four years,” P. Balasubramanian, director, finance, at Bharat Petroleum Corp. Ltd, said in a conference call held with analysts on Monday.

The official, however, said the company does not see it as a threat as the total auto fuel retailing pie, which comprises sales of diesel and petrol through petrol pumps, is growing at a rate of 7-8%.

In March, the domestic fuel retail market stood at 80 million tonnes per annum (mtpa), out of which petrol sales accounted for 20 mtpa and diesel accounted for 60 mtpa, according to the Indian Petroleum and Natural Gas Statistics 2014-15 released by the oil ministry in November. Assuming growth of 7-8%, the market will stand at close to 87 mtpa by the end of the current fiscal year. Out of this, private companies will have a share of merely 2.6 mtpa.

“Both RIL and Essar have re-started their erstwhile defunct outlets and are now aiming to open up new ones. While some of the market will definitely move to them, it will not create a major dent to the OMCs’ (oil-marketing companies) margins and volumes,” a Hindustan Petroleum Corporation Ltd executive said on condition of anonymity.

RIL and Essar Oil operate 1,400 and 1,700 outlets, respectively, the same number they were running in 2003-04.

While RIL has been slow in opening new outlets, Essar Oil is planning a major push to expand numbers, the official said.

An email sent to RIL on Monday did not elicit a response.

An Essar Oil spokesperson declined to share information on market share and sales volumes the company has seen over the past year. He, however, said Essar Oil plans to have 5,000 fuel outlets by March 2017.

“So far, the private companies have managed to reach almost 2.5-3% of the auto fuel market, but they are mainly eyeing the bulk segment as there is margin pressure on the auto fuel segment,” said an official from Indian Oil Corp. Ltd, India’s biggest fuel retailer. He declined to be identified.

In 2003-04, the companies had almost three times the sales per outlet compared with the state-owned firms due to better branding, service and quality. This time, their volumes are almost similar, the Indian Oil official said. So far, the private companies have not managed to establish any discernible difference in product quality or service, he claimed.

Analysts, however, say private firms will still capture a bulk of the new demand that comes to the market.

“The market is growing at a rate of over 7%, and most of the incremental market will be captured by the private firms,” said Piyush Jain, equity research analyst, energy, industrials and basic materials, Morningstar Investment Advisor Private Ltd.

While the three state-owned retailers will not lose any volumes, they will fail to post any major incremental jump in volumes on a year-on-year basis, Jain said.

Data from the Petroleum Planning and Analysis Cell, a statistical body under the oil ministry, showed that since the deregulation of diesel in October 2014, growth in consumption has been in the range of 3-5%, although it saw a 20% spurt in September. Similarly, petrol consumption jumped 25% in September after having averaged a growth rate of 14% between October 2014 and August 2014.

“The market is clearly expanding very fast and private companies have been aggressive enough to capture a substantial part of the market by opening the outlets which were earlier shut. This was a low-hanging fruit for them,” an equities analyst at a domestic brokerage said on condition of anonymity. “From here on, if they want to increase their market share, they have to play on higher volumes, which will not be easy.”