Mr Ravi Shinde: PSU OMCs better prepared to compete private players

3 November 2014

Sector: Oil & Gas

Expert Speak

PSU OMCs better prepared to compete private players

New fuel pump economics challenging for OMCs and dealers

We hosted a conference call in the backdrop of diesel deregulation with Mr Ravi Shinde, an

expert from the petroleum retail business, with more than three decades of experience and

having chaired leadership roles in leading industry associations. Key takeaways:



Expect deregulation is here to stay and customer will be the first and biggest beneficiaries.



At current throughput levels, new pump economics is challenging. But non-fuel revenue

should make up for these shortfalls.



Unlike 2004-06, PSU OMCs are better prepared to handle private competition.

Mr Ravi Shinde,

President, Petrol Dealers

Association, Mumbai

Mr Ravi Shinde is the

President of Petrol

Dealers Association,

Mumbai and acts as the

liaison for the

Consortium of Indian

Petroleum Dealers

(CIPD). CIPD represents

more than 75% of the

total Indian petroleum

dealers network in India.

Mr Shinde himself being

a fuel pump owner has

closely interacted with

all OMCs/private players

/oil ministry personnel

over the years.

He is also a gold medalist

automobile engineer

from VJTI.

PSU OMCs better prepared v/s last deregulation period

PSU OMCs have learned their lessons from 2004-06 deregulation experience and

improved significantly since then in terms of: (1) fuel quality and quantity (Q&Q), (2)

automation and (3) look, feel and service quality of pumps.



OMCs have increased their retail outlets significantly in the last 10 years from 25,000

in FY05 to ~50,000 now. Private players' outlet share is currently at 5% v/s 7.5% in

FY07, which had resulted in ~14% market share.



Expect differential pricing with location and there could be a pricing war in some

areas where RIL/Essar has logistics advantage. However, OMCs have a big logistics

advantage due to their pipeline network in major parts of India.



New fuel pump economics challenging for OMCs and dealers

Current breakeven volume for a fuel pump is 200KL per month v/s current India

average of ~140KL per month. While new pumps in cities are almost ruled out,

highways would see selective expansion.



Land prices and low throughput are the key challenges which make new pump

viability questionable.



In Mumbai, fuel pumps have reduced from 247 a few years ago to 223 now as alternate

land use (real estate development) gives better returns. The government had to

give a gazette notification restricting the change of use other than for fuel station.



Presently, government policy does not allow PSU OMCs to invest in land or building;

dealers have to invest in the land thereby slowing the pace of expansion.



OMCs response to private competition resulted in significant addition of pumps

without factoring minimum distance norms.



Non-fuel revenue opportunity meaningful and necessary

Dealers are already under economic strain led by low throughput, high power cost

(diesel generator cost due to lack of electricity) and evaporation losses.



Replication of overseas non-fuel model (in-and-out stores, convenience stores) did

not work in India in a big way till date. However, Mr Shinde believes that given the

lower fuel based earnings, dealers will have to focus on relevant non-fuel businesses.

Given the road touching locations of fuel stations, there is a significant opportunity

to do ancillary activities like ATM, food outlets etc.



Harshad Borawake

(HarshadBorawake@MotilalOswal.com); Tel: +91 22 3982 5432

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