State-run oil marketing cos to focus on Bharat to boost sales
Mint, Delhi 17-Nov-2020
State-run oil marketing companies (OMCs), including Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL), will set up 6,000 fuel retail outlets this fiscal year with a major focus on rural and semi-urban areas, besides highways, as sales in urban areas have stagnated, said OMC officials.
BPCL, which plans to add 1,800 retail outlets, registered better growth in sales in rural and small-town areas in the last quarter.
"We don't have adequate presence in rural and semi-urban markets, where growth is happening more in the country today because metros have saturated. So, we are trying to capture the market which are growing," said N. Vijayagopal, chief financial officer, BPCL.
The focus on rural areas will help raise BPCL's market share in diesel and petrol sales to about 32% from 29%, Vijayagopal added.
During the covid-induced lockdown, demand for auto fuels had fallen, but gradually recovered after the restrictions were lifted in phases. Sale of diesel, the most common fuel, rose for the first time in eight months in October, but was 5% lower from a year earlier in the first half of November.
"In October, on the back of a strong bounce back in demand, the refinery utilization for OMCs was ramped up to 95%. While gasoline demand has consistently grown over the months post relaxation in lockdown, it registered year-on-year growth for the first time in September by about 102% and then about 104% in the first weeks of October," said an analyst.
Between 1 and 15 November, diesel consumption was at 2.86 million tonnes (mt), down from 3.01 mt in the year-ago period. It was, however, higher than the 2.65 mt recorded during the first half of October.
Petrol sales, however, rose marginally from 1.02 mt to 1.03 mt.
"During the lockdown, we observed that demand destruction in rural areas was less compared to urban areas and highways, logically so, as restrictions were more profound in urban areas. However, we are further strengthening our network in rural, national highways as well as urban," said M.K. Surana, chairman and managing director, HPCL, which will be commissioning around 1,800 new outlets this fiscal year. HPCL seeks to expand its retail network from the existing 17,000 to 22,000 outlets over the next three years.
Rural areas are also an attractive bet for the companies in terms of cost of setting up a fuel retail outlet as the cost of land is substantially lower compared to urban areas.
It costs between Rs 60 lakh and Rs 3 crore to open a fuel outlet depending on the location. If located in a town, the land area for the fuel retail outlet needs to be over 800 sq. m and over 1,200 sq. m if it is located on a highway.
IOCL, the largest OMC, plans to set up 2,400 retail outlets this fiscal year, including the 994 outlets it has opened till September. The company has 30,000 retail outlets as of now.
"We are aware that we were left out actually in this race of setting up retail outlets for some time, and now we have ramped up our operations. Going forward, we will be setting up more and more retail outlets and we will ensure that we are not left behind," Sandeep Kumar Gupta, director, finance, IOCL, told analysts.
According to OMCs, the post-pandemic preference for personal mobility is helping a strong rebound in demand for fuel.
According to a 11 November note from Crisil Research, despite an improvement (in covid-19 cases), states such as Kerala and Karnataka in the south, and Maharashtra in the west, continued to show lower retail mobility trends in September vis-à-vis the national average.
"So, while average mobility did not decline over time (even as cases rose), more covid-19 affected states continued to see depressed mobility relative to other states," the note from Crisil added.
