Mukesh Ambani-led Reliance Industries Ltd will “match” the recent ₹1 per litre rate cut in petrol and diesel effected by state-run oil marketing companies, to prop-up its share in the local market.
This is unlike its stand a few years ago when it shut fuel stations, unable to match and compete with the subsidised rates charged by Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, which between themselves hold as much as 90 per cent share of fuel retailing in the domestic market. In October 2014, the government deregulated diesel prices (petrol prices were freed in 2010), enabling private refiners such as Reliance to restart pumps and claw its way back into the fuel retail business.
The rate cut effected from October 4 was to check rising fuel pump rates that soared in the backdrop of a rally in global crude prices, raising concerns that it will again create a disparity in pricing of fuels between state-owned and private refiners and clip retail expansion plans in the world’s fastest growing energy market.
“Our dependence on retail market for petroleum is obviously small. Around five per cent of our total refinery output goes eventually into the domestic retail market,” said V Srikanth, joint chief financial officer at RIL. The rest are exported.
Retail expansion
“Does it (the ₹1 cut) have an impact on us. Of course, you cannot have two petrol pumps, one selling a rupee below the other; so, you have to effectively match it. But, in a broader sense, I don’t think it affects what we are trying to do on the retail expansion. I don’t think we are going to let this alter broadly our strategy in terms of what we are doing on the retail side,” Srikanth said after the firm announced its second quarter results last week. Assessments on (retail) expansion differ with the “times”, he said, adding it would be difficult to conclude an assessment based on “just one occasion and dramatically alter the course on what we have to do on petroleum expansion”.
Srikanth said its plans to open co-branded retail fuel stations along with BP Plc – its partner in the KG basin oil block — was yet to take concrete shape.
“We have signed a memorandum of understanding with BP, but we haven’t progressed beyond that, there is no definitive agreement. But overall, we will continue to expand our retail foot print,” he said, adding that the recent marketing changes would not change the company’s outlook.
“At this point in time, there is no change in time lines and how fast we will grow. I don’t think it is on slow track,” he added.
Currently, Reliance runs 1,345 retail fuel outlets — including 10 re-commissioned during the July to September quarter — of which 512 are owned by the company. India has 57,312 petrol stations.
During the second quarter of FY19, India’s oil product demand grew 2.7 per cent from an year ago.
The growth in petrol was 6.6 per cent while diesel grew 2.8 per cent.
Reliance said its petrol sales in the domestic market grew by 21 per cent and diesel by 8 per cent in the second quarter from a year ago on the back of strong demand for transportation fuel.
New strategy
The owner of the world’s biggest refining and petrochemicals complex at Jamnagar in Gujarat said it was looking at “strategic initiatives and technology for continuous volume growth”.
These include “customised ‘state-specific’ strategies for improving market share” and roll-out of an automated price engine — a major initiative on dynamic strategic pricing.