Private oil marketing companies (OMCs) can nibble away another 5%-6% at the market share of public sector units in the near term, even if half of private OMCs' licensed outlets become operational and distribute an average of 150,000-175,000 litres/month/pump, says India Ratings and Research (Ind-Ra). Private sector OMCs have gained a market share of 5.8% and 3.1% in distribution of diesel and petrol, respectively, since FY14 as they expanded their retail network aggressively.
According to industry reports, Reliance Industries Ltd ('IND AAA'/Stable) has a license to open up to 5,000 fuel pumps in India (around 1,400 operational as of now), BP Plc can open 3,500 retail fuel stations and Shell India Markets Private Limited about 2,000 outlets (around 85 operational as of now). Moreover, Essar Oil Limited (now sold to Rosneft and investment consortium) has about 2,320 retail outlets under various stages of implementation which are likely to become operational over the next few years.
Petrol and diesel are the mainstay for OMCs, accounting for about 51% of the total petroleum product consumption in India as of FY17 (Source: Petroleum Planning and Analysis Cell (PPAC)).
Public sector OMCs have lost around 6% market share in diesel to private players mainly since FY14 (including 0.75%-1.5% in bulk diesel sales), i.e. the time diesel prices became deregulated/market linked and provided a level playing field for private players to market products. They have also lost about 3.1% market share in retail petrol sales since FY14. Fast paced retail expansion along with aggressive tender bids for bulk diesel has helped private players capture 5%-8% market share in a short span. Public sector OMCs' combined market share in diesel and petrol was 94% and 94.9%, respectively, as of FY17.
Private players have eroded the market share of public sector OMCs in bulk diesel sales as well through aggressive bidding for the tenders floated by end-user industries such as civil construction, power plants and defence. According to PPAC, bulk diesel sales account for 10%-20% of the total diesel sales in the country and in line with anecdotal reports, OMCs have seen their share drop to 70%-80% from 100% over the last two years in the bulk diesel sales.
IOCL which was the most levered to bulk diesel sales, has lost the maximum share among the three PSUs in both diesel (3.4%) and petrol (1.4%) over FY14-FY17. However, given the tender-based nature of this segment, volumes remain highly sensitive to prices and hence vary frequently.
Private players have aggressively expanded their retail footprint in the last two years with RIL and Essar's retail outlet counts increasing to around 1,400 and 3,810, respectively, as of September 2017 (around 8.8% of the total retail outlets in the country) from 320 and 1,491 in FY15. Furthermore, private players such as RIL had much a higher throughput per outlet per month for fuel sales given its pricing strategy and limited presence in rural areas compared to its PSU peers. Ind-Ra believes the competition will intensify as private players continue to expand and corner market share from PSUs.
Bulk diesel prices were deregulated by the government in January 2013 while retail diesel prices and petrol prices were deregulated in October 2014 and 2010. Historically, diesel was sold at subsidised prices in India, with the government compensating OMCs. Private fuel marketers received no such subsidy, and were thus edged out of the market when crude oil prices climbed as high as USD150/barrel in 2008.
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