Eight years after Reliance Industries Ltd (RIL) began closing its fuel retail outlets, the company is now refocusing on this segment as fuel price deregulation takes effect.
</header>RIL holds licences to set up 5,000 fuel retail outlets. However, it has set up only 1,470 filling stations so far, of which 1,022 are operational.
“As we reopen our existing retail outlets, we are also exploring destinations for new outlets and evaluating new proposals simultaneously,” an RIL executive said. “All over India, wherever there is an opportunity, we would be setting up our new outlets.”
Currently, RIL’s fuel retail outlets are largely concentrated in the western region.
RIL’s key competition are state-owned oil marketing firms —IndianOil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd—which together operate 55,000 outlets, or about 95% of the fuel retail market.
In 2008, RIL began shutting down some of its fuel pumps when crude oil price climbed to $158 a barrel. At its peak in 2005, the company had a 12% market share in fuel retailing. Now, it splits a 5% market share with Essar Oil Ltd.
Prior to October 2014, diesel was sold at subsidised prices in India with the government compensating state-owned oil companies later. Private fuel marketers received no such subsidy, and were thus edged out of the market. Petrol prices were market-linked in June 2010. With deregulation, private fuel retailers such as RIL, Shell and Essar Oil could retail their fuel at the same rate as state-owned firms and are now making a comeback.
With RIL currently accounting for almost one-third of fuel production in India, which it currently supplies to state-owned oil firms, it has the back-end sewn up.
“RIL wants to get a fair share of the domestic fuel retailing market, in line with its share of fuel production”, said the first RIL official.
The launch of its telecom venture Jio also provides an added impetus to RIL’s renewed fuel-retailing push. RIL chairman Mukesh Ambani, India’s richest man, is investingRs.1.5 trillion in Reliance Jio to ensure the company has one of the widest networks in the country when its service debuts later this year.
“Our expansion is a well thought out strategy. With Jio in place, our value proposition becomes stronger. All technology will ride on the Jio platform,” said another RIL official.
“It is no longer simply a petrol pump. Today, what you can do with fuel retail outlets by virtue of the synergies make it a more consumer-facing business,” V. Srikanth, joint CFO at RIL had said post its fiscal first-quarter earnings on 15 July.
RIL already has a presence in the retail industry through Reliance Retail. This segment contributed around 10% of RIL’s total revenues for the first quarter of this financial year. That included sales of the company-owned, company-operated fuel retail operations as well.
“Our retail businesses have common projects, so it makes sense to club them under one roof. Reliance petro marketing always existed. It’s just that we began reporting numbers this time,” the first RIL official said.
In the June quarter, Reliance reported a 21% year-on-year increase in the volumes of its petrol and diesel sales.
This was faster than the market growth, albeit on a smaller base. In the April-June quarter, while petrol sales growth was flat, diesel sales rose 4.7% and jet fuel 11%. However, it will be some time before fuel retail makes any significant contribution to RIL’s revenues.
“Retail is a growing segment and very positive for RIL. In the last two years, RIL has done considerable work on its fuel retail segment. Retail is typically growing at over 50% per annum for RIL but because retail is a low-margin business, it is not going to be a significant contributor in RIL’s overall revenue,” said an analyst with a Mumbai-based brokerage on condition of anonymity. Reliance Retail, for instance, had an operating margin of 3.6% in the June quarter.
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