If one were to look at the oil sector, the business is divided into exploration and production (E&P), refining and finally marketing. The major players in E&P are ONGC and Oil India Limited (OIL). In case of refining, we have HPCL, BPCL, Reliance, IOC and several other stand alone refineries like Kochi Refineries, Mangalore Refineries, etc.
On the marketing front there are four major companies HPCL, BPCL, IOC and IBP. With the administered price mechanism (APM) dismantled post March 2002, the marketing channel is open to private and foreign players. This has seen the competition increasing in the marketing front and the government owned players are aggressively trying to increase their market share by providing value added services to the consumers. This enthuses us to look back at the marketing aspect of the business. In this article, we will look at the different players and their market share in the major segments of this business.
The entire business of marketing is divided into four aspects as shown in the following chart. Direct sales caters to the requirements of large industrial customers across various sectors like fertilizers, power, aluminum as well as major institutional customers like defence, state transport units (STU), railways, etc. This business accounts for about 40% of the volume sales. Direct sales segment is dependent on the industrial growth of the country.
With the dismantling of APM, the second aspect of the business i.e. direct marketing has become very vibrant. The players are trying to cut each others market share by actively marketing their products in a sophisticated way. We can infact see this commodity business transforming itself into a branded one. Different players are coming with different brands like Speed (BPCL) and one can see in the last one year different punchlines like 'Pure for Sure' etc. Companies are looking to increasing owned retail outlets in a bid to streamline consistency in product quality and services. Direct marketing accounts for about 51% of total marketing business.
LPG sales is the third segment of the business for marketing companies. Natural gas poses a threat to this business. Earlier there were LPG cylinders used to distribute this product to the household. But after seeing a threat from similar products, the companies started giving direct line connections. The urban market demand is nearing saturation, as the incremental customer connections are going down. So the focus is more likely to shift towards the rural markets. Companies have come up with smaller LPG cylinders (5 Kgs) to attract the rural markets. This business generates about 8% of the sales mix.
Though it forms a small kitty in the overall business of marketing companies, Lube Oil has also seen lot of initiatives. This product has two type of markets. Bazaar segment and the market segment. While the bazaar segment is mainly dominated by Castrol and a number of foreign players, the market segment is controlled by PSUs. But now one can see even lube products from petroleum companies (PSUs) increasing their presence. Loyalty schemes, advertising and improved packaging are some of the efforts taken by the companies to make their product offerings more attractive.
Segmental sales pie (FY02)
From the above table, it becomes clear that Indian Oil (IOC) is a major player in almost all the segments of the marketing business. While HPCL is the second biggest player in direct sales, BPCL is having second largest share in retail sales. In LPG business, both HPCL and BPCL has almost equal share of about 25% with HPCL just a shade ahead of its compatriot. The major growth drivers for this business are better agricultural growth, higher infrastructure spending, economic growth, crude prices internationally and various structural constraints like regulatory requirements and reforms.
Post APM dismantling, private and foreign players are free to have their own retail outlets. Government of India has already given permission to Reliance, Essar Oil, Numaligarh Refinery and ONGC to set up their own auto fuel retailing stations in India. Some of the private retail outlets from these companies are expected by the end of 2004 and this will pose a challenge for the existing players. We can infact see the PSU marketing players awakening in the last year trying to change the faces of their retail outlets and offering various schemes, one stop shopping, etc.
Going forward we see a lot increased competition in this segment as new players come in. This one time commodity market can be visualized as sophisticated branded offering where every player is coming up with new customer friendly products and services. Also, the differentiation in the products will be the key marketing focus of this companies. The golden quadrilateral and other highway developments is seen as the target area for developing new retail outlets. Also post divestment, both HPCL and BPCL are likely to become more aggressive on the marketing front. Once the APM gets fully dismantled, it will be a pure play between various players to attract the customers by offering different incentives. Its good news for the customer and his vehicle, as finally value addition will be visible, both in products and services.