X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Oil marketing: Coming of age - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 7, 2003

    Oil marketing: Coming of age

    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)
      Direct sales Retail sales LPG
    (% share) Furnace oil Naptha Kerosene Motor spirit Diesel
    HPCL 20.1% 19.3% 17.1% 26.5% 20.4% 24.9%
    BPCL 18.5% 15.4% 14.7% 32.9% 23.8% 24.5%
    IOCL 61.4% 63.9% 62.5% 38.1% 54.5% 50.6%
    IBP 0.1% 1.4% 5.8% 2.5% 1.2% 0.1%
    Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

    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.

     

     

    Equitymaster requests your view! Post a comment on "Oil marketing: Coming of age ". Click here!

      
     

    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    HPCL: A loss making quarter (Quarterly Results Update - Detailed)

    Dec 29, 2015

    HPCL has reported 18.6% YoY decline in the topline and losses worth Rs 3.2 bn at the bottomline level in the quarter ended June 2015.

    HPCL: Higher GRMs boost profit (Quarterly Results Update - Detailed)

    Sep 8, 2015

    HPCL has reported 12.6% YoY decline in the topline while bottomline grew by around 34.5 times (YoY) in the quarter ended June 2015.

    Mahanagar Gas Ltd (IPO)

    Jun 21, 2016

    Should one subscribe to Mahanagar Gas IPO?

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    HPCL SHARE PRICE


    Aug 17, 2017 09:56 AM

    TRACK HPCL

    HPCL - CONOCOPHILLIPS COMPARISON

    Compare Company With Charts

    COMPARE HPCL WITH

    MARKET STATS