Jun 28, 2004|
Energy: Public v/s Private
The Indian downstream petroleum segment is likely to witness intense competition in the years to come and all the PSUs are gearing up for the same with focus on specialized activities such as one-stop shops, branded fuels and prepaid card services. However, in the face of this entire hullabaloo, one company that has the potential to compete on all fronts is Reliance Industries.
Let us now analyse as to what is the present scenario of the company in the oil business and how does it see itself growing, going forward.
Currently, Reliance Industries' business model is significantly diversified with a substantial presence in almost every segment of the hydrocarbons value chain ranging from petrochemicals to exploration and refining. The charts below mention the revenue break-up and the EBIT margins of the respective businesses:
Over a period of time, the company's profitability from the petroleum business is increasing and this is likely to improve further, as Reliance starts commercial production of natural gas from its KG basin fields in FY06. Currently, the petrochemicals business is witnessing an uptrend in prices and we believe, this is likely to continue for another year. At the same time, refining margins have been at record highs during the 4QFY04. However, we believe refining margins are unlikely to be sustained at these levels and therefore, the profitability of the refinery is likely to decline.
Having said that, the company is setting up its own retail outlets for marketing of petroleum products such as diesel and petrol among other products. It is already planning to enter the eastern region with a shipment of 25,000 tonnes of high-speed diesel (HSD) for bulk sales in order to cater to the small and medium industries. This is a threat to IOC, which holds a 75% market share in the region. There are various factors that are advantageous to the private players as compared to the PSUs in the retail segment. The factors have been considered in the table below:
||Are not liable to proivide for subsidies
on LPG and kerosene
|Will have to bear a part of under-recoveries
on account of LPG and kerosene.
||Elastic as they can sell products at a lower rate
compared to PSUs, as they need not price products
higher to compensate for LPG and kerosene
|Politically driven and at the same time,
artificially kept high so as to compensate for
LPG and kerosene under-recoveries
||Can price products at lower rates in the coastal areas
and areas close to the refinery, as need not
account for freight equalization clause.
|Loss of transporting to upcountry areas is made up by
higher realizations in coastal areas or places close to the refinery.
||Need not enter into a cartel
to decide on prices every 15 days
|Will have to give into competition and
get away from the 15 days pricing formula
Having said that, it should be remembered that the PSU mammoths have already set up an established network of retail outlets and pipelines. To that extent, it would be very difficult for the private players. Further, the government can introduce policies, which compels the private players to price the products in sync with the PSUs or vice versa and at the same time, bear a part of the under-recoveries on LPG and kerosene. In fact, in our recent interaction with a marketing company, the official opined that the entry of private players could force the government to do away with interference. At the end of the day, public and private sector players will not be at a level playing field if the issue of pricing is not addressed. Probably, this is one reason why the private sector is going slow on the marketing front. However, given the status-quo kind of a situation, the petroleum segment is likely to witness a subtle change in the next couple of years.
More Views on News
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.
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.
Jan 24, 2017
Oil India Limited announced results for the quarter ended September 2016. The company has reported an 6.5% and 7.8% Year on Year (YoY) decline in sales and net profit respectively during the quarter.
Dec 3, 2016
GAIL (India) Ltd has announced results for the quarter ended September 2016. The company has reported 16 % year on year (YoY) decline in sales, while bottom-line grew 180% YoY.
Nov 3, 2016
ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407