Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 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.
Market penetration analysis of OMCs in India - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Market penetration analysis of OMCs in India

Aug 31, 2006

Oil marketing companies (OMCs) have been bleeding for past couple of years, due, of course, to the government’s arbitrary pricing norms for petro-products. However, this did not deter them from continuing with their retail expansion plans and they have been aggressively opening new outlets. In this write-up, we analyse the geographical presence of various OMCs and the penetration levels in various Indian states.

Current Scenario
India had 26,572 retail outlets at the end of FY05, which registered a growth of 16% over the previous numbers of 22,935 outlets in FY04. The table below gives the geographical distribution of retail outlets in the country.

Regional distribution of retail outlets in the country
East 2,001 608 975 961 4,545
% Of total 19.50% 18.50% 14.60% 14.60% 17.00%
West 1,340 412 1,084 1,231 4,067
% Of total 13.10% 12.50% 16.20% 18.70% 15.20%
North 4,227 1,361 2,581 2,469 10,638
% Of total 41.20% 41.40% 38.70% 37.60% 39.70%
South 2,622 890 1,990 1,876 7,378
% Of total 25.60% 27.10% 29.80% 28.50% 27.50%
Other regions 68 15 47 37 167
% Of total 0.70% 0.50% 0.70% 0.60% 0.60%

Form the above table, it is clear that IOC along with its subsidiary, IBP, accounts for more than 50% of the total retail outlets in the country. HPCL and BPCL account for rest on an equal basis. It should be noted that the major consumption centres for petroleum products exist in north India. Therefore, not unexpectedly, the majority of retail outlets exist in northern India. South India, on the other hand, accounts for 28% of the retail outlets in the country, in line with the demand trends in that region. Western India, the major industrial belt of the country, has higher per-capita income and greater economic activity, and accounts for 15% of the total outlets, which is a bit on the lower side.

State-wise penetration levels of retail outlets in India…
State Outlets % Total Pop. (In m) Per outlet persons Vehicles(m) Outlets/vehicles
Punjab 1,842 6.90% 24.4 13,224 3.183 578.7
Haryana 1,147 4.30% 21.1 18,435 2.157 531.76
Kerala 1,249 4.70% 31.8 25,493 2.708 461.23
Tamil Nadu 2,253 8.50% 62.4 27,699 5.764 390.87
Himachal Pradesh 201 0.80% 6.1 30,238 0.253 794.47
Rajasthan 1,729 6.50% 56.5 32,682 3.471 498.13
Andhra Pradesh 2,305 8.70% 76.2 33,063 4.761 484.14
Karnataka 1,571 5.90% 52.9 33,641 4.201 373.96
Gujarat 1,488 5.60% 50.7 34,053 6.169 241.21
Delhi 381 1.40% 13.9 36,353 4.202 90.67
Maharashtra 2,497 9.40% 96.9 38,798 8.661 288.3
J&K 242 0.90% 10.1 41,916 0.393 615.78
Madhya Pradesh 1,235 4.70% 60.4 48,865 3.241 381.06
U. P 3,326 12.50% 166.2 49,969 5.652 588.46
West Bengal 1,376 5.20% 80.2 58,268 1.732 794.46
Orissa 597 2.20% 36.8 61,649 1.394 428.26
Bihar 1,040 3.90% 83.0 79,806 1.104 942.03
Source: Statistical outline of India, Ministry of Petroleum.
Note: Population is based on Census 2001, while vehicle population is for FY03.

As seen from the above table, Uttar Pradesh accounts for 13% of the total retail outlets in India, followed by Maharashtra account for 9%, Andhra Pradesh and Tamil Nadu (9%).

Analyzing the penetration levels of the retail outlets in terms of the total population, Gujarat, Karnataka and Maharashtra seem to be under-penetrated areas, since, on an average, roughly 30,000-35,000 persons access the same outlet, as compared to roughly 13,000 persons accessing same outlets in Punjab and 18,000 persons in Haryana. Penetration levels in states like Bihar, Orissa, West Bengal and UP are even lower. However, if we analyse the penetration levels in light of per capita income (as majority of vehicles are two vehicles i.e. for personal use), the penetration levels are justified (see table below).

Per capita income of various states…
State per capita income( Rs)
Maharashtra 24,736
Gujarat 21,276
Tamil Nadu 27,674
U. P 9,895
Andhra Pradesh 17,642
Delhi 47,477
Karnataka 18,324
Rajasthan 13,066
Madhya Pradesh 11,438
Punjab 25,652
Kerala 21,310
Haryana 26,632
West Bengal 17,769
Orissa 10,103
Bihar 6,015
Source: Statistical outline of India.

An analysis of the above reveals the fact that states such as Punjab, Haryana, Kerala and Tamil Nadu seems to be well penetrated. There seem to be opportunities for OMCs in states like Gujarat, Maharashtra, Rajasthan and Karnataka. Gujarat, with decent levels of per capita income and higher vehicle population along with a higher number of people accessing the same outlet, turns out to be the most under-penetrated area.

In a bid to penetrate these areas, companies are declaring various plans to establish retail outlets. Reliance and Essar Oil plan to increase their outlets in the states of Gujarat, Rajasthan and Maharashtra. State-run marketing companies are also gearing themselves up to face competition from private players. However, geographical presence along with branding and marketing strategies of the OMCs will decide in the future viability of these outlets. Recently, the Ministry of Petroleum told marketing companies to checking their retail expansion plans, as the opening up of outlets by various retailers at the same place will reduce the throughput per outlet and can adversely impact margins going forward.

In order to derisk their business models and hedge regulatory risk (under-recoveries), OMCs are trying to increase their revenues from non-fuel business. The non-fuel avenues like food courts, amenities and other facilities can give support to core business revenues. Also, expansion along the highways seems to be the business strategy, as penetration on the highways is still low. Rural India, a significant under-penetrated market, also offers opportunities to increase sales. An added advantage from rural sales is potential revenue being generated from non-fuel business (in the form of seeds, fertilizers and tractor parts). Also, the payback period for rural investment is on the lower side given the lower initial capital required (0.5 m – 1 m).

Going forward, we believe that growth along the highways, greater penetration in the rural areas and non-fuel revenues (albeit relatively insignificant) will be the major themes for this sector. Cost savings will also be a necessity, given greater competition from private players in future.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


Mar 18, 2019 (Close)