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BPCL - Gearing to competition - Views on News from Equitymaster
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  • Sep 16, 2000

    BPCL - Gearing to competition

    Marketing of petroleum products is undergoing a sea change with the impending deregulation of the sector. The Government, in March 1998, had proposed to open up marketing of fuel by April 2002. The incumbent companies are beefing up their operations to compete in the free market environment.

    Several private sector companies have entered the refining sector, since it was thrown open in March 1998. The participants include Reliance Industries Ltd, Essar Oil and the A.V. Birla group. These players have set up huge capacities and one can anticipate them making a foray into petroleum retailing once the doors are thrown open.

    The impending threat of competition in the marketing arena is forcing the PSUs to take a re-look at their marketing assets. Cognizant of this fact, BPCL has shifted its focus on the consumer. Building a strong brand and capturing mind share is now high on the company's agenda.

    To strengthen the structure of the industry the Government will divest from pure refining companies as per the Sengupta committee recommendations. Under the restructuring, the Government will offload its stake from Cochin Refineries (CRL) and Numaligarh Refineries (NRL) in favour of BPCL. This will add 10.5 million tonnes (MT) of refining capacity to its existing capacity of 7 MT.

    Currently, BPCL sells 26 MT of refined products of which 9 MT is from its own refinery while the remaining is only channeled through them, as they are one of the authorized marketing companies. With the restructuring BPCL's refining capacity increases to 17.5 MT and in-house production will contribute 67% of the sales.

    Gaining control of these companies is of strategic importance to BPCL as currently the company has a refinery only in Mumbai. Under the new scenario, it will now have presence in the southern and eastern markets. The company also plans to set up a 6 MT refinery in central India. This project is in collaboration with Oman Oil Ltd. On the drawing board is a plan for a 7 MT refinery in Uttar Pradesh to cater to the petroleum deficient northern region. If these projects are commissioned successfully BPCL will gain presence in all the regions of the country. Consequently, it will be better positioned to service these regions.

    Marketing Network
      FY95 FY00
    Retail Outlets 4,214 4,489
    LPG Bottling Plant 16 32
    LPG cutomers (m) 5.4 11.4
    Tankage Capacity (mkl*) 1.6 2.9
    *million kilo litres

    To strengthen it's marketing function the company plans to increase the number of retail outlets. It has also started a phase-wise programme of revamping its outlets to enhance the user experience. Urban market outlets will now house convenience stores and Internet kiosks. To increase brand loyalty the company has launched the Petro Bonus programme, which is a pre-payment card. The points earned on usage of the card can be redeemed for various rewards. This programme has been rolled out in 13 cities and already has a customer base of 90,000. The customer database built up can provide vital market intelligence.

    As roadways improve in the country inter-city travel is expected to increase. This will cause a shift in petroleum sales from urban to highway outlets. To meet this transition the company has launched the Jubilee outlets. These outlets will cater to the highway traffic and will provide a range of facilities like eating houses, rest rooms, car parking and c-stores.

    The company also plans to enter the B2B and B2C space to cater to its client base. This is primarily for servicing its industrial customers. The company has integrated its supply chain with the implementation of the SAP software. The internet foray will help to integrate the customer relations chains. Both these initiatives will improve the logistics within the company.

    The company has a nationwide presence in retailing of LPG cylinders under the brand name 'Bharat Gas'. To increase the penetration of the brand the company has started a rural marketing initiative. The company has also entered into a joint venture (JV) with Gas Authority of India (GAIL) for distribution of natural gas. Indraprastha Gas, the JV, will supply piped natural gas to the domestic and commercial users of Delhi. It will also supply compressed natural gas (CNG) to the automobile sector. The company has already commissioned 18 stations for this purpose.

    With natural gas poised to become the predominant fuel the company has diversified into storage & transmission of natural gas. The company has taken a promoter stake (12.5%) in Petronet LNG, a JV along with other oil PSUs. The JV will construct LNG terminals in Dahej and Kochi and will be involved in setting up LNG transmission pipelines across India.

    All these initiatives are to provide the customer with a delightful experience and such thinking has become a thrust area, as BPCL gears up to beat competition.



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