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Reliance Petroleum locks in marketing agents - Views on News from Equitymaster
 
 
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  • Sep 28, 1999

    Reliance Petroleum locks in marketing agents

    According to newspaper reports, Reliance Petroleum Limited (RPL) has struck an alliance with Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) for marketing half its output of controlled products.

    RPL has set up the world's largest single location refinery having a capacity of 27 m tonns per annum, at a cost of Rs 142.5 bn.

    Due to certain regulations prevailing in the Indian oil sector, RPL has not been permitted to set up its own independent marketing network. This has necessitated the need for an agreement with the public sector majors Indian Oil (IOC), BPCL and HPCL. RPL has already entered into an agreement with IOC for marketing 50% of the output. The agreement with BPCL and HPCL will come as a relief to the company, which is in the process of stepping up production to capacity levels.

    In view of the easing of regulations in 2002, RPL has also set up a joint venture with IOC for marketing controlled products in the country. The company has applied for setting up a marketing network under the pretext that its investment in the downstream sector exceeds Rs 20 bn, the minimum necessary to qualify for the purpose. This will ensure that the company is self sufficient in terms of its marketing network in the post regulation era.

    In the near term, RPL will continue to be dependent on its marketing agents for lifting its output, even though the agreement does provide for penalties to be paid in case the agents fail to 'lift' output. Moreover, the company will not be able to maximise its returns, as it will be devoid of the retail (marketing) margins.

    Market View:
    RPL's advantage of size, product mix and marketing ability has led the analysts to rate the stock as a 'BUY'. The product mix is in favor of light distillate, LPG and diesel, all of which have high demand growth. The company plans to market a third of its production to group companies, thus providing it with a ready market.

     

     

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