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Diesel easing may erode OMCs' share

Monday, 2 December 2013 - 8:43am IST | Place: Mumbai | Agency: DNA

State-backed oil marketing companies (OMCs) such as Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum are likely to lose some market share to private refiners like Reliance (RIL), Shell and Essar Oil when the field gets levelled post complete diesel deregulation.

Industry observers said this may prompt OMCs to rapidly ramp up their networks.

Oil minister Veerappa Moily had recently said diesel could be completely deregulated in six months if the rupee appreciates and crude prices remain benign.

In such an event, OMCs would lose some market share, but not significantly, given their nationwide network and first-mover advantage, R K Singh, joint secretary in the oil ministry told dna recently.

Collectively, OMCs have about 42,000 retail outlets across the nation, while private players have about 3,000, of which very few are currently operational.

In a report in June, Emkay Global Financial Services pointed out that private players’ around 7% share in retail outlets could cause OMCs to lose up to 10% of their retail auto fuel market share.
But such a loss could be offset by a potential rise in OMCs’ marketing margins. Private players, the report said, are likely to scoop up a higher market slice in diesel than petrol because of their wider presence on highways.

Back in 2004, private refiners had gained when diesel was deregulated as their share in total auto fuel sales went up to about 12% between January 2004 and April 2006. In the high-speed diesel retail market, the share of private operators and RIL peaked at 14.5% and 14.3%, respectively, by April 2006.

Now, Essar is looking to bolster its retail outlets from 1,600 to 3,000 in the next four years. It has sought expressions of interest or EoIs from potential dealers.

“With impending diesel deregulation, we are confident that we will be able to garner a fair market share... When there was price parity between OMCs’ and private pumps, private sector outlets had outperformed the industry average,” said an Essar spokesperson.

However, RIL, which has 278 retail outlets in southern and western regions and north eastern states as of March, does not seem to be as bullish. In its annual report, the company had said, “Resuming operations in all geographies and scaling up of sales would be possible after clarity on implementation of market determined prices for gasoline and diesel.”

An analyst from a domestic brokerage tempered expectations, saying it will take some time for private players to catch up. He expects OMCs to continue to churn out same volumes, but sees incremental demand being met by private refiners. “Private players have already burnt their fingers once and are now sitting on dead assets. They will adopt a wait-and-watch policy for at least a year after complete deregulation of diesel takes place.”

Private operators had to scale back their expansion plans due to wide price differences after the government reverted to the administered pricing mechanism in 2006.

Private players have an edge in diesel because of their higher efficiency and ability to achieve double the throughput per retail outlet compared to OMCs. “Last time, private players were in roll-out mode of their retail infrastructure. However, this time round, the increase in market share could be sharper, given the short start-up time for operating defunct outlets,” the Emkay report said.

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