As private fuel retailers set out to expand their footprint across the country, marketing margins of the state-run companies will come under pressure in the years to come, with the intense competition eating into their market share and volume share.
As private fuel retailers set out to expand their footprint across the country, marketing margins of the state-run companies will come under pressure in the years to come, with the intense competition eating into their market share and volume share, Crisil Research said in a note on Monday.
Private petrol and diesel retailers such as Reliance Industries and Essar Oil will add 6,000-8,000 outlets to likely have a 12-15% market share by fiscal 2021, compared with a mere 1% in fiscal 2010, Crisil said in the note. Further, in sales volume terms, private retailers’ share is expected to rise to 13-16% by fiscal 2021 from 4-5% in fiscal 2016, it said.
“This will heap pressure on public sector retailers, which would be forced to reinvent their business models in order to compete. While private retailers are expected to target high-throughput regions for expansion, particularly around highways, public sector retailers are expected to focus on under penetrated rural areas, besides defending their share along highways,” Prasad Koparkar, Senior Director, CRISIL Research, said in a statement.
The private retailers including Reliance Industries and Essar Oil, who had gained about 6% market share of fuel retailing industry by 2004, had started closing down the outlets after the government’s intervention to control rapidly rising fuel prices in 2005. Their share fell to a mere 1% by 2010. However, buoyed by the deregulation of the fuel prices in 2010, the private retailers again began ramping up their retail presence.
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Crisil Research further said that while marketing margins may fall for the private sector companies from the current Rs 2-2.5 per litre, those may also fall for the public sector companies, albeit by a lesser extent. “They will expand in newer areas especially rural regions by leveraging on their existing retail infrastructure,” Crisil note said. “Also, adopting dynamic pricing strategies will prevent profit erosion,” it added.
Earlier this month, beginning Monday, May 1, the state-run oil marketing firms had begun reviewing petrol and diesel prices everyday on a pilot basis in five cities, namely, Puducherry, Visakhapatnam, Udaipur, Jamshedpur and Chhattisgarh in line with the global crude oil prices. The daily price revision mechanism will later be rolled out across the country.