Bloomberg: Shell, India Fuel Sellers May Spend $1 Bln on Outlets (ShellNews.net) 22 March 05
March 22 (Bloomberg) -- Royal Dutch/Shell Group, Reliance Industries Ltd. and two other entrants to India's $15 billion-a- year auto fuel market may spend more than $730 million on new gas stations in the next year for a greater share of sales.
Shell, Reliance, Essar Oil Ltd. and Oil & Natural Gas Corp. plan to build at least 3,200 outlets and increase their market share to more than 10 percent from 3.2 percent by March 2006, according to figures from the companies. Spending on a further 2,000 modern outlets by state-controlled retailers to defend their market dominance may push the total beyond $1 billion.
Cheaper credit and the fastest economic growth in 15 years boosted car sales 16 percent in the past 11 months, increasing demand for fuel. India's 22,500 state-run gas stations, half of them controlled by Indian Oil Corp., serve about 67 million vehicles, or more than twice as many per station as in the U.S.
``There is good potential for growth in fuel stations in India,'' Dhimant Shah, a fund manager at ASK Raymond James, said in a telephone interview from Mumbai. ``Going by plans of the oil companies, India may have as many as 45,000 fuel retail outlets in the next three to five years.''
Vehicle sales in India, Asia's fourth-largest economy, rose to 7.17 million units in the eleven months ended February. Fuel demand in Asia's third-largest oil market is likely to grow 5 percent for the year ending March 31, according to Indian Oil Corp., the nation's largest refiner, with half of the 2.4 million barrels-a-day market.
India in 2002 ended the stranglehold of four state-run companies on auto-fuel retailing to promote competition. Now, any company can set up retail outlets provided it invests at least 20 billion rupees ($457 million) in the country's oil business.
The 5,200 new gas stations that retailers plan to build over the next year may cost 52 billion rupees at an average cost of 10 million rupees per outlet, according to figures from Indian Oil.
The new entrants including Oil & Natural Gas, India's largest oil explorer, may increase their market share by offering services such as car repairs and convenience stores.
``Reliance alone will capture about 5 percent of the fuel retail market in about two years' time,'' Jaspreet Singh, a senior analyst at Prabhudas Lilladher Securities, said in a telephone interview from Mumbai. ``They will gain share by aggressive pricing and providing other facilities to consumers.''
Reliance plans to build 2,000 retail outlets by March 2006, adding to 350 now, the company said on March 7. The company's refinery in the western state of Gujarat processes 33 million metric tons of crude oil a year, or about 660,000 barrels a day.
Essar Oil, which is building a 10.5 million-tons-a-year refinery in Gujarat, has set up 370 retail outlets spread across western, northern and eastern India. The company plans to set up at least 1,200 more outlets by March 2006, A.N. Sinha, the company's managing director, said in an interview in Mangalore on March 19.
Essar has signed an agreement with Castrol (India) Ltd., a unit of BP Plc, to sell its lubricants in outlets in western India, Manish Kedia, vice-president of corporate communications, said in a telephone interview from Mumbai on March 16.
Oil & Natural Gas, which owns Mangalore Refinery & Petrochemicals Ltd., started its first retail outlet near the refinery on March 19. Mangalore Refinery now has the capacity to refine 9.69 million tons of crude oil a year.
To compete with new entrants, Bharat Petroleum Corp., the third-biggest state-run refiner, has Narayan Karthikeyan, India's only Formula 1 racer to endorse ``Speed'' -- one of its premium gasoline brands. ``Driving is my passion and I trust only Speed,'' Karthikeyan says in television commercials.
Indian Oil introduced ``Extra Care'' in about 400 outlets in cities in December last year for consumers, pledging quality fuels and good service by attendants. On highways, the company has introduced ``Swagat'' meaning ``welcome'' in Hindi, to attract long-distance drivers by offering resting facilities, vehicle check-up points and restaurants.
Growth in the number of outlets would have been faster but for uncertainty about the government's policy on retail fuel pricing, said Karthik Ramakrishnan, an analyst at Sunidhi Consultancy Services.
``Uncertainty relating to pricing has to be resolved if one wants to see the fuel retailing business in India taking off really well,'' Ramakrishnan said in a telephone interview from Mumbai.
Profits at state-run refineries have declined this year after they were barred from raising prices to pass record-high crude oil prices to customers. The price cap, aimed at keeping auto and cooking fuels affordable, may cost refiners an estimated 180 billion rupees in the year ending March 31.
New fuel retailers will have to incur losses for selling auto fuels at below cost, Ramakrishnan said.
Profits at Indian Oil fell 46 percent for the quarter ended December while Hindustan Petroleum and Bharat Petroleum each posted a 70 percent decline.
Indian Oil shares have fallen 10.4 percent this year while shares of Hindustan Petroleum Corp., the second-biggest state-run refiner, declined 18 percent and Bharat Petroleum Corp. shares 16 percent.
In the U.S., there were 167,346 retail fuel sites in 2004, according to Chicago-based National Petroleum News. The nation has about 224 million cars and trucks, according to Lexington, Massachusetts-based Global Insight Inc.
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