‘Reliance-BP JV to dent PSU market share’

MAJOR REVAMP: BP will join Reliance Industries to expand the current base of 1,400 pump stations to 5,500 over five years pan-India.

New Delhi: India’s biggest company Reliance Industries Ltd and UK’s BP plc formalising plans to set up up petrol pumps under Jio-BP brand will impact market share of state-owned fuel retailers, Morgan Stanley said in a research report.

Reliance and BP last week announced further details of their retail fuel partnership, in which the British firm has taken 49 per cent stake for $1 billion. The tie-up will see RIL’s 1,400 existing pump stations being ramped up to 5,500 over five years. It also will increase the lucrative aviation fuel stations from 30 to 45.

“Targeted fuel station additions would be nearly equivalent to two-thirds of annual station additions by (state-owned) oil marketing companies (OMCs),” it said. “This should also help RIL sell more refined products domestically as refinery export restrictions ease.”

Retail network will be under the Jio-BP brand and will cater to mobility solutions that may leverage BP’s electric charging technologies and RIL’s digital ecosystem.

RIL and BP expect to form their partnership by first half of 2020 and it will include convenience stores and Castrol lubricants. Morgan Stanley said the overall increased competition in domestic fuel markets would re-rate multiples as fuel pricing gets delinked from government intervention.

“Also, contrary to the market’s belief that retail fuel margins will weaken due to competition, we believe they can expand over the medium term towards regional averages, which are 1.5-2x higher than in India,” it said. “If the RIL-BP venture hits its target for fuel stations, it would account for nearly 8 per cent of pump stations by 2025. We see an impact on OMCs’ market share both in aviation and auto fuels.” It believed that market leader Indian Oil Corp (IOC) could be impacted the most, as seen over the past decade when its retail fuel market share declined by 10 percentage points (to below 40 per cent) in favour of private players.

“Bharat Petroleum Corp Ltd (BPCL), which has the highest exposure to highways, could see more aggressive pricing as RIL-BP would target these areas where throughput per outlet is higher,” it said. “We see limited impact to HPCL considering its higher exposure to cities, which are normally tougher for new players to enter considering long-term leases even for dealer-operated stations.”

The country currently has 66,408 petrol pumps, with public sector retailers owning 59,831. PSU retailers have plans to double this network and have already starting appointing dealers. Russia’s Rosneft-backed Nayara Energy, formerly Essar Oil, has 5,453 petrol pumps and has plans to scale them up to more than 7,000 in two-three years. Royal Dutch Shell has 167 outlets and is slated to add 150-200 more petrol pumps. BP had in 2016 received a licence from the government to set up 3,500 petrol pumps in India but it did not move on that authorisation. French energy giant Total SA too is keen on entering the Indian retail market and has tied up with Adani Group for the same.

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