India: Essar Petrol Retail Operating in Profit
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Tuesday, 31 March 2009 |
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Although Essar has been retailing fuel for over six years, it is only
in recent months that Essar Oil has started to make petrol retail
profitable.
Essar Oil, which got into fuel retailing in 2003, had to shut down quite a few of its fuel stations last year as it had to compete with subsidised sales from government-owned companies when crude oil prices had skyrocketed to almost $150 per barrel. The company reopened 1,165 stations in December 2008 after prices fell by over two-thirds. Crude oil prices have averaged $45.62 per barrel in March.
“It is only in the past four months that we have seen a positive retail margin. If the situation (low crude oil prices) continues, we should be able to wipe our losses by the end of the next financial year,” S Thangapandian, CEO (marketing), Essar Oil, said.
At present, Essar Oil sells fuel at prices similar to those of the public sector retailers, making a profit of Rs 1-3 per litre on diesel. Margins on petrol are flat. The company sells around 90,000 kiloliters of fuel per month and plans to expand to 120,000 kiloliters in the next few months.
Along with reactivating the old stations, Essar Oil has so far opened nine new ones and plans to take the number to 1,250 by September. This comes at a time when Reliance Industries is planning to form a joint venture with another oil marketing firm to operate its 1,400-odd stations across the country.
All the Essar Oil stations are run by franchisees. On an average, setting up a station costs Essar Oil around Rs 30 lakh. Mr Thanapandian said “We are a more west-centric company and our first aim is to have a presence in this part. A large number of stations are going to be in the southern parts of the country too,”.
The company is also in talks with some companies to provide value-added services at its stations. It has already tied up with PepsiCo, HDFC and Tata Indicom for various products and services. The company is also in talks with Amul to set up ice-cream parlours in mid-size markets. “We are now looking at offering pharmaceutical products and are in talks with three companies. The talks should close by June,” said Thangapandian.
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