Buoyed by high returns, state-run oil firms to ramp up rural outlets
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Mumbai: State-run fuel retailers—Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—will add 1,300 rural outlets this fiscal year, 60% more than in the previous year, on the back of higher returns and rising sales.
The three oil marketers added 800 rural fuel outlets last year, according to four executives from the three firms. The typical retail outlet costs Rs25-30 lakh to build (not considering land costs) in rural areas, compared to Rs60-80 lakh in urban areas and Rs1 crore on highways.
Lower costs and increasing throughput at these locations mean they have a higher return on investment than city outlets do—16-18%, as against 12-14%—said the executives.
“When we conceptualized the Kisan Seva Kendras (rural outlets), in terms of our throughput per outlet, we estimated our petrol and diesel volumes to be 30 kilolitres (kl). Today the average from these outlets is 80kl and we are growing towards 90kl,” said B. Ashok, chairman of IOCL, the largest of the state-run oil marketers.
The company is building 2,000 fuel stations this fiscal year, of which 800 will be so-called Kisan Seva Kendras. Overall, one in four of its 25,363 fuel stations are located in rural areas.
These rural outlets “clock higher returns as investments are significantly lower and margins are superior”, said Edelweiss Securities Ltd in a 17 August report.
IOCL started Kisan Seva Kendras as a concept in 2005 to reach out to farmers who use diesel for their pumpsets and tractors.
“But soon we realized that petrol was equally in high demand and we started selling petrol too. This is supposed to be a low-cost outlet model. We are seeing tremendous positive in terms of returns from these outlets. The demand at these outlets has been steadily growing,” added Ashok.
India’s petroleum product consumption grew at one of the highest rates in five years in August, rising 11.4% from a year ago, according to data from the Petroleum Planning and Analysis Cell, a government arm that maintains data on this sector. Diesel and petrol led the way growing at 14% and 25%.
For HPCL, only about one in five fuel outlets are in rural areas, and for BPCL, the proportion is only 17%. The latter is planning to build 700 fuel outlets in the current fiscal year, of which 250 would be in rural areas and another 100 on highways close to rural areas, said an official on condition of anonymity. About 150 of HPCL’s 800 fuel stations this year will be in rural areas.
These companies are stepping up their rural presence in other ways too.
BPCL, for instance, is transforming its rural retail outlets into bustling marketplaces offering multiple services. It plans to introduce digital kiosks such as assisted e-commerce for product categories such as apparel, electronics and home, financial services like money transfer and money withdrawal and community services like vocational education and agri advisory.
“We have recently launched diverse non-fuel initiatives with offerings, which are customized to meet the specific needs of identified customer segments like the rural markets, urban travellers, fleet owners etc. These are also expected to significantly augment fuel sales. The pilots undertaken in select rural locations have given encouraging results,” said S. Varadarajan, chairman of BPCL, in his address to the shareholders in the company’s annual report for fiscal 2016.