State-run Indian Oil Corporation Ltd (IOCL), the country’s largest refiner and marketer, has lost market share in bulk diesel and aviation turbine fuel (ATF) while Reliance Industries, Essar Oil, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) have gained in these segments.
IOCL, still the market leader in the bulk diesel sales segment, has in the past two years seen its market share drop from over 80% to over 70% now.
“Industrial sales have become a challenge due to entry of new players. Earlier we were the only player in the market with majority share. But now we have private players as well and so our share has dropped," an IOCL official said on condition of anonymity.
He said IOCL is competing aggressively and trying to match prices with the private players. “We have list volumes but can’t afford to keep losing. Besides, we have the infrastructure and are most consistent suppliers. That will always work in our favour."
IOCL did not reply to an email sent on Wednesday.
Moneycontrol.com on 18 October quoted a CLSA report as saying that among PSUs, IOC had seen the biggest loss in market share in retail diesel (around two percentage points in two years) and in bulk sales by around 10 percentage points in two years as competition increased.
The government had in 2013 deregulated the sale of bulk diesel. Public sector companies—Indian Oil, Hindustan Petroleum and Bharat Petroleum—were meeting almost the entire requirement for bulk diesel users until 2013.
Of the total diesel sales in the country, around 20% are in bulk.
Bulk customers fall in two categories—defence, railways and state transport undertakings which form 60% —and industries like power plants, cement plants and chemical plants etc which form the rest. Diesel sales are the mainstay for all fuel retailers.
“In bulk diesel and ATF, IOCL has lost market share. This business is basically based on tenders. So sometimes it happens and it will continue to happen that you win a significant tender and your volumes are immediately added. Somebody bids aggressively and you lose the volumes. So, I think these are something which will continue to happen as far as the bulk diesel segment is concerned and this may change from quarter-to-quarter," AK Sharma, IOCL’s director finance told analysts in a conference call post second quarter earnings on 28 October.
Bulk consumers include state-run bus transport corporations, the Indian Railways, and small and medium-size enterprises that use gasoil to run their facilities. They buy fuel directly from refineries.
Private fuel retailers—Essar Oil, Reliance Industries and Shell India—form less than 10% of India’s fuel retail business. Government-owned companies—IOC, HPCL and BPCL—dominate the fuel retail business, with a more than 90% share.
In the past, diesel prices have been controlled by the government due to the sensitive nature of the product as an auto fuel and its impact on inflation.
RIL said ATF sales volume grew by 31% during the second quarter over the last year and it re-secured its customer base with an over 4.5% market share post deregulation in the bulk diesel segment. Bulk marketing initiatives contributed to domestic market share gains, RIL told analysts in a presentation.
It added that RIL had a leading market share in 10 out of 25 airports where it operates. “Award for 30 Railway Consumer Depots (RCDs) under a new Rate Contract with all India share-out at 11.6% for diesel requirement of Indian Railways," RIL said. It has also accelerated expansion of its network in Southern India.
Essar Oil, BPCL and HPCL hold over 2% market share in the bulk diesel segment. BPCL and HPCL did not reply to an email sent on Wednesday.
“IOCL had always been the powerful retailer in the market so with the opening of the segment, they are bound to lose market share. BPCL has been growing and we are getting aggressive on the segment," said a BPCL official on condition of anonymity.
“Right since 1960s the entire government’s business was with IOCL and thus the company had 100% share in the bulk diesel segment. After deregulation, most state utilities went in for a tender system which saw private players participate and end IOCL’s monopoly," said the head of the industrial and commercial segment at one of the oil marketing companies on condition of anonymity as he is not allowed to speak to the media.
“When it comes to Railways and state-run utilities, it will be difficult for private players to penetrate that as public sector companies have superior infrastructure and reach. Besides, they look at supplying fuel at an all India basis. Newer players however, may be able to capture markets in and around their refineries," said an industry official on condition of anonymity. RIL and Essar Oil have refineries in Gujarat and are aggressively marketing in the Western region.