If there is one company in the Indian oil industry that everyone covets and which the government is not inclined to part with, it is Bharat Petroleum Corporation Limited.
There's good reason for the possessiveness. Over the past decade, BPCL has transformed itself from a mundane commodity company into a savvy retail player. Despite being a public sector company, it has always been applaud for its pro-active, first off the blocks approach.
Undoubtedly, it is the most efficient among the state-owned oil companies. But can it continue to maintain its ace position in a market place that is about to witness a complete overhaul?
The going will certainly be tough as BPCL will face competition from aggressive private players like the Rs 56,550-crore (Rs 565.5 billion) Reliance Group, and perhaps some foreign companies like Shell.
The divestment of HPCL, and whispers about the merger of the two major public sector players Oil and Natural Gas Limited and Indian Oil Company are big threats as well. The combined total assets of the two entities are around Rs 98,800 crore (Rs 988 billion), which is more than seven times that of BPCL's assets.
All this, however, does not perturb Sarthak Behuria, BPCL's chairman and managing director. Brushing aside all apprehensions, he says, "We have a well placed structure to take on the challenge from competition. We have demonstrated it in the past and are confident of doing so in the future also."
Indeed, BPCL was the first company to realise in the early '90s that liberalisation would mean a top-to-bottom shake-up for the oil industry. Realising that it would have to respond swiftly in a fast changing market place, BPCL embarked upon an ambitious programme to redesign itself.
"Our aim was to create a process-oriented structure, which would allow more flexiblility, be responsive to external change and most importantly, one that would completely focus on the customer," says Behuria.
By 1998, the company had successfully reengineered the whole system. There were two fundamental changes in the new structure.
One, the company created customer-centric strategic business units and two, it de-layered the organisation and gave people decision-making authority at all levels.
This laid the foundation for the aggressive retail push that followed. BPCL has outperformed the market by bringing in new technologies particularly in the retail market. It has several firsts on its platter.
It was the number one oil company to introduce an international format for its new generation outlets and convenience stores.
"Most of its marketing initiatives have been a grand success, with competitors playing catch up," says Karthik Ramakrishnan, oil analyst at Mumbai-based broking firm Sunidhi Consultancy Services.
Then, BPCL was the first to introduce a loyalty programme and make payments easier with its "Petro Cards" for urban consumers and through "SmartFleet card" for major fleet operators.
It already boasts of nearly one million Petro Card customers and 250,000 SmartFleet customers. For truck drivers on the highway it has set up 38 one-stop-truck-shops, which provide a host of services under one roof.
As part of its retail push, BPCL also rolled out convenience stores called "In & Out", which provide retailing, merchandising of consumer goods and services under one roof. Currently, BPCL has 88 such stores across the country and it will be adding more in coming years.
Recognising that adulteration was a major problem in the fuel market, BPCL launched the Pure for Sure campaign. While the campaign has resulted in higher customer confidence, the 1200 Pure for Sure certified outlets have meant increased business and lesser customer churning, claim BPCL officials.
Of course, it should be said that its competitors are not far behind. Indian Oil has launched its "Quality and Quantity" and HPCL its 'Club HP' outlets.
On the product side, BPCL has launched an improved quality petrol dubbed "Speed" within three months of the government deregulating petrol and diesel marketing.
Speed uses world class additives sourced from Chevron Oronite Company of the US and promises better engine efficiency and lesser pollution. Available only in "Pure for Sure" outlets, the company has seen nearly 35 per cent to 40 per cent of its consumers shift to Speed.
Today, Speed commands a 60 per cent market share in the premium brand segment. "And in future this segment will certainly see phenomenal growth," says Ramakrishnan.
Analysts believe that BPCL's strong retail brand will help it realize better price for products in future. The benefits will become more apparent when petro product prices are completely deregulated.
"We believe that a premium of 25-30 paise per litre of petrol and even probably diesel is easily possible from a strong brand," adds Satyam Agarwal, oil analyst at Motilal Oswal Securities. Other analysts share a similar view.
Besides, BPCL has evolved a vehicle tracking system, which operates through swipe cards. Vehicles are tracked through data read at 200-plus swipe card stations located in BPCL outlets and other locations.
Even as a number of companies are still grappling with using IT to improve efficiency in the supply chain management, BPCL's entire business is conducted electronically,
As of now, BPCL has all the ingredients of a successful oil company. It has a national presence with 4,562 retail outlets and an overall market share of over 20 per cent. What's more, it has an efficient IT infrastructure and, experienced and smart people. In terms of financial stamina, BPCL is in an enviable position with networth of Rs 13,372 crore (Rs 133.72 billion).
In the first six months of this fiscal (post dismantling of the administered pricing mechanism), the company has posted a net profit of Rs 607 crore (Rs 6.07 billion). Its refining margins in the last quarter were about $3.1 per barrel and the marketing margins on petrol and diesel have risen after deregulation.
But the company will have to work even harder to protect its marketshare. For the time being however, the threat may be limited. Analysts do not see any major change in the market place in the near future.
Even if one were to presume that Hindustan Petroleum under a new strategic investor will garner an increasing market share, the process will only be very gradual.
Completely fresh entrants may have to contend with various issues such as creating critical mass of setting up depots to cater to hundreds of retail outlets. "The new entrants will have to work out costs as these depots will not cater to just 4-5 outlets since serving them would increase the costs per kilolitre," say analysts.
Behuria maintains, "The arrangement between the oil PSUs is that of give and take and at the end of the day it balances out. I just don't give and not take and I am not sure whether I can only give and not take. It optimises transportation: that arrangement is more or less on a quid pro quo basis. Thus any new player who wants to grow organically will have a disadvantage."
It will take at least three years for any new player, however aggressive they may be, to replicate a nation-wide infrastructure, say industry experts.
"By that time, even the complacent players will have woken up. For sure, BPCL being the best managed oil company will not be left behind," says Sunidhi's Ramakrishnan.
BPCL has put in place three strategic teams -- one each for strategic planning, brand management and retail outlets. Given that new entrants like Reliance are likely to concentrate on setting up outlets along the highways, BPCL has a focussed team that is charting out a pre-emptive strategy.
It has lined up close to 400 such outlets along the golden quadrilateral, while a few have been planned in the smaller towns to cater to the specific needs of agriculture in there towns.
The thrust will continue to be on the retail business, however. Behuria is gung-ho about the opportunities in the segment and accordingly intends to make BPCL "the most preferred retail dealer" in the country. The Indian retail fuel market is estimated at 45 million tonnes annually.
Apart from the retail push, the company also harbours ambitions of becoming an integrated player. As the first step, the company has tied up with Oil India Limited to pick up a stake in the developed blocks. This is to ensure that it has "oil equity", vital for any vertically integrated oil company.
Says Behuria "we are looking at vertical integration", but admits that the company does not harbour any ambitions like its big brothers such as Indian Oil or the Oil and Natural Gas Corporation.
While BPCL has done a lot on the marketing front, some decisions it took in its early days are proving to be wrong and the company had to take corrective measures.
Lubricating oil was the first product that the government deregulated in 1992. BPCL decided to tie up with Shell and virtually exited from the low margin lubes business where it had an insignificant presence.
It is now regaining its lost market share. It has also moved away from its decision of not entering oil exploration business.
Besides, BPCL has lost a lot of talented professionals to multinationals and other domestic private sector competitors. Behuria reiterates that BPCL has not lost much and will be able to do just as well in future too.
"We have been working on competition for the past two years by taking new initiatives. We are not getting into the multiplying mode," says Behuria.
Industry observers also point out government interference as a cause for concern. For instance, its Bina refinery has been hanging for almost a decade. Recently it revised its project cost to Rs 6,354 crore (Rs 63.54 billion) and has also applied to the government to buy out Oman Oil Company, its joint venture partner in the project. The proposal is still pending with the government.
While BPCL may be keen on Bina refinery, its valuation will get affected if it finally sets up the refinery. Since there is a glut in the global market, no international player will bid for BPCL and take over the headache of setting up a greenfield venture in India, investment bankers said.
"One downside for BPCL, once HPCL is divested, could be that the government interference in BPCL may increase," says Ramakrishnan.
But the acid test for the company begins because it must match its retailing expertise against Reliance and multinationals like Shell, which are entering the retailing sector.
Says an analyst: "Competition only makes companies more efficient." If that is true BPCL could be driving towards even better times.