Reliance Industries Ltd (RIL) is in talks with Hindustan Petroleum Corporation Ltd (HPCL) to work out a possible tie-up. This tie-up is to help the state-owned petroleum company expand its oil retailing business. Prices in the oil sector are looking up now that retail diesel is approaching market rates and petrol prices are de-regulated. This is encouraging many oil retailers to re-examine their business strategies going forward.
These talks with HPCL are part of RIL’s long-term plan to focus its attention on petro-chemicals, refining, retail and telecom. In fact, RIL is looking at pumping in 75% of all the investments (Rs 2,40,000 crore) it has made over the past 37 years of itspresence in these sectors.It is confident that it will also achieve a debt-free status by 2017-18.
Brighter Future for the Petro-Chemical Industry
Should the talks between RIL and HPCL work out;the former will be able to strengthen its leadership position in the oil retail sector. RIL’s oil presence in Gujarat alone is around 200-215 retail outlets. Combined with its pan-India presence of 1,400 oil outlets, it puts RIL above Essar Oil’s presence of 1,400 outlets and Shell’s 79 outlets. With RIL’s infrastructure combined with HPCL’s might as the second-largest oil retailer in the country, the mutual benefit would be unmatched.
Also, with the pricing between petrol and diesel narrowing down, vehicle owners now have a range of fuelling options. An agreement between RIL and HPCL ensures that any increase in demand for petrol cars will be efficiently met.
Well Planned Basis for Talks
The talks with HPCL are in the preliminary stages and RIL is working on a strategy that will completely reduce its risks. As a private player in the petroleum industry, RIL is beginning these talks with HPCL to help the company begin operations with the Rs 5000 crore infrastructure that RIL has in place already.
With the Government’s move to stagger the diesel price increase by 50 paise a liter each month, the current under-recovery stands at Rs 1.78 per litre. This move has had a positive impact on retail and commercial consumption. The diesel demand up until July of this year stands at a 6.25% increase year-on-year.
Part of a Larger Investment Plan
The talks with HPCL are part of the efforts that RIL is undertaking to reinvent itself by the time it completes 40 years of its first public offering. RIL is currently in the midst of its largest investment programme since its inception. Confident about the long-term prospect of the Indian economy, RIL believes that now is the right time for rapid expansion.
In successive 3-year investment cycles, the company will investRs 1,80,000 crore each time. This takes the company’s 3-year investment target up by 20% from the Rs 1.5 trillion that was first envisaged in its 2013 AGM. Each of these large investments is being done with the view of taking RIL to the level of a Fortune 50 company.
RIL’s core petro-chemicals business will receive the highest allocation of capital. Any of the new projects in the pipelines are slated to be completed within 24 months. The company is working closely with the Indian government to resolve any regulatory issues and market-based gas price fluctuation to ensure success in the petro-chemical business.