In a first, HPCL to launch dynamic fuel pricing

Mumbai: To beat competition from its own peers and private players, state-run Hindustan Petroleum Corp. Ltd (HPCL) has decided to experiment with dynamic fuel pricing at its fuel retail outlets, said two senior HPCL officials, on the condition of anonymity.

Currently, HPCL has launched dynamic pricing at a few of its retail outlets on a pilot basis, to be extended to other outlets across the country at a later stage.

Dynamic or real-time pricing means the cost of a product could be flexible. If HPCL kicks off dynamic pricing, it could well be a market changing phenomena where other fuel retailers may have to follow suit. Dynamic fuel pricing is a common phenomena internationally.

“Yes we are looking at dynamic pricing. We have a 26% market share in the fuel retailing segment and we are doing well on the marketing front. We want to better our performance,” said one of the HPCL officials mentioned earlier.

HPCL officials said the company will tinker with fuel prices by a few paise per litre, say 40 or 50 paise, and observe how the footfall and demand scenario pans out. “This will also help us understand consumer behaviour with regard to dynamic pricing and how our retail outlets function in comparison to the neighbouring outlets,” said the second HPCL official mentioned earlier.

“On a pilot basis at a few of its fuel retail outlets and expects it to become a significant tool to sustain profitability/market share in the next 2-3 years as private competition strengthens,” said Ambit Research in its report dated 23 August.

The report added that HPCL has been gaining market share from both Bharat Petroleum Corp. Ltd (BPCL) and IndianOil Corp. Ltd (IOCL). HPCL has registered a 5.7% volume compounded annual growth rate (CAGR) over FY11-16 compared with industry growth of 4.4%.

HPCL, the second largest fuel retailer in the country, operates a total of 13,802 retail outlets. Last fiscal, the company commissioned a total of 590 new retail outlets of which 185 retail outlets cater to customers in rural areas.

In its annual report for 2015-16, HPCL said its growth in the retail motor fuel sales was at 7%, significantly higher than that of major public sector unit competitors.

HPCL plans to open 800 outlets this year at a cost of Rs.900 crore.

“We recorded double digit growth rate of 14% in petrol sales and a significant growth of 5% in diesel sales despite the re-entry of private players after deregulation of diesel prices,” HPCL said in its annual report.

Till this May, Reliance Industries Ltd (RIL), Essar Oil and Shell India had together garnered nearly 5% of the fuel market.

While petrol prices were deregulated or market-linked in June 2010, diesel prices were market-linked only in October 2014, phasing out subsidies and making the fuel market attractive for RIL and Essar Oil which could, as a result of the change, sell petrol and diesel at the same rate as that of oil marketing companies (OMCs).

Historically, diesel was sold at subsidised prices in India, with the government compensating the OMCs later. Private fuel marketers received no such subsidy, and were thus edged out of the market when crude oil prices climbed as high as $150 a barrel in 2008.