The Hindu Business Line : Soaring global prices may hit auto LPG retailers’ margins

Fuelling worries
Price of auto gas in Kolkata goes up by 40 per cent since August 2007; petrol prices go up by only 11 per cent
International price of LPG has moved up by $300 a tonne to $880 during the period
IOC operates 171 outlets, followed by 109 of HPCL and 69 of BPCL
Efforts are on to increase the number of auto LPG outlets

Pratim Ranjan Bose

Kolkata, Aug 27 Soaring international price of LPG vis-À-vis a relatively stagnant petrol price in the domestic market, is fast reducing the price advantage of auto-LPG over petrol .

In contrast to the regulated pricing arrangement for petrol (and diesel), auto LPG – an efficient and greener petrol alternative – is retailed at free market price in the country.

The co-existence of two contradictory pricing mechanisms for two complementary auto-fuels has started telling on the sales and profitability of auto LPG business in the country.

While the business continues to be profitable, the retailers including the three PSU oil marketing companies and a number of private players are reportedly sacrificing margins to maintain the price advantage.

PSU oil companies witnessed a drop in sales (volume) of auto LPG between April-July 2008 compared to the corresponding period of the previous year.

According to sources, Indian Oil – the largest auto LPG retailer – registered a four per cent drop in sales during the period. The price differential between the company’s ‘Auto Gas’ and petrol has come down from as high as Rs 19 in August 2007 to Rs 13 a litre in August 2008 in Kolkata.

Auto Gas is now available in the city at Rs 39.14 a litre, up by 40 per cent from Rs 27.91 in August 2007; petrol prices have increased by 11 per cent to Rs 52.20 a litre.

Considering that international price of LPG has moved up by approximately $300 a tonne to $880 during the period, sources say that the price differential would have narrowed down further had IOC not sacrificed the margins considerably.

IOC operates 171 outlets, followed by 109 of HPCL and 69 of BPCL. In the private sector RIL is the largest player with 109 outlets, followed by Aegis (40), Vanaz (39), Gas energy (20) and others taking the total number of auto LPG outlets in the country to 585.

While efforts are on to enhance the sales of auto LPG by increasing the number of outlets as well as geographical spread of outlets, IOC sources confirm that soaring real estate prices vis-À-vis the smaller size of the business and the regulatory hurdles are major problems in this regard. IOC is currently commissioning 107 additional auto LPG outlets.

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