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Old 24th April 2015, 17:48   #31
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Default Re: Petrol Pump Business: No longer as lucrative?

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Originally Posted by alpha1 View Post
Let me try: the munimji of shop can use the invoiced payments to revolve money and earn commission/interest on it. And the sethji may never detect this whole operation if at the end of the day expected cash is returned and tallied against the bills/receipts.
Sorry, did not understand you. Is'nt Hawala a form of moving money from one location to another for a small fee? What kind of hawala has the full amount being returned to the same location at the end of every day?

What is this magical way for the munimji to ensure that the full amount is returned to the Sethji at the end of every day, (without any added risk)?

Kindly explain in more detail. It seems to be very interesting.
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Old 24th April 2015, 17:53   #32
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Default Re: Petrol Pump Business: No longer as lucrative?

One reason for lack of interest from new applicants for opening a petrol pump could be that companies like Reliance, Essar and others are now opening their closed/defunct petrol pumps.
This will bring large number of suppliers in the market and thus will lead to pressure on margins.
But like in any business, it is upto the owner to differentiate itself from others through quality, service and courtesy. I have seen many people sticking to a petrol pump either because it is cleaner or gives full quantity or better service.
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Old 24th April 2015, 18:42   #33
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Default Re: Petrol Pump Business: No longer as lucrative?

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Originally Posted by inder View Post
Oil companies do not give credit. Dealer has to make an RTGS for every tanker of fuel or truckload of LPG cylinders.
So this means that the dealer actually starts with negative balance.
He pays for the inventory upfront and starts earning with each sale!
Poor bunk operator.

Are you certain that there is no credit period?

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Originally Posted by Lalvaz View Post
Sorry, did not understand you. Is'nt Hawala a form of moving money from one location to another for a small fee? What kind of hawala has the full amount being returned to the same location at the end of every day?

What is this magical way for the munimji to ensure that the full amount is returned to the Sethji at the end of every day, (without any added risk)?

Kindly explain in more detail. It seems to be very interesting.
You are right that it is means of transferring money from location A to location B.
But you are looking at it from one instance such transfer from A to B.
In real life there will be hundreds of people at A wanting to transfer to B, and similarly hundreds of people at B wanting to transfer to A.
So in reality the money stays at location A only all the time. And similarly money stays at location B all the time.
At regular time periods, the accounts receivable and payable are balanced, and the balance (if it exists) is transferred under the guise of import export businesses.
Many folks prefer to use this channel even for intra-country settlements because it will never attract IT department's attention. I believe the term is Angadia for this.
Most of the business was settled via Hundi (bill of exchange/letter of credit), which was a financial instrument guaranteed by hawala.

In fact it is an unregulated banking system and a VERY ancient and efficient one.
You need to see it working, to understand that things can operate extremely well without any govt regulations.

Last edited by alpha1 : 24th April 2015 at 19:07.
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Old 24th April 2015, 21:21   #34
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Default Re: Petrol Pump Business: No longer as lucrative?

One of my acquaintances is an area manager for BPCL Ltd in Chandigarh region. According to him in a recent tender for 48 sites , there a were mere 5 number of applicants and the petrol pump business model is no longer feasible to many potential buyers. First of all, the land has to be given to the company on lease for a fixed number of years, leading to long term worries about business sustainability. Plus there are no guarantees that over a period of time another pump might open in the near vicinity leading to immediate sharing of revenues. Also external uncontrollable factors like construction of a flyover, currency valuations and changing government policy does nothing to alleviate the constant fear. Earlier the government used to change fuel prices in the first or the last three days of the month which permitted forecasting by the dealers, but ever since deregulation of fuel prices this is no longer the case and prices can be increased/decreased anytime.
As even my acquaintance-with all his contacts and who has a thorough knowledge of the whole business process- confirms that if he had the money the last thing on his mind would be to open a pump outlet, we can very well gauge why there is little interest in the general population itself.
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Old 24th April 2015, 22:14   #35
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Default Re: Petrol Pump Business: No longer as lucrative?

MS/HSD Retail Outlets (ROs) are commonly known as Petrol Pumps / Petrol Diesel Bunks etc.
This business has seen most amount of changes in last 5 years. From being one of the most closed and sought after businesses, it has gone to become one of the least lucrative business proposition.
Few reasons which can be attributed to this change:
1. Opening up of market - started at the time of Vajpayee government which signalled the entry of private players (Read - Essar, Reliance and Shell).
2. This opening up led to exponential expansion of dealership network of oil PSUs in order to stay relevant (Public image of the then dealership network of oil companies was not exactly sparkly)
3. Indirect result of this expansion was increase in competition and lowering of profitability of existing network since the demand for fuel did not rise in the same proportion (Read - No major industrial development which would have led to growth in transportation)
4. Reality Boom - This is one of the biggest culprits. Since most of the older retail outlets (Read Burmah Shell, Esso and Caltex generation) were located in prime locations i.e. heart of the city, near bus stands and railway stations, near intersections to name a few, the price of the location increased way higher compared to the increment in per liter commission.
5. Over the years, there has not been much development in terms of expansion of municipal limits or city limits of towns, cities etc. However what has happened for oil companies is that most of their network expansion has happened in town suburbs or rural market. what this means is the agricultural demand which was previously being met by existing outlets on the highway or on outskirts of cities is being fed by localised outlets which do not get much of transportation business but get seasonal agricultural related sales.
Although there has been considerable increase in dealer commission (70-100%), as on date approximate commission is Rs. 2 per liter for petrol and Rs. 1.2 for diesel, however the cost of inventory has also doubled-trebled during this period. Add to this the cost of land, operating cost, product losses to the tune of 0.6 - 0.75% for petrol and 0.2-0.25% for diesel, hike in electricity bills, increment on labour cost and last but not the least insatiable and never ending need of enhanced services of the end customer has led to decrements in bottom line even after considering increment in per liter commission. Further due to waning profitability of transportation business (Which demands a separate article for itself), over all tendency of people to do business on other's money (Making sand/air castles) has led to customers demanding credit and discounts from dealers and since we live in a dog eat dog world, refusing credit to some one means - "if you do not want my business there are many other takers for it" which means that now dealers have to give credit as well as discount to retain customers / acquire new ones. Since the oil companies do not give credit to their dealerships which means further cuts in the profit margins along with the obvious bad debts which have to be written off from your bottom line.
And lastly - yes income tax and VAT has to be remitted to government even if a customer does not collects bill from the outlet.
Procedure of allotment of new outlets has also changed since last year when it was decided to select dealers thru either draw of lots (involving higher non refundable security deposits, though land is required but is not to be taken on lease by oil company) or bidding (again involves higher minimum bid, land is required and is to be leased to the oil psu) versus previous method of selection which simply involved interviews and security deposit with a cap of 5 lakh rupees.
I understand the above might seem like re-framing of ET article but the fact is I had written my reply after reading the responses from members to the OP and read the ET article later. I would not mind dwelling further on the matter but i felt like writing an article thus i am stopping for now
Hope this helps
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Old 24th April 2015, 23:34   #36
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Default Re: Petrol Pump Business: No longer as lucrative?

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Originally Posted by roamer012 View Post
I would not mind dwelling further on the matter but i felt like writing an article thus i am stopping for now
Hope this helps
If you would oblige us, Sir, why do PSU OMCs still stick on to the tedious Multiple Dealership Norms?

At least they should allow

a) Corporate entities to have multiple dealerships subject to capital/ networth norms. (Mandating a minimum distance between any two outlets of the same entity shall prevent monopolization within a limited area)

b) Same dealer to have Petrol/ HSD and LPG outlets?

Last edited by Yeldo : 24th April 2015 at 23:35.
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Old 25th April 2015, 00:47   #37
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Default Re: Petrol Pump Business: No longer as lucrative?

One of my friends own a hp pump. Operational since 5 years. I find his business quite lucrative and how-

1. He gets a monthly rental of 55k from the company.
2. He is the dealer and sells above 300 kilo litre (which I think is decent)
3. The complete setup and construction cost was borne by the company (Except fixtures)
4. Even the initial working capital was provided at an interest rate of 9%.

He claims that he got all these extended facilities under some corpus fund scheme.

Considering the above points, I find it a cracker of a deal as he is earning minimum 4.5 lacs a month without much of trifle sales pressure like other retail businesses.
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Old 25th April 2015, 01:34   #38
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With the entry of marginal players like Reliance, Essar , the profit margins of existing players goes up because they have a cost advantage .
The new private players will be price makers and will compete on service and branding.

The fuel retail business will become more active instead of passive, and unviable fuel pumps will have to shut down.

The business will continue to be highly lucrative subject to right location /service standards.
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Old 25th April 2015, 07:40   #39
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Default Re: Petrol Pump Business: No longer as lucrative?

Quote:
Originally Posted by Yeldo View Post
If you would oblige us, Sir, why do PSU OMCs still stick on to the tedious Multiple Dealership Norms?

At least they should allow

a) Corporate entities to have multiple dealerships subject to capital/ networth norms. (Mandating a minimum distance between any two outlets of the same entity shall prevent monopolization within a limited area)

b) Same dealer to have Petrol/ HSD and LPG outlets?
Multiple dealerships were legacy of burmah shell/esso/caltex till the time they were nationalized i.e. converted to BPCL & HPCL. Similar decision was taken with IOCL as well but i am not aware regarding the timeline.
Post nationalization and investment of GOI, multiple dealerships were stopped and one family unit i.e. husband, wife and unmarried children could have only one of the following - Retail outlet/LPG distributorship/SKO agency of only one of the three PSUs.
This was done because setting up retail outlet required government's money and thus everyone should have a chance for getting this benefit and thus if multiple dealerships were allowed that would mean one family unit getting double benefit. Thus multiple dealerships were stopped.

As for corporate entities, norms are there in place to give them multiple dealerships provided they are private limited companies and satisfy few other criterion.

Hope this clarifies
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Old 25th April 2015, 07:51   #40
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Default Re: Petrol Pump Business: No longer as lucrative?

Quote:
Originally Posted by sudeep.pandya View Post

1. He gets a monthly rental of 55k from the company.
2. He is the dealer and sells above 300 kilo litre (which I think is decent)
3. The complete setup and construction cost was borne by the company (Except fixtures)
4. Even the initial working capital was provided at an interest rate of 9%.

He claims that he got all these extended facilities under some corpus fund scheme.

Considering the above points, I find it a cracker of a deal as he is earning minimum 4.5 lacs a month without much of trifle sales pressure like other retail businesses.
Rentals are negotiated on case to case basis and depending on the location of outlet.
From what you have described, your friend got the outlet under corpus fund scheme which is usually for reserved categories/Kargil families/Single Women. Under the scheme, Corporations provide startup inventory cost, Since the site is leased, all fixed and movable assets are to be provided by respective Oil PSU.
One never said that all sites are unviable or else all the outlets would have shut shop. Problem is in setting up of new outlets when most of the benefits from Oil PSUs have been withdrawn and already the density of the outlets is high.
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Old 25th April 2015, 23:17   #41
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Wink Re: Petrol Pump Business: No longer as lucrative?

You're forgetting the 35% margin offered on lubricants. That's why many offer a quick oil change for bikes. I guess for cars such a facility would take too much space or skill.

For cars, the additional sweet revenues come from engine coolants (35%), battery water (100%) and sometimes propellants for shuttles(quite rare).

If it is in a rural areas then it's more profitable. For the owner if he's around. Often the workers alone share the benefits.

The ones where physical type rotary dials are used are user friendly. A simple calibrating rod can be turned for optimum efficiency.

On highways you may see these types and Z shaped or maybe 7 shaped fuel pumps (digital display) with the side panels opened up for servicing. During such repairs the technicians get confused with all the visible gears. So they are regularly serviced. Again very user friendly.

So that's the way the good and the bad make money.

Last edited by hangover : 25th April 2015 at 23:30. Reason: Minor typo. No more edits.
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Old 27th April 2015, 08:43   #42
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Quote:
Originally Posted by smartcat View Post
Basic economics (supply & demand) coming into picture here I guess.


Some time back, I had read that pump owners get Rs. 1.25 per litre of petrol or diesel sold. At average sales of 160,000 litires per pump, it works out to be an income (revenues) of Rs. 2 Lacs per month per pump.

"Averages" don't mean much though
Hi there, what you have mentioned is the commission per liter that one gets which otherwise is also known as the gross profit. After deducting the operating costs, what is left over in today's inflation is anybody's guess.

Quote:
Originally Posted by Naetik30 View Post
I have a very basic question.
When we fuel at a pump and dont take the bill from the pump, does the pump owner have to pay the sales tax (or) what every tax that he has to pay. If a pump owner can gain by this way - it will make a huge profit margin for him. Especially considering the OMC pays him only 1.25 Rs/litre.

And - what happens in the case of pumps with electronic bills? How does it work then?
Hello,
Petrol and diesel are tax-exempted (VAT). All other levies are charged and included in the cost per liter. Hence, there is no additional savings here.

Last edited by benbsb29 : 27th April 2015 at 09:08. Reason: Merging back-to-back posts. Please use the Multi-Quote button to reply to more than one post at a time. Thanks.
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Old 27th April 2015, 09:43   #43
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Default Re: Petrol Pump Business: No longer as lucrative?

Another rampant practice is to sell commodities across various price zones. Same owner with multiple fuel stations across borders practice this with invoicing for cheaper despising station and then the fuel tankers are offloaded to an alternate station with higher selling price to earn fantastic margins.

Haryana-Punjab-Himachal
Delhi-UP-Haryana
are quite organized.

I am not sure if this is happening in other states / regions also like someone mentioned price difference between Mumbai & Thane, since both state and central taxes are paid out by the oil companies, the commodity purchased by the retail operator brings added margin simply by managing the location of sale and invoicing business.

Do I actually get Euro IV compliant fuel in Delhi? I am not sure

Cheers

Last edited by i74js : 27th April 2015 at 09:45.
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Old 27th April 2015, 10:59   #44
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Default Re: Petrol Pump Business: No longer as lucrative?

Petrol pump is always a profitable business for sure. No doubt on that. But if you compare it with real estate business in cities like Pune, Mumbai etc then its comparatively less profitable, much less in some cases. If you have commercial building at good location in city like Pune, on the area on which you have to run the petrol pump, it goes into multiple lacs, some times in crores as well. It is like 10, 20 or more times profitable than running a petrol pump. This i am talking about Pune, Mumbai will be more profitable in terms of profits, may be 100, 200 times than running a pump. Also running a pump means having lot of daily headache which is not in real estate business. In some areas real estate property values are so high that if petrol pump owner sells his land, then he & his coming few generations don't have to do anything. They can just live on interest that will come from bank per month

Last edited by aniketi : 27th April 2015 at 11:02.
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Old 27th April 2015, 13:45   #45
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Default Re: Petrol Pump Business: No longer as lucrative?

As I gather from the thread, running a petrol pump honestly yields lower returns (unless you have a good consumption, which every pump cannot have) and blocks the land for a long period. One relative of mine was allotted a petrol pump from Essar few years back. But he too backed out after looking at the financial equation.

Big housing societies / townships have LPG tanks and every household receives LPG through pipeline. On a similar basis, we can have petrol and diesel tanks and pumps in big housing societies / townships. The company will directly supply there. This will make the fuel available for 24 hours, at the doorstep.

Even if this supply needs to be routed through the dealers, the oil companies can route this through the dealers who have lower footfalls because of factors beyond their control.

With this, some of the dealers (who have low volumes) can be terminated and they will be free to capitalise their land.
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