SWOT Analysis
Report on Bharat Petroleum Corporation Limited
Strategic and SWOT Analysis Report on Bharat Petroleum Corporation Limited-BPCL
COMPANY
OVERVIEW
Bharat
Petroleum Corporation Limited (BPCL or the company) specializes in refining,
processing, and distributing petroleum products, and exploration and production
of hydrocarbons. It offers petrol, diesel, kerosene, aviation fuel, liquefied
petroleum gas (LPG), compressed natural gas (CNG), and lubricants. The company
primarily operates in India, where it is headquartered in Mumbai, and employed
13,213 people as on March 31, 2013. The company recorded revenues of
INR2,417,959.8 million ($44,538.8 million) during the financial
year
ended March 2013 (FY2013), an increase of 13.2% over FY2012. The operating
profit of the company was INR40,356.9 million ($743.4 million) during FY2013,
compared to an operating profit of INR18,841.7 million ($347.1 million) in
FY2012. The net profit was INR26,429 million ($486.8 million) in FY2013,
compared to a net profit of INR13,112.7 million ($241.5 million) in FY2012.
SWOT
ANALYSIS
BPCL
specializes in refining, processing, and distributing petroleum products, and
exploration and production of hydrocarbons. It offers petrol, diesel, kerosene,
aviation fuel, liquefied petroleum gas (LPG), compressed natural gas (CNG), and
lubricants. Research and development (R&D) is an integral part of BPCL’s
strategy for achieving sustainable growth and profitability. However,
increasing competition can create hindrances for the company in securing sites
for its new fuel stations, which could hurt the company's expansion plans.
Strengths
Robust research and development
capabilities
Research
and development (R&D) is an integral part of BPCL’s strategy for achieving
sustainable growth and profitability. To enhance R&D capabilities, BPCL is
continuously strengthening its infrastructure and manpower resources. The new
products developed during the year include OE specific high performance
passenger car engine oil, semi-synthetic 4T engine oil, high performance hydraulic
oil, STOU (Super Tractor Oil Universal) for farm tractors, environment friendly
cutting oils, defense specific hydraulic oil, and alternate formulations for
existing products. Moreover, as part of its new initiatives, BPCL continued its
research collaborations with a number of leading research institutes. These
include collaborations with Indian Institute of Science of Bangalore, Osmania
University of Hyderabad, Tamil Nadu Agricultural University of Coimbatore, IIT Roorkee,
IIT Madras, Institute of Plasma Research of Gandhinagar, and CSMCRI of
Bhavnagar.
Non-conventional energy initiatives
BPCL
has placed strong emphasis on the development of non-conventional sources of
energy. A
number
of initiatives have been undertaken in tapping non-conventional energy sources
like bio-diesel, wind energy, solar energy, and fuel cells in order to develop
alternate sources of energy. BPCL has promoted Bharat Renewable Energy (BREL),
a joint venture company with the objective of entering the bio-diesel value
chain in the state of Uttar Pradesh. “Project Triple One” has also been
launched with the aim of producing one million tons of bio-diesel from the
plantation of Jatropha and Karanj, to replace diesel over the next 10 years.
As on
March 31, 2013, the company has identified about 134,722 acres (54,520
hectares) of waste/arid land, out of which 8,987 acres (3,637 hectares) of
biofuel plantation has been completed. BPCL is also in discussion with the
State Governments of Bihar, Madhya Pradesh, and Karnataka to set up bio-diesel
facilities in these states. BPCL, in coordination with the Government of
Karnataka, has identified a location at the Bio-fuel Technology Park in Hassan
for setting up a green fuel retail outlet (GFRO) jointly with the Department of
Agriculture, Government of Karnataka. Moreover, BPCL has been one of the first
energy companies to successfully generate power through windmills in India. Windmills,
with a capacity of five MW (four windmills of 1.25 MW each) in the hilly range
of Kappatguda in Karnataka, are currently in operation and the power produced
by them is being sold to the Karnataka state electricity grid. BPCL is
currently evaluating a proposal for setting up of a wind farm with 10 MW
capacity in Maharashtra to set off the electricity consumed in the state. BPCL
plans to make further investments in windmills in the states of Rajasthan,
Maharashtra, Gujarat, and Madhya Pradesh.The company is also setting up a one
MW capacity grid connected solar farm at its LPG bottling plant in Lalru in the
state of Punjab. As the power generated from the plant is proposed to be sold
to the Punjab State Electricity Board, BPCL has signed a power purchase agreement
with the board. In addition, a five kilovolt amperes (KVA) solar cum wind power
generator have been commissioned at one of BPCL’s company owned company
operated (COCO) retail outlets near the city of Kolkata. A five KVA solar power
generator has also been installed at a COCO outlet at the city of Bangalore.
BPCL is also evaluating proposals to set up a Solar Farm of five to 10 MW capacity,
either on its own or through joint ventures at select locations. These
initiatives will enable BPCL to strengthen its clean energy capabilities in the
wake of changing environment regulations. These initiatives enable BPCL to
strengthen its clean energy capabilities in the wake of changing environment
regulations.
Strong production capabilities
BPCL
has strong production capabilities. The aggregate refinery throughput at BPCL’s
refineries at
Mumbai
and Kochi and that of its subsidiary company NRL in FY2013 was 23.21 MMT.
During
FY2013,
the Mumbai refinery processed 13.10 MMT of crude oil. Despite turnaround activities,
the refinery achieved a capacity utilization of 109% in FY2013. The refinery
achieved its highest ever production of several products including LPG, methyl
tertiary butyl ether, aviation turbine fuel (ATF), and lube base oils. The
refinery also commenced the production of Euro IV quality motor spirit (MS) and
high speed diesel (HSD). The Kochi refinery recorded a throughput of 10.1 MMT
in FY2013. The Kochi refinery recorded its highest ever production of ATF,
Bitumen, LPG, MS meeting Euro III standards, and propylene.2012, the Kochi
refinery recorded its highest ever production of ATF, Bitumen, LPG, MS meeting
Euro III standards, and propylene. Strong production capabilities enable BPCL
to continuously enhance its efficiency, to evaluate opportunities to reduce
costs, and to improve processes. In addition, it helps the company to increase the
reliability of order fulfillment and satisfaction of customer needs.
Weaknesses
Concentration of operations
BPCL
primarily operates in India and generates major revenues from the country.
Although the company has presence in six countries across five continents, the
company heavily depends on the Indian market for its operating profits. As a
result, this becomes a competitive disadvantage, as its competitors carry a
wider scale of operations. The prime concentration of company’s operations in India
not only increases its exposure to local factors but also deprives BPCL of
higher revenues from high growth markets in countries outside India.
Dependency on international market for
supply of crude oil
BPCL’s
dependence on imports for meeting the crude oil requirements of its refineries
has been increasing. BPCL’s imports of crude oil rose from 16.27 MMT in FY2012
to 17.00 MMT in FY2013. The international crude oil markets remain extremely
challenging since the crude oil prices are volatile. On the other hand, supply
of crude oil from domestic sources has been declining, Also, geo-political developments like the
sanctions imposed on Iran, a major crude oil supplier, has made the task of
imports more challenging. All these factors contribute in creating a demand
supply gap for the company. This also hampers the face value of the company as
well as hits the revenues adversely.
Opportunities
Strategic plan for the integrated
refinery expansion project (IREP)
In
recent years, BPCL has strategically planned for a major expansion program at
its Kochi refinery. BPCL, through IREP, plans to increase the crude oil
refining capacity from 9.5 MMTPA to 15.5 MMTPA, focusing on low-cost expansions
as a part of the company’s INR200,000 million ($4,172 million) investment
disbursement over the next three years. In accordance with this target, in
April 2011, the Board of Directors at BPCL approved the expansion of the Kochi
refinery by six MMTPA. Further, in June 2011, BPCL planned to expand its
refineries in Kochi from 190,000 barrels per day to 300,000 barrels per day and
also planned to build a fluid catalytic cracking unit at the same plant. These
expansions are expected to be operational by FY2015. In recent years, BPCL has
strategically planned for a major expansion program at its Kochi refinery. BPCL,
through IREP, plans to increase the crude oil refining capacity from 9.5 MMTPA
to 15.5 MMTPA, focusing on low-cost expansions as a part of the company’s
INR200,000 million ($4,172 million) investment disbursement over the next three
years. In accordance with this target, in April 2011, the Board of Directors at
BPCL approved the expansion of the Kochi refinery by six MMTPA. Further, in
June 2011, BPCL planned to expand its refineries in Kochi from 190,000 barrels
per day to 300,000 barrels per day and also planned to build a fluid catalytic
cracking unit at the same plant. These expansions are expected to be
operational by FY2015. Investment in the IREP project would help BPCL to
provide an enhanced flexible energy mix, to increase its own generation
capacity, and to improve its marketing activities and to gain competitive advantage
over its peers.
Expansion of the petrochemical business
BPCL
is planning to diversify into the petrochemicals business and also to build a
niche petrochemical project at a cost of INR50–60 billion ($1.1–1.3 billion).
For instance, in December 2011, BPCL planned to sign an agreement to form a
joint venture with UK's LP Chemicals for setting up a petrochemical plant at
its Kochi refinery in Kerala. Further, in July 2012, BPCL signed a MOU with LG
Chemicals to set up a petrochemical plant next to its Kochi refinery
complex.The company would be installing a petrochemical fluid catalytic cracker
(PFCC) which would produce 500 thousand metric tons per annum (TMTPA) of
propylene. This project is scheduled for completion in the next four years
dovetailed with the refinery expansion project, with an expenditure of INR40–60
million ($0.83–$1.25 million). Later, in September 2012, the company further
planned to offer 51% stake in the petrochemical project to its Korean joint
venture partner LG Chemicals. The plant will be commissioned by the end of
FY2017. The propylene plant is part of the company’s proposed petrochemicals
complex planned at Ambalamugal near Kochi, where it also has a 9.5 MMT oil
refinery. part of the company’s proposed petrochemicals complex planned at
Ambalamugal near Kochi, where it also has a 9.5 MMT oil refinery. With the
expansion of this petrochemical business the company will add a new product
line into its downstream business.
Growing demand for oil and gas
After
the global economic meltdown, the years 2011–13 continued the pace of recovery,
especially in countries like India and China. The Indian economy was one of the
few countries with GDP estimated to have grown at 5.6% during the year. India’s
GDP is expected to grow at a healthy rate in the coming years. As energy demand
grows, oil and gas companies will have a major role to play in meeting the
rising demand. Moreover, according to BP’s Energy Outlook 2030, energy
consumption in India has grown by 190% over the past 20 years and is likely to
grow by 115% over the next 20 years, a rate of over 4% per annum. The fastest
growing fuels are renewables (including biofuels) which are expected to grow at
8.2% a year between 2010 and 2030; among fossil fuels, gas grows the fastest
(2.1% per annum) and oil the slowest (0.7% per annum) for the same period. BPCL
offers a wide range of petroleum products in India. The aggregate refinery
throughput at BPCL’s refineries was 23.21 MMT during FY2013 and the company
plans to improve its output to meet customer demand. Therefore, BPCL is well
positioned to capitalize on the growing Indian oil and gas market.
Threats
Intense competition
The
competition in the downstream segment in India has increased due to the entry
of private sector companies. Other state-owned oil companies in India have shed
their co-existence policy in recent years and have gained noticeable market
share in the oil industry. BPCL faces intense competition from other national
and local companies such as Hindustan Petroleum, Indian Oil, Chennai Petroleum,
Hindustan Oil Exploration, and Mangalore Refinery and Petrochemicals.
In
addition, deregulation of the downstream segment has led to the entry of
private sector companies such as Reliance Industries into this market segment.
Increasing competition in the downstream segment could force the company to
offer additional subsidy and result in pricing pressures. This in turn would
increase costs and cause further decline in margins. Further, increasing
competition can create hindrances for the company in securing sites for its new
stations, which could hurt the company's expansion plans.
Under-recovery of the prices of
petroleum products
Although
the Indian-state owned oil marketing companies (OMC) like BPCL are in theory
free to raise the prices of their petroleum products, but in practice they are
rarely allowed to do so by the Indian government, their majority shareholder.
Currently, OMC are suffering a loss of
INR9.84 ($0.20) for every liter of diesel sold in the domestic market and a
loss INR31.30 ($0.65) for every liter of kerosene sold, while the loss on
selling domestic LPG is INR478.50 ($9.98) per cylinder. Although BPCL had
absorbed such losses in the past whereby profits from its refining business had
compensated the losses suffered by its marketing operations allowing the
company to record overall profits, but declining refining margins are no longer
enough to offset the marketing losses. Henceforth, inability to raise prices of
controlled petroleum products and delay in government compensation for the
losses suffered thereof, are pushing OMC like BPCL towards financial hardship.
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