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> BPCL: Out of the frying pan, into the fire? |
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BPCL: Out of the frying pan, into the fire?
posted by
Vivek Sharma
19 Jul 2008, 15:45
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labels: public sector, energy/oil, branding/marketing
Suppose you are managing a business. The times are good for the industry as product prices are at record highs. Your domestic and global competitors are raking in so much profits that politicians are clamouring for imposing a windfall tax on them. Unfortunately, your majority shareholder has asked you to underprice your products and your business is struggling to evade bankruptcy. You see hardly any possibility of a reversal in fortunes, not even in the distant future. Faced with such a situation, any wise and foresighted manager will push to diversify into other sectors where there will not be any price restrictions.
Yes, I am talking about our PSU oil retailers. All of them are under severe financial strain and are struggling to generate enough cash to remain in business. Desperate, they too are considering other businesses to stay afloat. Can’t blame them for that.
But desperation doesn’t give you the license to do stupid things, which is what at least one PSU oil company – BPCL – may end up doing. Reports suggest that BPCL is considering diversification into – hold your breath now – packaged drinking water and DTH!!
To justify its proposed move into packaged drinking water, BPCL has discovered some synergies with the oil retailing business. ‘Our existing infrastructure in bottling and distribution gives us an edge to enter into this business’, a company official reportedly said. BPCL and bottling? Yes, they do bottle stuff like lubricants and cooking gas and has a national distribution network of petrol pumps and cooking gas agencies. But that is not quite the same as bottling and marketing drinking water, is it?
BPCL is not oblivious to the challenges it may face in the new business. ‘We need to acquire technology and lay infrastructure such as purifying and distilling plants’, the unidentified company official is reported to have added.
Packaged drinking water is at least believed to be profitable, but DTH? For the last financial year, Dish TV and Tata Sky – the two leading players in the DTH business – reportedly lost over Rs2,500 crore between them. Sun TV has already entered the business while Anil Ambani and Sunil Mittal are about to roll out their offerings. Competition is already intense and DTH providers are giving set top boxes for free and monthly subscription fees are coming down. Subscriber additions will grow at a fast pace, but it will be a long while before anyone makes money from this business.
In any case, DTH is definitely not a good business to enter for a struggling, cash-starved oil refiner and marketer.
Out of the frying pan and into the fire, brilliant strategy! What are those guys at BPCL thinking?
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