STRATEGIC MANAGEMENT PROJECT INDUSTRY ANALYSIS OF HINDUSTAN PETROLEUM CORPORATION LIMITED (HPCL)

1. STRATEGIC MANAGEMENT PROJECTINDUSTRY ANALYSIS OF HINDUSTAN PETROLEUM CORPORATION LIMITED (HPCL) SUBMITTED TO DR. RAKESH KHURANA BY GROUP – 6 G.VAIBHAV KUMAR REDDY – P111012 P.PRAVEEN – P111033 PRAGYA JAISWAL – P111037 RAKESH NAVAL – P111039 GREAT LAKES INSTITUTE OF ENERGY MANAGEMENT AND RESEARCH, GURGAON

2. HPCL is a Government of India Enterprise with aNavratna Status, anda Fortune 500 and Forbes 2000 company, with an annual turnover of  Rs. 1,32,670 Crores and sales/income from operations of Rs 1,43,396 Crores (US$ 31,546 Millions) during FY 2010-11, having about 20% Marketing share in India among PSUs and a strong market infrastructure

3. MARKET SHARE

4. HISTORY OF HPCL • 2000 - Scheme of amalgamation of Industrial Perfumes Ltd. with the company is effective from 9th February, with retrospective effect from 1st January, 1999. - The Company will set up a Rs 2900 crore power project in Visakhapatnam as part of the company's diversification strategy. - HPCL has signed a business initiative with internet service provider (ISP) Satyam Infoway Ltd. to set up more than 200 cyber cafes at its retail outlets across the country. - Pepsi has entered its second cyberspace venture forging a tie-up with Satyam and the company as the official beverages supplier for their Speednet project.

5. -Mangalore Refinery and Petrochemicals, the joint venture between Hindustan Petroleum Corporation and the AV Birla Group of companies, is all set to sign a memorandum of understanding with Kuwait Petroleum Corporation for joint efforts in the downstream sector. - Satyam Infoway and Hindustan Petroleum Corporation Ltd. have forged an alliance to set up cyber kiosks at various petrol pumps across the country. - Hindustan Petroleum Corporation Ltd. has entered the Bangladesh lubricants market with a range of its diesel engine and motor oil. - Hindustan Petroleum Corporation Ltd. along with ZIP Telecom, front-end operator of Hughes Ispat, has set up public access telephone booths at HPCL retail outlets across Maharashtra. - The Company has set up two regional offices in Jamshedpur as part of its strategy to focus on improving services. - A subsidiary company Guru Gobind Singh Refineries has been incorporated on Dec 2000. Land admeasuring approx. 2000 acres has been acquired

6. 2002 - HPCL approves Mangalore Refinery & Petrochemicals Ltd. (MRPL) control to Birlas - Ties up with Lubrizol for its own brand of high-performance petrol, branded 'Power' - Unveils branded diesel (Turbojet) - HP unveils new retail brand - 'Club HP' through which it intends to offer quality personalized vehicle and consumer care through select outlets - HPCL and GAIL sign agreement for formation of new JV Company to distribute and market environmentally friendly fuels in and around the cities of Andhra Pradesh

7. 2003 - Forges alliance with Chennai-based KwickTel Communications to launch vehicle tracking system - Launches a new scheme where in the LPG (liquefied petroleum gas) delivery boys will carry portable weighing scales, so that HP customer can measure the Gas contend in cylinder before receiving it - Unveils a high-octane petrol brand in the market named as 'Power '93' - Ties up with Chevron for Aviation Turbine Fuel (ATF) business - Signs agreement with Oil & Natural Gas Corporation (ONGC ) for sourcing crude oil - Unveils Smart Card which a customer could use to pay for petrol or diesel bought at HPCL's outlets.

8. 2007 - Hindustan Petroleum Corporation Ltd (HPCL) and ONGC have signed a Memorandum of Understanding (MoU), covering Product Sale Purchase, Infrastructure Services and Co-operation in Energy & related fields. • 2008 - HPCL signs MOU with Shree Renuka Sugars Ltd -HPCL joins hand with CREDA - HPCL forays ethanol business

9. After 2009 - HPCL formed HBL for production of Ethanol, Sugar and Co-Gen power -HPCL made strategic plans to build higher capacity CDU at vizag plant. - Recent developments include laying of product pipeline from Bhatinda to Pakistan. • Edge for HPCL lies in the lubes segment

10. ISSUES • Difficult product differentiation • Increasing consumption of petroleum products @ 4% per year • Fluctuating crude oil market involving geo-politics • Improper pricing mechanism • Rising under recoveries • Reducing income constraining further investments • Increasing competition from private as well as other PSUs • Inefficiencies in retailing outlets leading to loss of customer satisfaction

11. SWOT ANALYSIS W • Strengths • Variety of products in its basket. • Focus on Alternate Energy. • Many JV’s in various countries. • Many Retail schemes to attract consumers. • Very strong Retail Network. • Manufactures raw materials (LOBS) for lubricants and thus can have control on margins. • Best In Class Retail Service Chain. • Weaknesses • Less number of Retail Outlets compared to other market leaders. • Less explored in Rural Areas. • Less capacity refineries compared to competitors • Opportunities • Tie – up’s with OEM’s to push their products for all OEM services. • Expansion in rural India, as many automobiles are being sold there as well. • Aggressive Behind the Scene promotion to market its products in a wide range. • Special offers to its other products in its retail outlets alone. • Threats • Entry by private player may knock off its already decreasing share. • Constant increase in Market share of the present leading players (IOCL, BPCL) . • High duplicity in market leads to low pull for products. S T O

12. Porter’s Five Forces Model of Competition Threat of New Entrants Threat of New Entrants

13. Developing Customer Base takes Long Time Product Differentiation Barriers to Entry Capital Costs are High Switching Costs are High Access to Distribution Channels Gestation Period is Long Government Policies Threat of New Entrants HIGH

14. Porter’s Five Forces Model of Competition Bargaining Power of Suppliers Threat of New Entrants Threat of New Entrants MEDIUM

15. Supplier industry is dominated by Government Firms. Degree of fragmentation is more in supplier. Suppliers exert power in the industry by: * Threatening to Suppliers products have no substitutes. reduce quality, and no stock Supplier’s product is an important input to buyer’s product. Powerful suppliers can squeeze industry profitability if firms are unable to recover costs Demand for suppliers products Suppliers’ products have high switching costs Extent of over capacity lower in Supplier side (i.e. Hydrocarbons) Bargaining Power of Suppliers Suppliers are likely to be powerful if:

16. Porter’s Five Forces Model of Competition Bargaining Power of Buyers Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers VERY LOW

17. Buyers are heavily dependent on the product. Buyers compete with the supplying industry by: Purchase accounts for a small fraction of supplier’s sales. Products are heavily dependent on the fuel for transportation. * Bargaining down prices * Forcing higher quality Supplier can sell to anyone irrespective of any restriction. Product Quality in the hands of the supplier. * Uninterrupted Supply Bargaining Power of Buyers Buyer groups are likely to be weaker as:

18. Porter’s Five Forces Model of Competition Threat of Substitute Products Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers LOW

19. Products with similar functionslimit the prices firms can charge Clearly low substitute products as of now. R&D for the substitutes in nascent stage. Polymers allow better performance than substitutes in most applications. But, Polymers are non-biodegradable and cause concerns. Fiber intermediates are used which have better properties than substitutes. Threat of Substitute Products Keys to evaluate substitute products:

20. Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products MEDIUM

21. Intense rivalry is due to: Fragmentation is Low. Rivalry is cyclical and often happens. Apart from prices, competition in quality, cost and support. Making new product introductions. Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry in dump Advertising battles may increase total industry demand, but may be costly to smaller competitors. Rivalry Among Existing Competitors

22. Numerous or equally balanced competitors High fixed costs High storage costs Lack of differentiation or switching costs Capacity added in large increments Diverse competitors High strategic stakes Rivalry Among Existing Competitors Intensecompetition is more likely to occur when:

23. COMPETITOR ANALYSIS • Future Objectives • Increase the market share • Current strategy • Each firm in this sector has been following the diversification strategy of becoming a total energy firm by acquiring stakes in companies where they don’t have a mark • Deregulation has led to implementation of consumer focus strategies • This is highly supportive for future disruptions and also to maintain the standards (be it production or environmental) • Assumptions • Future is highly volatile considering the global political scenario prevailing around oil & gas • The condition of all the firm is unstable. Hence, firms would move towards the emerging RE market

24. Capabilities • Competitor firms have the finest edge in the production and supply chain strategies. • The capabilities of the firm are almost similar. The competitive edge lies in the fact that which company makes the right move at the right time. • Response • Competitor firm would look to get in the unexplored areas within and outside the country • Competitive advantage for HPCL lies in lube base oils • Strategic decisions in this segment would fetch huge profits as lube base oils have been becoming a major requirement for the automobile industry • HPCL has also got into E&P segment and have also acquired many stakes in other sector firms but they still have to make their presence felt globally as compare to the competitors.

25. CURRENT FINANCIALS

27. RECOMMENDATIONS • Investment in oil & gas exploration – Diversification strategy • Investment in R&D for developing technologies for converting waste to energy – Niche strategy • HBL (Hindustan Biofuels Limited) need to take off at a higher pace – Focus strategy • Acquiring stakes in the jet fuel sales and other related infrastructure in National and International airports • Increase the storage capacity to maintain stock at times of disruption • Automation of the dealer transaction system • Owning more of “company owned and operated outlets”. This would help maintain the quality of the product thereby catering the needs of the customer • R&D in lube oils segment to develop premier quality products. • Investing in assets outside the country so as to hedge the volatility in crude price and to lower down the under recoveries they are suffering. • Entry into RE sector

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