Reliance Petro market cap tops Asian refining

Reliance Petroleum, the world’s largest grass-root refinery, has emerged as the leading petroleum company in Asia with a market capitalisation of Rs 28,824 crore ($6,626 million). Indian Oil Corporation is second, with Rs 19,967 crore ($4,590 million) as its market capitalisation.

According to the Goldman Sachs database, four Indian oil companies feature among the top ten oil companies in Asia. The other two Indian companies are Hindustan Petroleum, ranked fourth, and Bharat Petroleum, ranked fifth, with market capitalisation of Rs 6,120 crore ($1,407 million) and Rs 5,533 crore ($1,272 million) respectively.

Premium valuations for Indian refinery companies come in the wake of attractive growth opportunities in the rapidly growing domestic market for petroleum products. The growth in demand for petroleum products in India is estimated to be the highest in the world. According to the Ninth Plan subgroup, the base case demand is estimated to grow at 6.9 per cent per annum between 1 April 1997 and 31 March 2002. High growth rates are expected in the consumption of LPG, diesel, naphtha, and gasoline.

As a result, Indian refineries have the unique advantage of being able to place most of their output in the home market. This is something most other Asian refiners lack.

Reliance Petroleum is competitively placed to emerge as a dominant player in the Indian petroleum sector on the basis of economies of scale, a high-technology refinery complex and product marketing agreements, says the January 2000 report of Indo-Carr Securities. Reliance Petroleum's refining capacity of 27 mmtpa amounts to over a quarter of total Indian refining capacity.

The company's Jamnagar refinery is a state-of-the-art plant with the highest complexity index of 9.9 on the Nelson’s complexity index scale. This means that the company can produce high-grade diesel with sulphur content as low as 0.05 per cent and gasoline with less than one per cent benzene. See complexity index of Indian refineries

Reliance Petroleum's product quality is world-class and the company adheres to stringent environmental specifications, including Euro II norms, the report says. Already, Indian refineries are spending $1 billion on hydro-desulphurisation to reduce the sulphur content in diesel from the current permissible level of one per cent to 0.25 per cent by 1 April 2000.

Another advantage Reliance Petroleum enjoys is that 25-30 per cent of its de-controlled products are consumed in-house by Reliance Industries. The company has marketing agreements with Indianoil, Hindustan Petroleum, and Bharat Petroleum for controlled products such as petrol and diesel until the marketing sector is completely decontrolled.

The Jamnagar refinery project has been set up at an approximate cost of Rs 14,000 crore. This is 40-60 per cent lower than the per tonne capital cost of other refineries set up in the Asian region by leading international oil majors over the last few years, says a company release.

The Reliance group has invested approximately Rs 24,000 crore in various projects at the Jamnagar complex. Besides the refinery, they include an integrated petrochemicals complex, ports, captive power facilities, and other related infrastructure.