Financial Daily from THE HINDU group of publications
Tuesday, Apr 27, 2004
Essar Oil to unveil new brand for retail products
Mumbai , April 26
THE coming months will see the Rs 17,000-crore Essar Group stepping on the gas to expand its network for retail trading of petroleum products. The company's focus in this sector is, at present, on developing a distinct brand for Essar Oil, which will be unveiled soon.
While ruling out any immediate plans to enter into new businesses, Mr Prashant Ruia, Director of the Essar Group, said, "We see a lot of growth opportunities in our existing businesses. After consolidating our businesses, the company is now on a growth phase."
In an exclusive interview with Business Line, he shares the company's plans and prospects. Excerpts:
Could you tell us something about the progress made by Essar Oil in entering retail trading of petroleum products?
Our oil retail network programme is progressing as per plan. We expect to set up 2,000 retail outlets across the country during the next two years till date we have commissioned 30 retail outlets in Maharashtra, Gujarat and Punjab. Our entire retail network will be set up by the time our refinery becomes operational. We have adopted a franchisee model for developing the retail network we will provide product and marketing support to the franchisees, apart from assuring them of a minimum return on their investments. At present, we are working on developing a brand for Essar Oil, which will be unveiled soon.
Your plans to enter the refining sector had faced some delays in the past. Could you tell us about your new schedules in this regard?
Actually, when the refinery sector was decontrolled, we were the first private sector company to put everything in place and start construction. Unfortunately, starting with a cyclone, a series of adverse events had delayed the project, including financial issues. However, all obstacles have now been removed, including funding.
We plan to complete the refinery project in the next 18 to 24 months. In fact, we have utilised the delays to integrate the upgraded technologies to produce Euro II/III compliant fuel.
How are you placed to take advantage of the improvement in the steel industry?
In fact, during the downturn in the steel industry, Essar Steel had taken steps to improve the performance all these efforts have started paying off. The production capacity was raised to 2.4 mmtpa (million metric tones per annum) and our financial restructuring was completed. Similarly, our debt has come down to Rs 4,100 crore from Rs 6,000 crore and interest liability to Rs 450 crore from Rs 650 crore. Our efforts now are towards bringing down the interest cost further and various options including re-financing of debt are being considered. More than 40 per cent of the production is in the value-added segment.
The shipping industry is booming. How did your company cash in on the boom?
Today, Essar Shipping has a young fleet of 30 vessels with a combined DWT of 1.6 million. Over 70 per cent of its revenue is generated through international operations. Now, the company is shifting focus to become a sea logistics service provider, rather than being a mere ship owner-operator. Essar Shipping has been generating revenue of over $100 million in the last three years.
Being in the race for a majority stake in Shipping Corporation of India (SCI), has the delay in the disinvestment of the State-owned company upset your plans in the shipping sector?
No. We have always had an alternative plan in place. We had kept our option open for organic growth, or growth through acquisition. As you are aware, we have recently bought India's first double-hull bottomed VLCC (Very Large Crude Carrier) of 3.01 lakh DWT for $80 million. This is the largest vessel to be owned by an Indian company.
What are the new business areas that your company is exploring?
We have no immediate plans to get into new businesses. We are now exploring the possibility of setting up a 1,200-MW power plant at Jamnagar, based on residue from the refinery as fuel. Besides, we are also planning to increase our steel making capacity from the present 2.4 mmtpa through technological improvements.
What are your plans in the telecom sector? There have been reports that Hutchison is proposing a public offering. How will this impact your association with the foreign partner?
There will not be any impact on our holdings, except that our holding in percentage terms may come down proportionately depending on the size of the (public) offering.
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