Regulation, Real Estate, Demand: What Fuelled The RIL-Adani Pact?

In April, Reliance Industries (RIL’s) finance chief told analysts that with the growth in the fuel-retailing business, expanding that network makes great business sense. However, not many expected that two months later the Adani Group and Reliance Industries, conglomerates promoted by India’s two richest men, would announce a new partnership, which they said would redefine India’s auto-fuel retail experience.

This is only the second time the two conglomerates have joined forces in a particular business. The first was in 2024, when RIL entered into an investment agreement with Mahan Energen, a wholly-owned subsidiary of Adani Power, for 50 million equity shares valued at Rs 50 crore.

What Gives?

First, margins from the fuel-retailing business for RIL have been attractive. Enough for V Srikanth, chief financial officer for RIL, to note in their April call with analysts that India’s demand was helping offset the weakness in the overall oil-to-chemicals business, also prompting RIL to place more of its production through Jio-bp.

RIL’s auto-fuel entity, branded as Jio-bp, came out of a joint venture with global energy major BP. It is the same entity which has now signed an agreement with Adani Total Gas (ATGL).

In June, ATGL and Jio-bp in a joint statement said that under this partnership, select ATGL fuel outlets will offer Jio-bp’s liquid fuels (petrol and diesel), while select Jio-bp fuel outlets will integrate ATGL’s compressed natural gas (CNG) dispensing units within ATGL’s authorised Geographical Areas (GA).

Analysts at Morgan Stanley, in a June 26 report, noted that India’s fuel retail market offers returns of 15-17% on capital employed, compared to 10% in RIL’s consolidated performance. “RIL (vis Jio-bp fuel JV) to share fuelling infrastructure with ADANI Total Gas (ATGL) plays to each company's strengths and upside surprises for RIL energy NAV,” the analysts noted.

The Clincher

The agreement covers both existing and future outlets of both partners. ATGL currently operates a network of 650 CNG stations, while Jio-bp has a network of 2,000 outlets, according to the statement.

Deepak Mahurkar, partner with PWC points out that setting up fuel-retail units in India is no child’s play. "There are multiple challenges — land acquisition is a challenge, there are often location-specific concerns, such as local public support to it, clearances, and further supply-chain optimisation limit options. It is a competitive industry and a location farther from the supply sources may not make economic sense,” he noted.

RIL’s own 2,000 retail outlets mark has not come easy. The company first entered fuel retailing in 2004, reaching a market share of 14.3 % in 2006. The Ambani entity, however, had to suspend operations in 2008, due to rising crude prices and lack of a level playing field in the domestic market. This changed with the price de-regulation of petrol in 2010 and that for diesel in 2014.

As of April, RIL said its market share in petrol retail was at 3.3%, and 5.2% for that of diesel.

Analysts at Morgan Stanley expect the new partnership could help RIL take its overall market share in fuel-retailing to 10%.

RIL re-started its earlier moth-balled 1,400 odd outlets network in 2015-16 and has steadily scaled it to the present level. A meaningful increase, but insignificant when compared to RIL’s might and the network of other public-sector oil companies in India. IndianOil Corporation (IOC) runs the largest network with 35,000+ outlets.

Multiple industry executives also point out the licensed nature of the setting up of outlets for the two businesses — CNG and petrol/diesel, as the clincher for this partnership. While petrol pump licensing faces location challenges, the expansion of CNG outlets is bound by GA licenses.

Mahurkar further highlights, “Companies will tend to collaborate specially when they do not compete." RIL and the Adani Group at present do not directly compete in any major business, however, that could change as both entities have significant plans in the compressed bio-gas (CBG) segment. In addition, Adani Enterprises holds ambitions to build a petrochemicals business, a segment that RIL dominates.

According to a recent PTI report, quoting sources, Adani Group is constructing a Polyvinyl chloride (PVC) manufacturing unit of one million tonnes (MTPA) capacity at its Mundra cluster in Gujarat, slated for commissioning by FY28. RIL already operates in this segment with 0.7 (MT) production for sale noted in FY24 and plans to set up another integrated 1.5 MMTPA PVC project, which RIL says will make it the 5th largest PVC producer globally.

At one point, RIL held licenses to set up more than 5,000 fuel-retail outlets, a mark it has never reached so far. On the other hand, ATGL has an authorisation to supply piped-natural gas (PNG) and CNG in 34 GAs and plans to double its current count of 650 CNG stations by 2030. ATGL’s 34 GAs are excluding the 19 GAs that ATGL’s 50:50 joint venture with IOCL, named Indian Oil-Adani Gas Private Limited (IOAGPL) holds.

For RIL and ATGL, acting on such a partnership isn't a cakewalk either. For instance, locations where each of the two already has an independent outlet will not make economic sense because of cannibalisation worries.

Case Of Co-opetition

To be sure, the latest agreement will still limit ATGL to those Jio-bp pumps located in its own GAs. However, the Adani promoted entity could gain from higher miscellaneous revenue generated from increased foot-falls. Even as India’s demand for CNG vehicles is on the rise, petrol/diesel reigns as the highest-sold auto-fuel.

This is also the first time the two conglomerates will come together in the consumer-facing space, which could potentially mean users would see logos for each of the two businesses in proximity.

Brand experts such as Harish Bijoor, business and brand strategy specialist, and founder of Harish Bijoor Consults Inc, sees it as a classic case of co-opetition, a term coined to reflect when two companies participate both in competing and co-operate.

“The partnership initiative is a classic case of co-opetition going right. With different fuels, the synergy will exist beautifully. The business is very real estate intensive, intensive to rentals and maintenance. A shared approach to it can be a terrific way of opening the market further,” Bijoor said.

The joint press statement does not entail the financials of the agreement. There is an industry speculation it will entail a revenue or rental share clause. An email query sent to Jio-bp and ATGL requesting this detail remained unanswered. The Core will update this story as and when we receive a response.

Mahurkar finds the latest agreement interesting enough to ponder upon what comes next.

"Would the industry now move from post-set-up partnerships to scouting for new locations for combined facilities of multiple fuels including electric charging, as a norm in the future?” he wonders.