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How much money do Petrol Pump owners make?

I had always heard that you need to be a politician or a goon to be running a petrol pump, but dug a little and found some interesting details on if you were to evaluate it as a running business.

👉🏼 You need to own enough land to apply for a license through tender, as it gets locked in for a 29 year lease, and no banks will fund purchase of land through a loan. This land can be of a massive value - say Rs 75-100 crores in metros, and much cheaper in rural areas

👉🏼 An investment of Rs 1-2 crores is made in building the underground tanks and canopy with some utilities

👉🏼 It’s a trading business and you make 1-3% as gross margin on sale. Higher on petrol, lower on diesel.

👉🏼 Urban Pumps may do Rs 6 crores in revenue p.m... 2.5% gross margin on this would be Rs 15 lakhs p.m.

👉🏼 Remove Rs 7 lakhs of fixed cost per month in salaries, admin staff and utilities, one may save about Rs 8 lakhs in monthly profit - which is Rs 1 crore in annual profit

👉🏼 Rural pumps make much lower sales and may save about Rs 1-2 lakhs per month at best, but their investment in land is miniscule. Also, theft is a major concern in rural areas so it needs to be run by a village strongman

👉🏼 Transport Hub pumps may do 5X-10X of urban pumps in sales, but credit and default risk means much more working capital requirement

👉🏼 Operators try and make additional profits through rentals from convenience stores, auto services…

👉🏼 It’s a great predictable cash flow business if you have the land and no other use for it... but makes no sense to put such expensive land in urban areas as ROIC would be terrible

👉🏼 The real money is made in cheap land in satellite towns to urban areas, where over 10-20 years the city will expand and value of property grow. So the next generation will get predictable cash flows.

There is a lot more nuance to this, but I can only cover so much, simplified, so that you get the drift.

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A Chartered Accountant with about 10 years of experience in areas of Tax Advisory, Startup Consulting, Fundraising, Audits, Deal Advisory, Business Modelling and contract CFO services.

Winner of the ISB Young Leader Award 2017 and the Best All Rounder, PGP Class of '17, Sarthak has also been published about in the leading financial newspapers such as The Financial Express as possibly the youngest Indian to have completed the courses of CA, CS and CMA along with a graduate degree in Financial & Investment Analysis from University of Delhi, all by the age of 23 years.