Economics of Petrol Pumps [2022 Numbers] | How much Profit, Costs & Land? | City vs. Rural Pumps

Ever wondered about the Economics of Petrol Pumps? How much money does it cost to build a petrol pump? How much profit can you expect?

In this video, we go into depth on all the numbers regarding Petrol Pumps in India using the latest 2022 numbers. Watch if you want to learn more!

There are 6 OMC’s - oil marketing companies. These are the companies that are allowed to sell fuel to the public. From these 6, 3 are government owned:

- Indian oil,
- Bharat Petroleum,
- Hindustan Petroleum,

and three are private:

- Shell,
- Nayara (Nayara used to formally be called ESSAR until it got bought by Rosneft Oil - russian company) and
- Reliance Jio.

To start a petrol pump, you would have to approach one of these OMC’s. They will come up with an ad or they'll give you where they want to set it up.

This is how 5 of the OMC’s operate. The exception is Shell.

Okay - so you approached the OMC, what’s next?

You will have to give them 17 Gunthas.

1 acre of land had 40 Gunthas and one acre is about 43,000 sq feet - so one Guntha is just a little over 1000 square feet, roughly.

So you would have to give 17,000 square feet to the OMC.

And this is why, Siddharth, you said that Petrol Pumps is purely a game of real estate and that’s why there’s nothing interesting in this space.

So you have gave the OMC the 17,000 square feet of space.

Now how it will work is that you will have to sign a 29 year contract with the OMC saying that “For 29 years, this land has to be a Petrol Pump”. You have to sign this with the OMC and with the local municipal authority, because the municipal authorities also have to plan cities according to where the nearest petrol pumps are.

That land is allocated only and only for petrol pump and cannot be changed now for 29 years.

You are locked into it.

And here's another problem.

You cannot get a loan or any loan against property on this land, simply because at no point will any bank be able to repossess it. They cannot take ownership because they can't run the petrol pump.

So no bank will give you any Loan Against Property on It. So that's a dead investment essentially for 29 years.

Economics of Petrol Pumps

Now let’s get into the economics of Petrol Pumps.

Saransh nearly set it up a pump near Navi Mumbai. Near port trust.

How his economics would have worked was:

I would have had to buy a 17 gunta piece of land and the going price is about 7 lacs per gunta.

That area would set me down around 1.2 cr for the land itself.

OK, now on top of this land you need to build about one 1cr worth of infrastructure. That means underground tanks and a canopy. The canopy is the one that you know is above ground. It's the Indian oil big thingy and like the roof and stuff like.

Now all of this costs about 1.1 CR roughly.

Now either you pay this yourself, in which case you become a dodo. Dodo means dealer owned dealer operated. In this case your margins are a little different.

Otherwise. You can also say that I will buy this land, but I will not do the 1.1 CR expense of building the canopy. OK, in which case you give it to whichever OMC you contracted out with, let's say reliance or Indian Oil.

Then Indian Oil will do the 1.1cr expense and they will operate the pump. Whoever does the expense operates the pump.

In that case you become a DOCO dealer owned company operated in which case your margins are very little.

Or perhaps you will just get rent. An OMC will say I'll give you rent, that's it. That's also one business model. Everyone in a DOCO arrangement chooses Rent. Rent will be anywhere between 50-60k to 2 lacs depending on the location of the land.

Petrol Pump Margins currently

*DODO*
Petrol: 2.82

Diesel: 1.82

*DOCO*
Petrol 0.5

Diesel 0.25

Current Mumbai petrol price is ~110 rs so that means the margins are ~2.6% and Diesel margins are around 1.7%

Okay, so we’ve gone through the capital requirements to set up a petrol pump and the approximate margins that you will earn. Now let’s discuss the minimum requirements by the OMC’s.

Here is a term for you - 1 kilo litre of fuel, in the business we call it a kilo.

KL for anyone who remembers 8th Std science is 1000 litres, so five KL is 5000 litres.

So according to IOCL, HPCL, BPCL, you need to do a minimum of 170 KL Per month per location to qualify to sell fuel.

If you can't, then they will take the Pump away from you.

So 170 KL is the basic necessity, but on average people do about 250-300 K. That's the pumps average.

Mumbai, Delhi will be higher.

Before we do a daily breakup of Petrol vs. Diesel, let’s understand the difference between an Urban, Rural and Transport Hub Petrol Pump.

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