Domain M&S

Name of the Case: LPG Market: The future of Cylinders and Gas Pipelines

Sponsor:

Introduction:
Tata Steel is a leading player in Hot Rolled LPG steel coils used for LPG cylinder
manufacturing, supplying steel to the cylinder manufacturers. Having developed its customer
relations over the years, Tata Steel has achieved a market share of 66% in the LPG cylinder
market i.e. 2 out of 3 LPG cylinders are made up of Tata Steel material.

Background:

With government’s emphasis on clean fuel, India has become the second largest consumer of
LPG in the world. The number of LPG consumers in India have reached 32.4 lakh with a
penetration of 97.5% aided by Government of India (GoI) schemes like Pradhan Mantri Ujjwala
Yojana. A major portion of LPG is used as domestic cooking fuel. The government is
increasingly focusing on gas pipelines as a safe and efficient distribution method specially in
Urban areas. The use of LPG storage tanks in industrial applications and automotive space is
also increasing as air pollution takes center stage.

Problem Statement/Challenges Faced

With ~95% active Customers and roll out of Extended Pradhan Mantri Ujjwala Yojana (EPMUY-
2) and Ujjwala Sahay with liberal eligibility norms, LPG Distribution will reach its saturation point
within no time with no scope for the new participants to enter the regulated business. LPG
Distributors in the urban areas are on the verge of extinction due to aggressive
launching of Piped Natural Gas (PNG) and City Gas Distribution in line with the government’s
strategy to make these areas Cylinder Free. The refill sale of the distributors where PNG has
been introduced has fallen drastically in the recent past making their present infrastructure non-
profitable.

Infrastructure added to cater present and future needs of the customers by the OMCs on will
go unutilized resulting in heavy financial loss to the exchequer. More than 50% of the present
LPG distributors are younger than 5 years and have yet not recovered their return on
Investment. The present supply and distribution system is built to cater the market needs upto
2030. Any willful disruption in the form of introducing additional marketing forces will jeopardize
the present LPG ecosystem.

Critical Case Questions

1. What will be the time-frame in which ramp up in PNG and CGD will start impacting the LPG
Cylinders sales?
2. What will be the impact of City Gas Distribution on LPG cylinder manufacturing industry?
3. Determine business opportunity (if any) for Tata Steel amidst this trend. Justify the
potential.
4. What should be the Long-Term Strategy that Tata Steel should adopt in the segment?