ONGC Quarterly Profit Surges 60%, Beating Estimates, on Higher Oil Prices By Rakteem Katakey - Nov 4, 2011

Oil & Natural Gas Corp., India’s biggest energy explorer, posted a 60 percent increase in second- quarter profit that beat analysts’ estimates after selling crude at higher prices.

Net income in the three months ended Sept. 30 was 86.4 billion rupees ($1.8 billion), or 10.10 rupees a share, compared with 53.9 billion rupees, or 6.30 rupees, a year earlier, the state-owned company said in a statement yesterday. The median profit estimate of 31 analysts surveyed by Bloomberg was 64.9 billion rupees. Sales rose 24 percent to 226.2 billion rupees.

ONGC supplies crude to state refiners at a discount to help compensate them for fuels sold below costs to curb inflation. The government increased prices of diesel, kerosene and cooking gas in June for the first time in a year after global crude costs rose, allowing the New Delhi-based company to raise its selling price of crude.

“Profits are largely the result of a lower subsidy spurring a higher selling price for their oil,” Deepak Pareek, a Mumbai-based analyst with Prabhudas Lilladher Pvt., said by telephone.

Brent prices rose 46 percent to $112.09 a barrel on average in the second quarter compared with a year earlier. ONGC’s net selling price of crude to refiners, after discounts, climbed 33 percent to $83.70 a barrel, the company said.
Rupee Decline

ONGC has fallen 14 percent this year, matching the drop in the benchmark Sensitive Index. The shares fell 0.4 percent to 276.80 rupees at close in Mumbai, before the earnings announcement, giving it a market value of $48.2 billion.

ONGC also benefited from a decline in the rupee because sales of oil and gas are priced in dollars, yielding more after conversion from the U.S. currency. The rupee weakened 8.8 percent in the quarter to 48.9725 per dollar, the biggest drop since the collapse of Lehman Brothers Holdings Inc. in September 2008, according to data compiled by Bloomberg.

State oil explorers including Oil India Ltd. currently bear about 33 percent of the country’s total fuel-subsidy bill.

The government may double ONGC’s full-year subsidy payment to about 470 billion rupees to cut expenditure and reduce the fiscal deficit, two people with direct knowledge of the matter said Sept. 20. The selling price for ONGC’s crude produced in India may fall to about $42 a barrel if the subsidy bill is doubled, one of the people said.

The government deferred a 5 percent share sale in ONGC last month, without stating a reason. That was the fourth postponement, hampering Finance Minister Pranab Mukherjee’s plans to raise 400 billion rupees from asset sales in the year ending March 31.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net
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