ONGC Profit Rises 48% After Rupee Value of Oil Sales Gains

By Pratish Narayanan and Rakteem Katakey - Aug 11, 2012

Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, reported a 48 percent increase in first-quarter profit after the rupee value of crude sales rose.
Net income climbed to 60.8 billion rupees ($1.1 billion), or 7.10 rupees a share, in the three months ended June 30, from 40.95 billion rupees, or 4.79 rupees, a year earlier, the New Delhi-based state-owned company said today in a stock exchange filing. The median estimate of 32 analysts compiled by Bloomberg was a profit of 54.4 billion rupees. Sales rose 24 percent to 200.8 billion rupees.
The rupee’s decline in the quarter countered falling crude prices for ONGC, which bills customers in U.S. dollars and increases earnings after conversion into the local currency. The explorer plans to spend 1.25 trillion rupees to boost oil and natural gas output in the next five years.
“This quarter, the lower rupee boosted their profit,” Sujit Lodha, a Mumbai-based analyst at Asian Market Securities Pvt., said before the earnings announcement. “ONGC also has to find more reserves and increase production. That’s where growth is going to come from.”
ONGC has gained 8.7 percent this year compared with a 14 percent increase in the benchmark Sensitive Index (SENSEX) and briefly became India’s biggest company by market value last month. The stock fell 0.3 percent to 278.95 rupees yesterday, giving it a market value of $43 billion, third-highest among the nation’s publicly traded companies.
“Since oil and gas are priced in dollars, the rupee’s depreciation last quarter boosted revenue and profit,” Chairman Sudhir Vasudeva said. “This is even though the net realization per barrel fell.”

Four Discoveries

The explorer made four discoveries in the last month, it said in the statement. Oil production rose 3.2 percent to 6.543 million tons while gas production was 6.417 billion cubic meters.
ONGC is mandated by the government to give discounts on oil supplies to state-run refiners to partly compensate them for selling fuels below cost. It needs to sell crude for at least $55 a barrel to fund capital expenditure, Vasudeva said July 25.
The company said it sold crude oil at $46.62 a barrel in the quarter compared with $48.74 a barrel a year earlier. Discounts given to refiners were 123.5 billion rupees, compared with 120.5 billion rupees a year earlier, according to the statement. During the quarter, the discount per barrel was $63.27 a barrel compared with $72.53 a barrel a year ago, Vasudeva said.

Brent Benchmark

Brent crude, a benchmark for more than half of the world’s oil, averaged $108.76 a barrel in the quarter, 7 percent lower than a year earlier. The rupee declined 8.6 percent against the U.S. dollar in the period, the worst performer among major currencies in the Asia-Pacific region.
The explorer may spend an additional $1 billion to acquire shale assets in the U.S. It plans to focus on shale and deepwater areas to double production and triple profit by 2030, Vasudeva said May 29.
To contact the reporters on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Rupee, Won Lead Weekly Gains in Asia on Stimulus Speculation By Lilian Karunungan and Yumi Teso - Aug 10, 2012

India’s rupee and South Korea’s won led gains in Asian currencies this week as foreign funds increased holdings of emerging-market assets amid speculation global central banks will ease monetary policy to spur growth.

China’s exports increased 1 percent in July, less than the median estimate of economists in a Bloomberg survey for an 8 percent gain and June’s 11.3 percent pace, official data showed yesterday. Inflation in the world’s second-largest economy was 1.8 percent last month, the least since January 2010, according to an Aug. 9 report. Germany backed European Central Bank President Mario Draghi’s bond-buying plan this week to tackle the region’s debt crisis.

“Asian currencies continue to gain ground against the dollar, pricing in a higher probability that the Federal Reserve and ECB will satisfy expectations for further significant monetary easing,” Sacha Tihanyi, a Hong Kong-based senior currency strategist at Scotiabank, a unit of Bank of Nova Scotia (BNS), said yesterday. “Slower inflation definitely does add to speculation of easing in China.”

The rupee strengthened 0.8 percent this week to 55.2850 per dollar in Mumbai, according to data compiled by Bloomberg. South Korea’s won rose 0.4 percent to 1,130.45, Malaysia’s ringgit advanced 0.2 percent to 3.1194, and the Thai baht gained 0.3 percent to 31.48. China’s yuan appreciated 0.2 percent to 6.3600.

The Bloomberg-JPMorgan Asia Dollar Index touched 115.73 on Aug. 9, the highest level since May 15, and was little changed from a week earlier. Global funds pumped more than $4 billion into stocks in South Korea, Taiwan, Thailand and Indonesia in the first four days of this week, exchange data show.

Bond Inflows

Emerging-market debt funds attracted inflows of $720 million in the week ended Aug. 9, Morgan Stanley said in a report, citing data from U.S.-based research firm EPFR Global.

The rupee had its biggest weekly gain in six weeks amid speculation the nation’s new finance minister will announce measures to narrow the budget deficit and attract investment.

Palaniappan Chidambaram, in his first speech after taking office, said Aug. 6 that he will unveil steps for fiscal consolidation and clarify tax laws. Disinvestment Secretary Mohammad Haleem Khan said Aug. 8 the government may start its asset-sale program next month to boost revenue. India plans to narrow its budget shortfall to 5.1 percent of gross domestic product from 5.8 percent the previous year, according to estimates released in March.

Malaysian Exports

Malaysia’s ringgit rose for a second week after trade data released Aug. 8 boosted optimism the Southeast Asian nation’s economy is withstanding the global slowdown. Exports rose 5.4 percent in June from a year earlier, exceeding economists’ estimates for a 3.1 percent increase. Factory output gained 3.7 percent, an 11th straight month of expansion, government figures showed Aug. 9.

“The Malaysian data was generally positive and that should feed into a fairly robust GDP growth outcome,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. (WBC) in Singapore. “We’re seeing money coming back into Asia, with the prospect of fresh stimulus from the major economies.”

Elsewhere, Taiwan’s dollar was little changed this week at NT$29.990 against its U.S. counterpart, Indonesia’s rupiah and the Philippine peso slipped 0.1 percent to 9,478 and 41.890, respectively. Vietnam’s dong was little changed at 20,853.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

India’s Biggest Corporate Loss Shows Singh’s Dilemma on Deficit By Rakteem Katakey - Aug 9, 2012

Indian Oil Corp. (IOCL) posted a record quarterly loss after the government failed to compensate it for capping fuel prices, showing the challenge facing Prime Minister Manmohan Singh as he attempts to rein in the nation’s finances.

The state-owned supplier of about 40 percent of the fuels consumed in India reported the biggest loss by any company in the country after selling products including diesel and kerosene below cost.

The pending compensation adds to the high inflation and budget deficit that Singh is grappling with, along with sliding industrial production, a failing monsoon, a declining rupee and the European debt crisis that’s sapped demand for Indian goods. The coalition government has refrained from increasing prices of diesel, the most widely used fuel, for more than a year to prevent protests from its allies and opposition parties gearing up for national elections in less than two years.

“There’s a problem with inflation and we can’t increase fuel prices, and the budgeted amount for subsidy is not enough,” Indian Oil Chairman R.S. Butola told reporters in New Delhi yesterday. “The problems are many, but something will have to be done. The loss is huge.”

Indian Oil’s loss widened to 224.5 billion rupees ($4.07 billion) in the three months ended June 30 from 37.2 billion rupees a year earlier, the nation’s largest company by sales said in a stock exchange filing. Hindustan Petroleum Corp. (HPCL) posted a record loss of 92.5 billion rupees.

Rupee, Crude

Indian Oil is yet to be compensated by Singh’s government for a loss of 174.9 billion rupees from selling diesel, kerosene and cooking gas below cost in the quarter, Butola said. The rupee’s slump in the period increased the cost of purchases for the refiner, which imports almost 80 percent of its oil needs, while Brent crude’s 20 percent decline lowered the value of its stockpiles by 40.6 billion rupees.

“The $4 billion loss is stunning and staggering,” said Jagannadham Thunuguntla, chief strategist at SMC Global Securities Ltd. (GLBS) in New Delhi. “The oil marketing policy is so complicated that these companies have to live at the mercy of cash compensation policy of the government.”

Indian Oil fell 1.8 percent to 251.60 rupees in Mumbai yesterday, the lowest level since June 19. The stock has declined 0.9 percent this year, compared with a 14 percent increase in the benchmark Sensitive Index.

Price Pressure

“Increasing fuel prices will lead to some pain for the people and this pain is a necessary medicine for reviving growth and sustaining the economy,” said Sonal Varma, economist at Nomura Holdings Inc. in Mumbai. “So far, political compulsions have been dominating economic compulsions and it’s time for this to reverse.”

India plans to cut the budget deficit to 5.1 percent of gross domestic product in the year ending March 31, after missing a target of 4.6 percent last year.

Inflation in Asia’s third-biggest economy has stayed above 7 percent since February. Price pressures from a drop in the rupee and the impact of a weak monsoon on crops forced the central bank to leave interest rates unchanged in July, breaking with a wave of cuts in borrowing costs from China to Brazil and Europe.

The rupee fell 8.6 percent against the U.S. dollar in the quarter ended June 30, the worst performer among major currencies in Asia Pacific. It has slumped about 18 percent against the dollar in the past 12 months to 55.295 per dollar.

Manufacturing fell 3.2 percent in June from a year earlier, according to the Central Statistical Office yesterday. Mining gained 0.6 percent and electricity output rose 8.8 percent.

Fiscal Deficit

Finance Minister Palaniappan Chidambaram, who was appointed last week, has said he intends to take steps to reverse the slowdown in manufacturing. He also pledged to clarify tax laws and contain the budget deficit as he tries to assuage concern that the nation’s outlook is deteriorating.

India will reassess its fiscal deficit goal for the 12 months that began April 1 after a mid-year review, Chidambaram said yesterday in a written response to questions from lawmakers. Forecasters from Citigroup Inc. to Crisil Ltd., the local unit of Standard & Poor’s, predict the gap will widen from 5.8 percent of GDP in 2011-2012.

India’s GDP rose 5.3 percent in the first quarter from a year earlier, the least since 2003. Standard & Poor’s and Fitch Ratings have warned they may strip the nation of its investment- grade credit rating, citing risks including fiscal and current- account deficits.

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

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

Birla May Purchase Outsourcing Rivals: Corporate India By Abhishek Shanker and George Smith Alexander - Aug 8, 2012

that aids customers manage payroll, claims and computers.

Aditya Birla Nuvo Ltd. (ABNL), Birla’s company that runs the group’s financial, telecommunications, information technology and chemical divisions, may also sell a stake in the unit Aditya Birla Minacs Worldwide Ltd., according to Rakesh Jain, Nuvo’s managing director. Sales at Minacs rose 23 percent to 20.8 billion rupees ($377 million) in the year ended March.

Birla, who runs businesses including the world’s biggest maker of viscose staple fiber and India’s second-largest aluminum producer, is aiming to boost Minacs’ revenue to more than $1 billion even as it finds it difficult to add new clients, Jain said without elaborating. A twofold jump in sales will catapult the company to India’s No. 2 provider of outsourced services after Tata Consultancy Services Ltd. (TCS), according to data compiled by Bloomberg.

“We know that this is not a global-sized business,” Jain said in an interview at his office in Mumbai. “We will evaluate how to grow the business,” including mergers and acquisitions, and may seek an investor for the unit, he said.

Nuvo, which has gained 4.4 percent this year, fell 1.5 percent to 772.35 rupees in Mumbai yesterday. The benchmark Sensitive Index has advanced 14 percent this year.

Bain Capital Partners LLC, a private-equity firm, agreed to pay $1 billion to buy a 30 percent stake in outsourcing company Genpact Ltd. from General Atlantic LLC and Oak Hill Capital Partners LP this month.

Deal Value

Bain paid 17.3 times Genpact’s earnings, according to data compiled by Bloomberg. Similar sized companies trade at an average of 17.6 times earnings.

India’s Essar Group is in talks to sell a stake in its outsourcing unit Aegis Ltd., Chief Executive Officer Prashant Ruia said in June, without elaborating. BPO companies will have to ensure they can offer better value to clients from any transaction they do, according to Sanjoy Sen, senior director at Deloitte Touche Tohmatsu India Pvt.

“The so-called gold rush period in this industry is over and now only innovations can grow the business,” Sen said in a phone interview from London yesterday. “Making an acquisition will be a big boon if it helps the buyer in moving up the value chain of the outsourcing business.”

Birla paid C$120 million ($120.3 million) to acquire call- center operator Minacs Worldwide Inc. in June 2006, a month after its founder Elaine Minacs died.

Revenue Target

Birla is purchasing companies to help his group boost combined revenue by 63 percent to $65 billion in three years. Birla in July agreed to buy Terrace Bay Pulp Inc., a paper pulp mill in Canada, for $300 million and to secure raw material supplies. Nuvo in April agreed to buy a controlling stake in an entity to be created by splitting store operator Pantaloon Retail India Ltd. to widen the reach of its apparel brands.

Nuvo expects to complete acquiring the retail chain in the next three months, Sushil Agarwal, chief financial officer at Nuvo said in an interview. The company may spend an additional 1 billion rupees to buy shares of the retailer in an open offer, apart from the 8 billion rupees it has invested, he said.

The purchases will help Nuvo spur growth as the debt crisis in Europe and a weaker recovery in the U.S. prompt companies to reduce spending on information technology.

“New business acquisition is under pressure,” at the group’s information technology division, Agarwal said in a conference call with analysts on Aug. 6. The company “will focus on operational efficiencies to improve margin.”

‘Business Philosophy’

Revenue at the unit grew 27 percent to 6 billion rupees in the three months ended June 30. Profit more than doubled to 190 million rupees helped by the depreciation of the rupee, Agarwal said on the call. Nuvo posted a 5.5 percent gain in net income in the quarter ended June 30 to 2.7 billion rupees, it said in a statement on Aug. 6.

Tata Consultancy, India’s biggest software exporter, reported revenue of 15.2 billion rupees ($275 million) at its BPO division in the three months ended March 31, while Genpact had sales of $330 million in the period.

“Our philosophy has been that you have to be a leader in the business, whether global leader or in India,” Nuvo’s Jain said. Minacs is “not an asset that the company is looking to exit immediately.”

To contact the reporters on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net; George Smith Alexander in Mumbai at galexander11@bloomberg.net

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net

Bharti Profit Falls Missing Estimates After Costs Climb

By Ketaki Gokhale - Aug 7, 2012

Bharti Airtel Ltd. (BHARTI), India’s largest mobile-phone operator, reported first-quarter profit slumped 37 percent, missing analyst estimates, after costs increased.

Net income fell to 7.62 billion rupees ($138 million) in the three months ended June 30, from 12.2 billion rupees a year earlier, New Delhi-based Bharti said today. That lagged behind the 12.2 billion-rupee median of 33 analysts’ estimates compiled by Bloomberg.

Bharti joined rival Vodafone Group Plc (VOD) in cutting prices for third-generation data services at least 70 percent in India, where a price war sparked by the entry of operators including Telenor ASA (TEL) and NTT DoCoMo Inc. (9437) drove voice call rates as low as a penny a minute. Bharti, controlled by billionaire Sunil Mittal, also spent more to expand its network, adding to rising finance costs from its acquisition of the African assets of Kuwait’s Mobile Telecommunications Co. (ZAIN)

“They’ve given discounts in 3G, and Bharti and a lot of other players have launched offers of vouchers as well--revenue per minute will come down definitely because of that,” Ankita Somani, an analyst at Angel Broking Ltd. in Mumbai, said before the results were announced. “Interest costs are also higher now because of forex movement.”

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Larsen Turns to Highways as Power Plants Stall: Corporate India

By Karthikeyan Sundaram - Aug 6, 2012

Larsen & Toubro Ltd. (LT), Asia’s largest construction company by market value, is betting on road and rail orders in India and overseas to help maintain growth as power generation projects stall in the South Asian nation.

The company sees an “opportunity” of as much as $35 billion to build highways, rail networks and small airports in the next two years, Chief Financial Officer R. Shankar Raman said. Larsen added 65 billion rupees ($1.2 billion) of road construction contracts in the first quarter of the year that started April 1, he said.

“Road is one area of opportunity in all this compressed investment environment,” Raman said in an interview yesterday in Mumbai where the company is based. Contracts in the “third and fourth quarter are expected to pick up.”

Lack of coal and gas supplies to fire electricity plants have hindered expansion plans of utilities in Asia’s third- largest economy, prompting Larsen to increase focus on infrastructure projects. The company also expects more orders to build transmission networks in India after the world’s biggest blackout last week knocked out power for half of its population.

“Larsen is in a better position than its peers because of its diversified business portfolio,” said Dhananjay Mishra, an analyst at Mumbai-based Sushil Finance Consultants Ltd., who recommends buying the stock. “Even in a depressed investment climate, it can still find orders to grow.”

The company’s shares have gained 41 percent this year, making it the best performer in the benchmark BSE India Sensitive Index. (SENSEX) They rose 1.7 percent to 1,406.2 rupees in Mumbai yesterday. Bharat Heavy Electricals Ltd. (BHEL), India’s biggest maker of power equipment, has dropped 4.3 percent in the past eight months.

Danish Engineers

Larsen, set up in 1938 by two Danish engineers, may report an 11 percent increase in profit to 52 billion rupees in the year ending March 31, according to a median estimate of 17 analysts compiled by Bloomberg. Bharat Heavy’s net income may drop 12 percent in the period, according to 16 analysts.

Larsen is either building or operating 19 road and bridge projects as of the fiscal first quarter, according to a presentation on its website. The company “doesn’t see traction” for its services from the steel, cement and food processing industries, Raman said.

The builder is targeting highway projects in India as Prime Minister Manmohan Singh seeks to step up investments in expressways to remove bottlenecks that choke economic growth. The government aims to award contracts to build 9,500 kilometers (5,900 miles) of roads in the year that started on April 1.

Power Outages

At the same time, coal-supply shortages have forced some of the nation’s utilities to halt expansion. NTPC Ltd. (NTPC), India’s biggest electricity producer, said in June it scaled back plans to add coal-fired capacity by 42 percent because of the fuel’s scarcity. The country depends on coal to generate more than half of its electricity.

Power stations operate below their capacity as supply from Coal India Ltd. (COAL), the world’s biggest producer, lags behind demand. That has contributed to frequent power outages, sometimes lasting as long as 10 hours, in the world’s second- most populous nation. Electricity shortages shave about 1.2 percentage points off the nation’s annual growth, according to the Planning Commission.

Two days of blackouts that left about 640 million people without power last week prompted India’s government to pledge investment in improving the nation’s grid. That may help Larsen add construction contracts, Raman said.

Overseas Sales

Orders from companies in the power sector accounted for 21 percent of contracts Larsen won in the first quarter. In comparison, projects such as roads, bridges and metro rail networks contributed 65 percent. The company added 196 billion rupees of total orders in the period, up 21 percent from a year earlier, according to the presentation on its website.

Profit in the first quarter increased 16 percent, helped by a 26 percent gain in sales, the company said July 23. Operating profit fell 9 percent, the first drop in at least five years, after costs of raw materials and components surged.

Engineering and construction business accounted for 89 percent of Larsen’s sales in the period, according to data compiled by Bloomberg. The company said it had an order backlog of 1.53 trillion rupees as of June 30.

International sales contributed 17 percent of total revenue in the quarter. Larsen aims to earn as much as 25 percent of sales from overseas this year, Chairman A.M. Naik said in May, as India’s economic expansion slows. The nation’s gross domestic product expanded 5.3 percent, the least in almost a decade, in the three months through March.

“Projects have got deferred because business fundamentals have changed,” Raman said. “There is no solution but to invest out of our troubles.”

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.