ONGC Recovers as New Subsidy Rules Seen Boosting Q1 Profit

ONGC shares fell nearly 5 per cent in morning trade on Friday as investors reacted negatively to Q4 results, which were announced after stock markets shut on Thursday. In the March quarter, state-run explorer ONGC's net profit dropped by 20 per cent to Rs 3,935 crore, missing analysts' estimates averaging Rs 5,491 crore.

The stock, however, made a strong comeback after analysts pointed that company is set to gain from an interim rule that exempts upstream state firms from giving any discounts on crude and refined fuels if global oil prices average up to $60 a barrel this quarter.

The company's management also indicated that current-quarter profit will be boosted by the new norm. Asked if that would help his company post a higher profit for the quarter, ONGC Chairman D.K. Sarraf said: "Definitely yes, because I am assuming a price of at least $60 internationally which is very good."

State-run explorers such as ONGC and Oil India have to offer discounts to state-run refiners, which sell kerosene and LPG at below-market prices. ONGC did not have to pay any discount in the March quarter as crude prices fell sharply and the government was working on new subsidy rules as part of broader reforms in the sector.

Still, its net profit was lower than a year earlier due to higher costs and tax outgoings. ONGC had to incur Rs 760 crore of additional royalty expenditure in Q4. Its other expenses also jumped to Rs 4,700 crore versus a nine-month average of Rs 3,200 crore.

"International prices of crude and also the prices of value added products have been quite low through the year because of which we have lost significant amount of revenue and profits," Mr Sarraf told NDTV.

As of 09.53 a.m., ONGC traded 1.8 per cent lower at Rs 322.30. It underperformed the broader oil and gas index on the BSE, which traded 0.8 per cent higher.

(With inputs from Reuters)