INDIA’S largest profit making company — Oil & Natural Gas Corporation (ONGC) — is not likely to generate much excitement when it publishes its June 2008 quarter numbers on Monday. Since the company has to share a chunk of the under-recoveries suffered by the oil marketing companies by offering discounts, it will not gain much from the high crude oil prices during the quarter. For example, during March 2008 quarter ONGC reported a 2% fall in profits, despite a 65% jump in crude oil prices compared to the year-ago period.
Although the company has to share the subsidies, the unpredictability and ad-hoc nature of the subsidy sharing mechanism creates a major problem in projecting ONGC’s quarterly results. Almost all the brokerages are expecting just a single digit growth in the quarterly profits of the oil behemoth.
Brokerage firm Prabhudas Lilladher said in a report: “ONGC is in a sweet spot as crude prices continue to touch new highs. Cash flows remain very strong, although 80-90% of the upside is taken back in the form of subsidising the losses of marketing companies.” However, Religare Securities expects ONGC’s subsidy burden to rise if the crude oil prices continue to rise. “According to the latest policy, the upstream sector is expected to share a total subsidy burden of Rs 45,000 crore in FY09. However, this was calculated at a price of $123/ barrel, which has risen to over $146. We thus expect the subsidy burden from upstream companies like ONGC to go up,” mentioned one of its recent reports. The current crude prices are around $125 but were much higher during the April-June quarter.
Although the company has to share the subsidies, the unpredictability and ad-hoc nature of the subsidy sharing mechanism creates a major problem in projecting ONGC’s quarterly results. Almost all the brokerages are expecting just a single digit growth in the quarterly profits of the oil behemoth.
Brokerage firm Prabhudas Lilladher said in a report: “ONGC is in a sweet spot as crude prices continue to touch new highs. Cash flows remain very strong, although 80-90% of the upside is taken back in the form of subsidising the losses of marketing companies.” However, Religare Securities expects ONGC’s subsidy burden to rise if the crude oil prices continue to rise. “According to the latest policy, the upstream sector is expected to share a total subsidy burden of Rs 45,000 crore in FY09. However, this was calculated at a price of $123/ barrel, which has risen to over $146. We thus expect the subsidy burden from upstream companies like ONGC to go up,” mentioned one of its recent reports. The current crude prices are around $125 but were much higher during the April-June quarter.
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