THE September quarter numbers of the domestic oil industry were good considering the hefty compensation the three oil marketing companies (OMCs) received from the government for under-recoveries. Upstream PSUs performed well, with the only exception being ONGC, while the numbers of private-sector players were healthy in line with market expectations. The three OMCs — Indian Oil, BPCL and HPCL — were during the quarter promised nearly . 13,000 crore as compensation towards under-recoveries in the first two quarters. Indian Oil Corporation, the biggest of them all, posted a net profit of . 5,294 crore, while BPCL and HPCL posted profits of about . 2,100 crore each. All these companies had posted heavy losses in the June 2010 quarter due to a lack of governmental support.
In the upstream sector, the largest oil producing company, ONGC, couldn’t meet market expectations as it posted a muted 6% profit growth at . 5,389 crore in spite of a highly favourable market environment. The company enjoyed higher oil production, higher gas prices and higher realisations compared with the year-ago period. However, a . 2,441 crore write-off towards unsuccessful exploration efforts and rupee appreciation weighed on its profit growth.
On the other hand, Oil India, although quite smaller to ONGC, surprised the markets with its best-ever quarterly profit of . 916 crore. The company’s oil production grew 3% y-o-y, with 11% higher realisation, while profits from the natural gas segment jumped six-fold thanks mainly to decontrolled gas prices.
Amongst the private players, Reliance Industries posted healthy numbers. Its integrated business model enabled it to make up for the margin pressure on petrochemicals and oil & gas from the higher margins in the refining business. Better refining margins enabled Essar Oil to report a tiny profit of . 130 crore for the quarter as against net loss a year ago and also in the preceding quarters. In the case of state-owned standalone refiners such as MRPL and CPCL, operating results were weaker y-o-y.
Going forward, oil prices are expected to remain range-bound, while refining margins are likely to stagnate. This may put some pressure on the earnings growth of the companies, particularly if the rupee appreciates further from the current level. The upstream PSUs will be able to expand earnings by growing production and higher gas prices. However, the OMCs will continue to depend on government’s support to sustain. The deregulation of diesel prices, as was done with petrol prices in June this year, will act as a key trigger for the companies’ earnings growth.
In the upstream sector, the largest oil producing company, ONGC, couldn’t meet market expectations as it posted a muted 6% profit growth at . 5,389 crore in spite of a highly favourable market environment. The company enjoyed higher oil production, higher gas prices and higher realisations compared with the year-ago period. However, a . 2,441 crore write-off towards unsuccessful exploration efforts and rupee appreciation weighed on its profit growth.
On the other hand, Oil India, although quite smaller to ONGC, surprised the markets with its best-ever quarterly profit of . 916 crore. The company’s oil production grew 3% y-o-y, with 11% higher realisation, while profits from the natural gas segment jumped six-fold thanks mainly to decontrolled gas prices.
Amongst the private players, Reliance Industries posted healthy numbers. Its integrated business model enabled it to make up for the margin pressure on petrochemicals and oil & gas from the higher margins in the refining business. Better refining margins enabled Essar Oil to report a tiny profit of . 130 crore for the quarter as against net loss a year ago and also in the preceding quarters. In the case of state-owned standalone refiners such as MRPL and CPCL, operating results were weaker y-o-y.
Going forward, oil prices are expected to remain range-bound, while refining margins are likely to stagnate. This may put some pressure on the earnings growth of the companies, particularly if the rupee appreciates further from the current level. The upstream PSUs will be able to expand earnings by growing production and higher gas prices. However, the OMCs will continue to depend on government’s support to sustain. The deregulation of diesel prices, as was done with petrol prices in June this year, will act as a key trigger for the companies’ earnings growth.
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