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Indian Oil Profit Drops on Lower Compensation for Fuel Sales

Indian Oil Corp. (IOCL), the nation’s biggest refiner, reported a 83 percent decline in second-quarter profit after it received lower compensation from the government for selling fuels below cost.

Net income fell to 16.8 billion rupees ($268 million) in the quarter ended Sept. 30, compared with 96.1 billion rupees a year earlier, according to a stock exchange filing today. Sales rose 3.8 percent to 1.1 trillion rupees.

The lower profit may hurt the government’s chances of attracting a high price for shares it plans to sell in Indian Oil to help narrow its budget deficit to a six-year low. The sale of a 10 percent stake in the refiner may take place by the end of this month, Petroleum Secretary Vivek Rae said Oct. 4.

Indian Oil shares rose 1.5 percent to 213.30 rupees at the close in Mumbai. They have slumped 21 percent this year, compared with a 6.4 percent advance in the benchmark S&P BSE Sensex. (SENSEX)

Indian Oil and its state-run rivals Bharat Petroleum Corp. (BPCL) and Hindustan Petroleum Corp. (HPCL) depend on cash compensation from the federal government and discounts on crude oil from Oil & Natural Gas Corp. (ONGC) and Oil India Ltd. for profit. They sell diesel, kerosene and cooking gas below the cost of production to help curb inflation for the nation’s 1.2 billion people.

Indian Oil received 92.4 billion rupees as subsidy from the government in the quarter, compared with 160.9 billion rupees a year earlier, according to the statement.

The rupee’s 5.2 percent drop in the period also lowered Indian Oil’s profit. The refiner imports about 80 percent of its crude oil requirement and pays for it in dollars. A weaker rupee means it has to convert more of the local currency to dollars.

India’s government is targeting cutting the fiscal deficit to 4.8 percent of gross domestic product in the year ending March 31, the lowest since the 12 months ended March 2008.

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

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