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Indian Oil Profit Surges After Subsidy Compensation

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Nov. 13 (Bloomberg) -- Indian Oil Corp., the nation’s biggest refiner, posted a more than 18-fold increase in second-quarter profit, beating analysts’ estimates, after the government compensated it for selling fuels below cost.

Net income rose to 52.9 billion rupees ($1.18 billion) for the three months ended Sept. 30, from 2.8 billion rupees a year earlier, the state-run refiner said in a statement to the Bombay Stock Exchange today. That compares with the average 10.6 billion rupee estimate of 16 analysts surveyed by Bloomberg.

The profit gain may bolster efforts by Prime Minister Manmohan Singh’s administration and the company to sell shares in the first quarter of next year as record overseas investments pushed the benchmark Sensitive Index to a record this month. The government freed gasoline prices from state control in June while continuing to set rates for other fuels, including diesel.

“State-run refiners depend too heavily on government support,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi in southern India, said before the earnings were announced. “The government supported them this quarter and we don’t know what will happen in the next.”

Shares of the refiner have gained 32 percent this year, outpacing the 15 percent increase in the benchmark Sensitive Index. The stock fell 1.3 percent to 402.55 rupees in Mumbai trading yesterday. The stock market is closed in India today.

Below Cost

Indian Oil, based in New Delhi, sells diesel, kerosene and cooking gas below cost to help the government curb inflation. State refiners are partly compensated by the government and oil producers including Oil & Natural Gas Corp. and Oil India Ltd.

The government gave Indian Oil 72.2 billion rupees as compensation in the quarter, according to today’s statement. The refiner didn’t account for any payment a year earlier.

Gasoline prices were increased four times since the price controls were removed on June 25, according to the company’s website.

“This is a step in the right direction as it helps reduce the refiners’ dependence on subsidies,” Mathews said.

Crude oil in New York gained 12 percent to an average $76.20 a barrel in the quarter, boosted by demand from India and China, Asia’s two fastest-growing major economies. Oil rose to this year’s high of $88.63 a barrel on Nov. 11. The December contract fell $2.93 to settle at $84.88 a barrel on the New York Mercantile Exchange yesterday.

Refining Margins

Indian Oil’s average gross refining margin for the quarter was $6.63 a barrel compared with $3.62 a year earlier, the company said. Sales rose 15 percent to 693.4 billion rupees.

Hindustan Petroleum Corp. reported second-quarter profit of 20.9 billion rupees and Bharat Petroleum Corp. posted net income of 21.4 billion rupees. Both state refiners had losses a year earlier.

The government plans to sell a 10 percent stake in Indian Oil in the three months ending March 31 as part of an asset-sale program aimed at cutting the budget deficit. The refiner will simultaneously offer fresh shares equivalent to a similar stake to reduce debt as it builds a new refinery and looks for possible ventures overseas.

Indian Oil operates about 33 percent of the nation’s refining capacity and is building a new 15 million metric ton-a-year plant in the eastern state of Orissa. The company added 3 million tons of capacity at its Panipat refinery this month. Before the expansion, Indian Oil and its unit had a combined capacity of 61.7 million tons a year, according to its website.

The government holds a 79 percent stake in Indian Oil.

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

To contact the editor responsible for this story: Jim McDonald at Jmcdonald8@bloomberg.net

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