ONGC Profit Unexpectedly Rises as Rupee Drop Counters Discounts

Oil & Natural Gas Corp., India’s biggest explorer, reported a surprise increase in second-quarter profit after the rupee’s drop to a record boosted earnings and helped counter higher discounts on crude oil.

Net income rose 2.7 percent to 60.6 billion rupees ($955 million), or 7.09 rupees a share, in the second quarter ended Sept. 30 from 58.97 billion rupees, or 6.89 rupees, a year earlier, according to a regulatory filing today. That beat the 58.3 billion rupee median of 21 analyst estimates compiled by Bloomberg. Net sales rose 13 percent to 223 billion rupees.

The higher profit breaks a sequence of four consecutive quarters of lower income for ONGC and will help its plan to spend 11 trillion rupees by 2030 to raise production and add reserves in India and overseas. Discounting on crude oil sales to state-run refiners is one of the biggest risks for the explorer as Prime Minister Manmohan Singh’s government is asking it to bear a larger portion of the subsidy burden.

The company will benefit from higher gas prices starting April 1. The government in June allowed producers to set prices as a weighted average of rates in the U.S., U.K. and import costs of Japan and India. This will almost double local prices from the current $4.2 per million British thermal units.

The rupee’s 13.36 percent drop this year is helping ONGC earn more in the local currency. It sells gas in dollars. The rupee slumped to a record 68.845 per dollar on Aug. 28.

ONGC has gained 0.3 percent this year, compared with a 4 percent rise in the benchmark S&P BSE Sensex index. The shares rose 1.1 percent to 268.85 rupees in Mumbai. The earnings were announced after trading closed for the day.

The explorer gave 138 billion rupees of discounts to refiners including Indian Oil Corp. in the quarter, compared with 123.3 billion rupees a year earlier, according to the statement. Total cost rose 12 percent to 148 billion rupees.

ONGC is risking incurring a loss at its crude oil business for the first time as subsidy payments increase and production expenses rise, Chairman Sudhir Vasudeva said Oct. 31. Prime Minister Manmohan Singh’s government is asking state-controlled oil explorers ONGC and Oil India Ltd. to bear a larger portion of the revenue losses state-run refiners incur on selling fuels below the cost of production to help curb inflation.