The Hindu Business Line : ONGC: Lower subsidy, higher other income help earnings

BL Research Bureau A relatively lower subsidy burden and substantially higher other income have helped Oil and Natural Gas Corporation (ONGC) to report a 12-per cent increase in post-tax earnings during the quarter ended June 30. The stronger rupee may have shaved off Rs 1,500 crore off revenues and Rs 900 crore off earnings but ironically, it has also helped ONGC in an indirect way by lowering the subsidy burden.

The under-recoveries of refining companies were lower thanks to the rising rupee and consequently the subsidy that ONGC had to share with them also fell significantly. ONGC’s subsidy burden was almost a third lower at Rs 3,649 crore compared to Rs 5,120 crore in the quarter ended June 30, 2006. The reduced subsidy perked up the bottomline this quarter.

Help also came from other quarters. A generous doubling of other income to Rs 838 crore in the quarter played a big role in boosting earnings.

The decent earnings growth masks some worrying signals though. Output of oil and natural gas was lower during the quarter compared to the same period last year. Crude oil production was 6.88 million tonnes (6.93 million tonnes) while natural gas output was 6.10 billion cubic metres (6.42 billion cubic metres).

ONGC’s revenue and earnings are being driven by higher global oil prices and not by increased production volumes, which is a matter of concern. This has been a character of the company’s performance in recent times. Though crude oil prices are unlikely to retreat in any significant fashion in the near future, ONGCs inability to drive earnings growth through higher output is a worrying factor indeed.

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