RIL may replace ONGC as biggest profit maker

Oil and Natural Gas Corporation (ONGC) is likely to soon lose the tag of being the biggest profit-making company in the country, to Mukesh Ambani’s Reliance Industries Ltd (RIL). This comes days after its position as the public sector unit with the largest market cap was challenged by Coal India.

An increase of Rs 3,832 crore in the company’s oil subsidy burden for 2010-11 is expected to dent net profit in the year’s fourth quarter by Rs 2,000 crore and impact annual performance, chairman and managing director A K Hazarika said on Friday. For the first three quarters of 2010-11, ONGC reported net profit of Rs 16,133 crore. This could be a dampener for its follow-on public offer plan for early July, wherein the government aims to sell five per cent stake in the company.

The official details on the fourth quarter and annual numbers are to be announced towards the month-end. RIL has reported net profit of Rs 20,286 crore in 2010-11. In 2009-10, RIL reported net profit of Rs 15,818 crore, about 5.65 per cent lower than ONGC’s Rs 16,767 crore. “ONGC will not have an EPS of more than Rs 22 for FY11. This would result in a net profit of around Rs 18,000 crore, well behind RIL’s profit,” said investment advisor S P Tulsian.

ONGC made an oil subsidy contribution of Rs 12,757 crore during the first three quarters. It has to incur Rs 12,135 crore in the fourth quarter. ONGC was to contribute Rs 21,060 crore towards compensating losses of oil marketing companies (OMCs). However, higher losses of OMCs on subsidised sale of diesel, kerosene oil and cooking gas prompted the government to pass on a higher burden to upstream oil companies ONGC and Oil India Ltd.

These companies are usually required to bear a third of the OMCs’ loss, since they pump crude oil from blocks for which they were nominated by the government. Therefore, while both ONGC and RIL operate in similar areas of oil and gas exploration, it is ONGC that is subjected to a subsidy burden.

Of the first three quarters of 2010-11, ONGC reported the highest profit in Q3 (Rs 7,083 crore). However, it had an exceptional component of Rs 1,898 crore coming from the gas pool account; the actual profit earned was Rs 5,185 crore. The profit in Q1 and Q2 were Rs 3,661 crore and Rs 5,389 crore, respectively.

Net realisation on crude oil for Q4 is expected to be $55-56 per barrel, significantly lower than $62.75 in Q2 and $64.79 in Q3. This, coupled with the increased subsidy burden, will make it difficult for the company to post better numbers in Q4.