Shares in state-run oil firms surged for a second day today, with Oil and Natural Gas Corp Ltd (ONGC) gaining as much as 12.9 per cent to add around $6 billion in market value, after a government diesel price rise was seen reducing their subsidy burden.
The government, which fixes the retail price of diesel, yesterday told retailers to raise the price of the subsidised fuel in small amounts every month, a move aimed at propping up public finances that should also improve revenues in the sector. The government and state-run companies share the cost of selling subsidised diesel to consumers.
Analysts said producers such as ONGC would benefit more from the new measures than retailers because of the way the subsidy is structured. The price rise was more limited than expected, given the oil ministry last month told reporters it was working on a proposal to raise diesel prices by a rupee a month for 10 months but was seen as more likely to be accepted politically, ahead of state elections this year.
| UP, UP AND AWAY | |||
|
Share price on BSE in Rs | %chg | ||
| Jan 17, ‘13 | Jan 18, ‘13 | ||
| BSE Oil & Gas | 9,283.79 | 9,571.03 | 3.09 |
| Indian Oil Corp | 315.89 | 348.95 | 10.47 |
| BPCL | 395.90 | 434.05 | 9.64 |
| Oil India | 514.90 | 561.00 | 8.95 |
| ONGC | 314.50 | 337.50 | 7.31 |
| HPCL | 345.60 | 362.85 | 4.99 |
| GAIL | 375.90 | 383.80 | 2.10 |
| Reliance Ind | 889.65 | 898.95 | 1.05 |
| Compiled by BS Research Bureau | |||
Downstream companies, such as refiners and oil marketers, would benefit far less, as they are partly compensated through cash subsidies from the government as well as discounts from oil producers, making the exact benefits more uncertain.
“For us, the savings will mainly be on interest cost on under-recoveries. Part of our subsidy burden was compensated by the government but we received this after several months, so had to incur interest costs in the meanwhile. This will be saved,” said
B Mukherjee, director of finance at Hindustan Petroleum Corp Ltd. “However, I don't think this will be substantial, at least for this financial year,” he added.
Nomura said the rally in India's state-run oil companies today was excessive and the action would not lead to any improvement in the bottom line of these companies.
