Feb. 14 (Bloomberg) -- Indian Oil Corp., the nation’s biggest refiner, reported its first profit in three quarters after the government compensated the company for selling fuels below cost.
Net income in the third quarter ended Dec. 31 rose 53 percent to 24.9 billion rupees ($506 million), or 10.25 rupees a share, from 16.3 billion rupees, or 6.73 rupees, a year earlier, the New Delhi-based company said in a stock exchange filing yesterday. Sales climbed 29 percent to 982.7 billion rupees.
Indian Oil and state-run rivals Bharat Petroleum Corp. and Hindustan Petroleum Corp. depend on government subsidy and discounts on purchases from state-run explorers to make up for losses from selling fuels below cost, which is aimed at curbing inflation. The subsidy and higher profit will help Indian Oil cut debt and pay for crude as prices climb.
“Their profit is governed by the government and is very difficult to predict,” said Avinash Gupta, vice president of equity research at Globe Capital Market Ltd. in New Delhi. “There’s always this hope the government will some day do away with fuel price controls and these companies will become great investments.”
The shares were little changed at 275.75 rupees at close in Mumbai yesterday, before the earnings were announced. The stock has gained 8.7 percent this year, compared with a 15 percent increase in the benchmark Sensitive Index.
The government gave Indian Oil 164.2 billion rupees as subsidy in the quarter, compared with 44.4 billion rupees a year earlier. The company didn’t get any compensation in the two preceding quarters, pushing it into losses.
Indian Oil set aside 61.7 billion rupees after a court ruling that the refiner was liable to pay levies on crude supplies to Uttar Pradesh state, according to the filing.
India’s top court on Jan. 17 ordered the company to deposit half of the tax payable to the government of Uttar Pradesh, where 12 percent of the company’s refining capacity is located, and submit a bank guarantee for the remainder till it reaches a verdict.
Indian Oil earned $4.31 for every barrel of crude it turned into fuels in the quarter, 27 percent lower than a year earlier. The company’s debt was 786.96 billion rupees as of Dec. 31, Chairman R.S. Butola told reporters in New Delhi yesterday.
Brent oil in London trading, a benchmark price for two- thirds of the world’s crude, has increased 10 percent this year.
Bharat Petroleum, the second-biggest state refiner, reported an almost 17-fold rise in third-quarter profit to 31.4 billion rupees and Hindustan Petroleum’s net income rose 13- fold.
--Editors: John Chacko, Abhay Singh
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