Indian Oil profit drops 83% on lower compensation for fuel sales.

New Delhi: Indian Oil Corp. Ltd, the nation’s biggest refiner, reported a 83% decline in second-quarter profit after it received lower compensation from the government for selling fuels below cost. Net income fell to Rs.16.8 billion ($268 million) in the quarter ended 30 September, compared with Rs.96.1 billion a year earlier, according to a stock exchange filing on Friday. Sales rose 3.8% to Rs.1.1 trillion.

The lower profit may hurt the government’s chances of attracting a high price for shares it plans to sell in Indian Oil to help narrow its budget deficit to a six-year low. The sale of a 10% stake in the refiner may take place by the end of this month, Petroleum Secretary Vivek Rae said 4 October.

Indian Oil shares rose 1.5% to Rs.213.30 at Friday’s close in Mumbai. They have slumped 21% this year, compared with a 6.4% advance in the benchmark S&P Bombay Stock Exchange (BSE) Sensex.

Indian Oil and its state-run rivals Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) depend on cash compensation from the federal government and discounts on crude oil from Oil & Natural Gas Corp. (ONGC) and Oil India Ltd. (OIL) for profit. They sell diesel, kerosene and cooking gas below the cost of production to help curb inflation for India’s 1.2 billion people.

Indian Oil received Rs.92.4 billion as subsidy from the government in the quarter, compared with Rs.160.9 billion a year earlier, according to the statement. The rupee’s 5.2% drop in the period also lowered Indian Oil’s profit. The refiner imports about 80% of its crude oil requirement and pays for it in dollars. A weaker rupee means it has to convert more of the local currency to dollars. India’s government is targeting cutting the fiscal deficit to 4.8% of gross domestic product (GDP) in the year ending 31 March, the lowest since the 12 months ended March 2008.

Source : livemint.com