ONGC Q2 profit rises as subsidy costs fall

ONGC is required to partially subsidise the sale of fuel to state-run retailers, who then sell it at government-set, below-market prices.

ONGC's said the impact on profit of its subsidy burden was 14.9 billion rupees in the fiscal second quarter, down from 70.7 billion rupees a year earlier, mainly due to a sharp fall in oil prices from record highs in mid-2008.

The company has said its fuel subsidy burden should be significantly lower this year, but analysts warn a recent rise in crude to nearer $80 could inflate the cost of subsidies in future quarters.

ONGC, India's second-most valuable company with a market worth of $51.8 billion, reported July-September net profit of 50.9 billion rupees ($1.1 billion), up from 48.08 billion a year earlier. A Reuters poll had predicted net profit of 51.6 billion rupees.

Ahead of the results, shares in ONGC rose 2.6 percent to 1,165.85 rupees in a Mumbai market that dropped 1.4 percent.

Energy major Reliance Industries was due to report its quarterly earnings later on Thursday.

ONGC stock rose 9.8 percent in July-September, while the main index climbed 18.2 percent.

ONGC, which accounts for about two-thirds of India's oil output, has been looking to buy foreign assets to secure energy supplies for Asia's third-largest economy, but not all acquisitions have been successful.

Last year, it paid $2 billion for Russia-focused Imperial Energy, but the firm has seen its costs increase even while cutting oil production.

The deal has been criticised by analysts as being politically motivated and designed to strengthen ONGC's position in Russia, where it already has a 20 percent stake in the Exxon Mobil-led Sakhalin-1.

($1=47.35 Rupee)