Mukesh Ambani
Mukesh AmbaniReuters File

Mukesh Ambani-led Reliance Industries Ltd (RIL) has emerged as the most profitable company in the country in the last fiscal year, outstripping Oil and Natural Gas Corp. Ltd (ONGC) and Tata Consultancy Services Ltd (TCS).

Consolidated net profit of India's largest oil and gas producer ONGC fell to ₹18,333.52 crore in 2014-15, slipping to third spot in the list of most profitable companies in 2014-15. RIL and TCS occupied first and second places respectively.

The Mumbai-based RIL, which has a presence in many business sectors, posted a record annual profit of ₹23,566 crore for the fiscal year ending March 2015. TCS, the country's top software services firm, recorded a profit of ₹19,852 crore, staying behind the RIL.

Improving refining margins had helped RIL post its highest ever annual profit in the previous financial year ending March 2015, while TCS's profit dipped on the back of cross currency headwinds.

On the other hand, state-owned ONGC is finding it difficult to raise output from its current fields despite a 2% increase in production in 2014-15.

"ONGC is not expected to post any growth in production in the current year," financial services firm India Infoline Ltd (IIFL) told Livemint.

Analysts say it's hard for ONGC to return to top position, as RIL is nearing the end of its capital expenditure (capex) cycle. A part of this capex is expected to increase RIL's profit in 2015-16.

"By the end of next year, we expect RIL to have a bottomline of Rs.27,000 crore, considering a 15% growth rate. Beyond that, the profitability will post a major jump as the benefits of its refining and petrochemical expansion will start reflecting on its balance sheet by the second half of the next fiscal year (2016-17)," said an analyst with a domestic securities firm, on condition of anonymity.

Leading foreign brokerages Goldman Sachs and CLSA expect RIL to post a net profit of over ₹35,000 crore in 2016-17.

However, RIL's profit may be weighed down by its $14 billion venture in telecom space.

"RIL's telecom venture could be a major drag on the company's profitability as we are expecting the company to post losses for at least five years," said the vice-president of institutional equities at a domestic securities firm, who did not want to be named.

ONGC is also expected to see better growth in revenues in FY16, as lower crude oil prices and market-driven prices of oil products lessens the 'burden of sharing subsidies' for oil marketing companies.

However, IIFL expects the net profit of ONGC to fall to ₹.25,892 crore in financial year 2015-16.

"With the government pushing ONGC to increase its production, it will have to invest a huge sum in extra drilling costs and further development in a short span of time. This will impact the company's profitability as the newer developments that ONGC has lined up incur huge capital investments," said a senior analyst with a global brokerage firm.

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