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Oil companies will see significant jump in profit: Crisil

LiveMint logoLiveMint 09-06-2014 Swaraj Singh Dhanjal

Mumbai: The net profit of government-owned oil companies is expected to rise significantly in the current fiscal on the back of steadily falling under-recoveries, or the revenue loss on account of selling products below production cost, according to a report released by rating agency Crisil Ltd on Monday.

Upstream companies such as oil explorers Oil and Natural Gas Corp. Ltd (ONGC), and Oil India Ltd (Oil) will see their profit after tax (PAT) rise by `10,500-12,000 crore in fiscal 2015 and by a further `7,000-7,500 crore in fiscal 2016, the report said, adding that growth will be be further boosted by a near doubling of gas prices.

“The combined effect of lower under-recoveries and the gas price hike is expected to lift PAT of upstream companies by about `21,500-23,000 crore in 2014-15,” the report said.

The impact will be equally prominent but a little subdued in case of oil marketing companies, or OMCs. Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd are forecast to see their PAT surging by almost `3,300-3,600 crore in fiscal 2015 and `700-1,000 crore in fiscal 2016, said Crisil.

OMCs are also called downstream companies.

Crisil noted that in the current fiscal, under-recoveries or losses of OMCs on petroleum products, will halve from the 2013-14 levels in the next two years. The total under-recovery on all regulated petroleum products (diesel, liquefied petroleum gas or LPG, and kerosene) is likely decline to `1 trillion in fiscal 2015 from `1.4 trillion in fiscal 2014.

OMCs post losses on the sale of sensitive petroleum products in the country, except petrol whose price is market-linked. These losses are compensated by upstream companies and the government every year in the form of a subsidy shared in a ratio of almost 50:50 between the two.

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