ONGC, Oil India rally over 2% in trade

Shares of ONGC and Oil India rose by 2.34% to 3.53% on the BSE on reports the government is likely to give a nod to hike kerosene prices by Re 0.25 a litre per month till April 2017.

ONGC (up 3.53%) and Oil India (up 2.34%), edged higher.

On 1 July 2016, the government raised the price of kerosene by 25 paise a litre, the first time in five years.

According to reports, the government has asked state-owned oil marketing companies (OMCs) — Indian Oil Corporation (IOC), HPCL and BPCL — to raise the price of subsidised kerosene by Re 0.25 a litre per month till April 2017 to bring it closer to the market-determined price.

The move is expected to benefit state-run upstream oil companies like ONGC and Oil India as kerosene and LPG are sold well below their cost of production. Media reports suggests that currently, under-recoveries on kerosene and LPG are Rs 13.10 a litre and Rs 116 per cylinder, respectively. The government gives a subsidy of Rs 12 per litre on kerosene while the balance is borne by upstream petroleum companies such as Oil India and ONGC.

The monthly kerosene price increase is similar to the path taken by the government to decontrol diesel price earlier. Petrol and diesel are sold at market-related rates following price deregulation.

Among the OMCs, IOC, with more than 67% market share, will gain the most. ONGC and Oil India may undergo earnings upgrade of 1-1.5% for the next two years. A Re 0.25 hike would translate into a Rs 250 crore benefit for ONGC -- nearly 1% profit for the company. Going forward, if there is a progressive hike of kerosene then that will wipe out the entire kerosene subsidy for these companies. This could mean Rs 1000 crore benefit to ONGC, reports added.

In the past two fiscals, the government incurred under-recoveries of Rs 24799 crore and Rs 11496 crore on kerosene, reports suggested.

Powered by Capital Market - Live News