ONGC Q2 profit rises as subsidy costs fall

MUMBAI (Reuters) - State-run explorer Oil & Natural Gas Corp posted a 6 percent rise in quarterly net profit, its first gain in five quarters as lower oil prices eased the burden of having to subsidise state-run fuel retailers.

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.