ONGC’s performance in the March 2007 quarter was adversely affected by a rising subsidy burden on a y-o-y basis, coupled with a higher operational cost structure.

As a result, operating profit (excluding other income) fell 34.4 per cent y-o-y to Rs 4,414.5 crore in Q4 FY07 compared with 4.2 per cent growth in net sales to Rs 12,397 crore.

The company’s crude oil production was 4.44 million tonne in the last quarter compared with 4.9 million tonnes a year earlier. In addition, its gross realisations (prior to subsidy sharing) were estimated at $60.5 a barrel in Q4 FY07, a decline of 4.5 per cent y-o-y.

Apart from lower realisations, the company’s subsidy burden jumped 37 per cent y-o-y to Rs 4,668 crore in the last quarter. Also, operating costs such as salaries went up a staggering 210 per cent y-o-y in the last quarter. Operating profit margin declined a whopping 2090 basis points y-o-y to 35.6 per cent in the last quarter.

Meanwhile, the company’s subsidy burden amounted to Rs 17,024 crore in FY07 compared with Rs 11,956 crore a year earlier. As a result, FY07 operating profit margins declined 680 basis points y-o-y to 50.3 per cent.

The company’s share of subsidy is expected to rise, given the recent surge in global crude oil prices. At Rs 917, the stock gets a discounting of about 9.5 times estimated FY08 earnings.