Oil and Natural Gas Corporation (ONGC) was able to report an improved performance in the June 2007 quarter thanks to a fall in its subsidy burden on a y-o-y basis. However, an appreciating rupee curtailed growth in its top line and bottom line.

As a result, operating profit (excluding other income) declined 2.3 per cent y-o-y to Rs 7922.3 crore in the last quarter, while net sales declined 6.3 per cent to Rs 13687.7 crore. The company highlighted that the rupee appreciation affected its top line by Rs 1,500 crore in the last quarter, while net profit was hit by Rs 900 crore.

Meanwhile, crude oil production was 6.88 million tonne in Q1 FY08 compared with 6.93 million tonne a year earlier. It is understood that the company had to grapple with processing problems at its Nawagam desalter plant, which affected production from Mehsana and Ahmedabad oil fields.

In addition, its gross realisation (prior to subsidy sharing) was $71.77 a barrel in the last quarter compared with $71.39 a year earlier. Of crucial importance is that the company s subsidy burden was Rs 3649 crore in Q1 FY08, compared with Rs 5120 crore a year earlier. As a result, operating profit margin grew 240 basis points y-o-y to 57.9 per cent in the June 2007 quarter. The stock rose nearly 2 per cent to Rs 934 on Wednesday.

In contrast, in the March 2007 quarter, the subsidy burden jumped 37 per cent y-o-y, which resulted in its operating margin declining 2090 basis points y-o-y to 35.6 per cent.

Going forward, the underlying concern for the company remains the uncertainty in the size of the subsidy sharing burden. As a result, the stock gets a discounting of 9.5 times estimated FY08 earnings.