PREVIEW-India's Reliance, ONGC profits set for small rise

Tue Jul 22, 2008 5:24am EDT

* What: April-June earnings at India's top oil firms

* When: Reliance on July 24, ONGC on July 28

* Reliance earnings seen up 14 pct; ONGC up 13 pct

By Narayanan Somasundaram

MUMBAI, July 22 (Reuters) - India's top petrochemicals
maker and oil refiner, Reliance Industries Ltd , is
forecast to report a modest 14 percent rise in quarterly net
profit as its petrochemical business clips the pace of earnings
growth despite strong refining margins.

Analysts expect Reliance, India's biggest private company
with a market value of $73 billion, to benefit further from
robust refining margins and natural gas sales later in the
year.

Oil and Natural Gas Corp , India's No. 1 oil
producer, is expected to report 13 percent growth in net profit
as the state-run firm is bound by the government to sell oil at
lower prices to state refiners.

Analysts highlighted risks for the sector as high oil
prices could curtail demand.

"Future earnings of oil and gas companies are at risk due
to risk to refining and petchem margins on account of demand
destruction from high crude prices and uncertainty on subsidy
sharing, especially if crude prices remain firm," Amit Mishra,
analyst at ICICI Securities, said in a note.

Reliance is however expected to get a boost and produce up
to 80 million cubic metres of gas a day from its fields in the
Krishna Godavari (KG) basin off India's east coast by
September.

"That would be significant. Gas sales should start chipping
in significantly from the third quarter boosting
profitability," said Rohit Nagraj, a oil and gas analyst at
Angel Broking.

Reliance Petroleum , in which Chevron owns
5 percent, is expected to commission its 580,000 barrels per
day refinery around September adding to the company's revenue
and profit. Reliance Petroleum is 70.4 percent owned by
Reliance Industries.

Net profit at Reliance, controlled by billionaire Mukesh
Ambani, is seen at 41.4 billion rupees ($967 million) in its
fiscal first quarter ended June, up from 36.3 billion rupees
reported a year ago, a Reuters poll of 10 analysts showed.

Reliance has notched more than 20 pct net profit growth in
the last four quarters.

(See bottom of story for detailed earnings poll)

Its refining margins are forecast at $15-$18.5 a barrel,
double the benchmark Asian crack margin on Dubai crude that
averaged about $8 a barrel in the quarter, and
compared with $15.4 a year earlier.

This is because Reliance's 660,000 barrel per day refinery
in western India, which contributed 64 percent of its revenue
in the March quarter, can process cheap high-sulphur crude to
produce high-value products.

Analysts said operating margins of the petrochemical
business, which contributes a third of Reliance's revenue, are
likely to be under pressure as prices of inputs such as naphtha
rose 54 percent in the quarter, faster than product prices.

DISCOUNTS HIT ONGC

ONGC, which produces 80 percent of India's crude, has to
sell oil from its domestic output at huge discount to state-run
refiners to keep retail prices low.

Analysts estimated ONGC sold oil at $62-$68 a barrel to
local refiners against the global average of $123 in the
quarter. ONGC's crude is benchmarked to Nigeria's Bonny Light
BON-E.

Brokerage Motilal Oswal said it expected ONGC to have
offered discounts worth 96.7 billion rupees for the quarter,
more than double the 36.5 billion it gave in the year-ago
period.

However, analysts said ONGC's earnings will get a boost in
the coming quarters from higher production from its overseas
assets that can be sold at world prices.

ONGC Videsh, its overseas investment arm, owns stakes in
oil and gas blocks in Myanmar, Sudan, Russia, Venezuela,
Vietnam, Egypt, Qatar and Brazil. It has also qualified for
development of Iraqi's oil reserves, the world's third largest.

Shares in Reliance fell 7.6 percent in the June quarter,
outperforming a 14 percent drop in the broader market index
.BSESN and a 10 percent fall in the sector index .
ONGC's shares fell 17 percent.

 Following are forecasts from the Reuters poll.
COMPANY     NET PROFIT   RANGE    % CHANGE   QTR SHARE     P/E

            (in bln rupees)             PERFORMANCE in %
---------------------------------------------------------------
-- Reliance      41.4     39.4-43.5    +14.2      -7.6   
20.1 ONGC          51.9     46.2-57.0    +12.6      -17   
10.1
---------------------------------------------------------------
--  

Note: Estimates compiled from: Batliwala & Karani,
Morgan Stanley, Merrill Lynch, Motilal Oswal, Prabhudas
Lilladher, Angel Broking, ICICI Securities, Kotak Institutional
Equities, CLSA Asia Pacific Markets and Religare.
($1=42.8 rupees)
(Editing by Ranjit Gangadharan and Anshuman Daga)