Feb 10, 2012.

Bharat Petroleum Corp. (500547.BY) Friday posted a jump in its October-December net profit after two quarters of losses as subsidy payments from the federal government helped it offset revenue losses from the sale of diesel and cooking fuel at state-set rates. Net profit for the third quarter ended Dec. 31 surged to INR31.40 billion from INR1.87 billion a year earlier as the government gave the company INR70 billion in subsidy payments for the July-September and October-December quarters, Finance Director S. Varadarajan told Dow Jones Newswires.

The government announced the July-September subsidy in mid-November, after the state-run refiner and retailer had already announced its results for the period. BPCL--along with the country's two other state-run refiners Indian Oil Corp. and Hindustan Petroleum Corp.--sells diesel and cooking fuel at government-set discounted prices to help manage inflation.

The government partly compensates them for the revenue losses, while state-run upstream companies help as well, giving discounts on crude sales. BPCL, India's second-largest state-run refiner by capacity, lost a total of INR76.29 billion in the October-December period because of the discounted sales.

Apart from the INR70 billion it received from the government, BPCL also got discounts worth INR35.73 billion on crude purchases from upstream companies. A year earlier, despite government and upstream assistance of INR29.81 billion, it had to absorb losses worth INR5.32 billion, Varadarajan said.

BPCL has a 240,000 barrel-a-day refinery at Mumbai on India's west coast, and a 190,000 barrel-a-day refinery in Kochi in the southern state of Kerala. October-December sales at the Mumbai-based company climbed 60% from a year earlier to INR588.24 billion, helped by higher crude processing volumes and an increase in sales and prices of refined products. Two analysts expected BPCL to post an INR18.75 billion-INR33.18 billion net profit after accounting for government subsidies. Without the subsidy, 10 analysts, on average, expected BPCL to post a loss of INR20.20 billion.

The subsidy enabled BPCL to offset a 25% on-year decline in its refining margin, which fell to $3.48 a barrel from $4.62 a year earlier. Goldman Sachs, in a note Thursday, said the global refining cycle is now heading for a recovery, as overall capacity has decreased, projects have been delayed and demand for oil has risen.

By Fox Business