* ONGC gains 8.3 pct to highest price since Dec 2010
* Producers to benefit more from fuel hike than retailers
* Bulk buyers, such as ACC, may be biggest losers
(Adds details, analyst comments)
MUMBAI, Jan 18 (Reuters) - Shares in state-run oil firms
surged for a second day on Friday, with ONGC gaining as much as
12.9 percent to add around $6 billion in market value, after a
government diesel price hike was seen reducing their subsidy
The government, which fixes the retail price of diesel, on
Thursday told retailers to raise the price of the subsidised
fuel in small amounts every month, a move aimed at propping up
public finances that should also improve revenues in the sector.
The government and state-run companies share the cost of
selling subsidised diesel to consumers. Analysts said producers
such as Oil and Natural Gas Corp Ltd would benefit
more from the new measures than retailers because of the way the
subsidy is structured.
The price hike was more limited than expected, given the oil
ministry last month told reporters it was working on a proposal
to raise diesel prices by 1 rupee a month for 10 months, but was
seen as more likely to be accepted politically ahead of state
elections this year.
"Investors may rightfully question the ability of the
government to raise prices continuously given high inflation and
social and political issues," Kotak Institutional Equities wrote
in a note on Friday.
"We think the companies can raise prices of diesel a few
times over the next few months; the first nine months of the
current calendar year are relatively free of state elections,"
the brokerage added.
Analysts said producers such as Oil India Ltd
would benefit most from the diesel price hike, given they have
been selling crude oil and associate products at a discount, and
could be allowed to charge higher prices.
ONGC was trading up 8.3 percent at 0450 GMT, after earlier
hitting its highest since October 2010. Oil India rose 7.8
percent after gaining 4.2 percent on Thursday.
Downstream companies, such as refiners and oil marketers,
would benefit far less given they are partly compensated through
cash subsidies from the government as well as discounts from oil
producers, making the exact benefits more uncertain.
"For us, the savings will mainly be on interest cost on
under-recoveries. Part of our subsidy burden was compensated by
the government, but we received this after several months, so
had to incur interest costs in the meanwhile. This will be
saved," said B. Mukherjee, director of finance at Hindustan
Petroleum Corp Ltd.
"However, I don't think this will be substantial, at least
for this fiscal (year)," he added.
Still, shares gained, with HPCL rising 6.9 percent
and Bharat Petroleum Corp putting on 6.7 percent.
The biggest potential losers from the measures could be bulk
buyers, according to analysts, as they would have to pay market
rates for diesel under the new rules.
However, the dual pricing of retail - lower prices for
consumers and higher prices for bulk buyers - had been largely
expected. Cement makers ACC Ltd fell 1.5 percent after
slumping 5.1 percent this month as of Thursday's close.
(Reporting by Rafael Nam; Additional reporting by Abhishek
Vishnoi; Editing by Richard Pullin)