The government on Friday imposed export taxes on petrol, diesel and jet fuel, while countries such as the UK joined forces in imposing an unexpected tax on locally produced crude. The government’s unprecedented move to tax diesel and gasoline exports is designed to limit the refining profits of private refiners like Reliance Industries (RIL), in the view of global brokerage Jefferies.
“The effect of this move is a 4% reduction in RIL’s FY23E EBITDA as we were dealing with US$13/bbl GRM est. However, we need to cut refining EBITDA for FY24E (used in our SOTP) based on growth. Seeing no reason, government intervention prompts us to reduce the refining multiple from 8x to 7x,” the note said. Brokerage has lowered its price target Shares of RIL To 2,900 while maintaining the buy tag.
government slapped 23,230 per tonne additional tax on domestically produced crude to offset windfall gains to producers from higher international oil prices, as domestic crude producers sell crude to domestic refineries at international parity prices. As a result, domestic crude producers are making windfall gains.
However, brokerage Emkay has upgraded the stock to buy from hold as it believes export taxes dent the gross refining margin (GRM), but the annual earnings are flexible.
The inclusion of the SEZ refinery was surprising, although tax officials quoted by the media said the imposition was in line with the law. The fortnightly review indicated by senior finance ministry officials implies that any fall in the broader GRM will be protected, according to the brokerage.
“We do not expect any downside risk to RIL’s earnings unless the fall in GRM is offset by export duty rollback (to be taken into account in the fortnightly review). The outlook for retail and Jio businesses is also stable, while higher gas prices and commissioning of the MJ-1 field will support upstream earnings,” Emkay said.
After the recent correction, the brokerage house found the valuation of RIL stock attractive but has slightly lowered the target price of March 2023. 2,800.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.