The government on Friday imposed an export tax on petrol, diesel and jet fuel while also joining nations like the UK in imposing a windfall tax on crude oil produced locally. Govt's unprecedented move to tax diesel and gasoline exports is designed to cap refining profits of pvt refiners like Reliance Industries (RIL) in global brokerage Jefferies' view.
"The impact of the move is a 4% cut to RIL's FY23E Ebitda as we were working with US$ 13/bbl GRM est. While we see no reason to cut refining Ebitda for FY24E (used in our SOTP) based on developments, the govt intervention prompts us to cut refining valuation multiple to 7x from 8x," the note stated. The brokerage has lowered its price target on RIL shares to ₹2,900 while maintaining Buy tag.
The government slapped a ₹23,230 per tonne additional tax on domestically produced crude oil to take away windfall gains accruing to producers from high international oil prices, as domestic crude producers sell crude to domestic refineries at international parity prices. As a result, the domestic crude producers are making windfall gains.
Though, brokerage Emkay has upgraded the stock to Buy from Hold as it believes that export taxes to dent gross refining margins (GRMs) but annual earnings resilient.
The inclusion of the SEZ refinery was surprising, though tax officials quoted by media said that the imposition was in line with statute. The fortnightly review indicated by senior Finance Ministry officials implies that any downsides to broader GRMs would be protected, as per the brokerage.
“We do not expect any downside risk to RIL’s earnings unless a decline in GRM is not offset by an export duty rollback (fortnightly review should take care). The outlook for Retail and Jio businesses is also steady, while higher gas prices and commissioning of MJ-1 field would support upstream earnings," Emkay added.
After the recent correction, the brokerage house finds RIL stock's valuations attractive, but has lowered its March 2023 target price slightly to ₹2,800.