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'Windfall taxes not to impact RIL majorly, brings windfall for government'
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IANS | 04 Jul, 2022
The special additional excise duty on exports of crude, petrol, diesel,
and aviation turbine fuel announced by the Central government recently
will not have any major impact on Reliance Industries Ltd (RIL), said
experts.
The experts also said the additional duties
will more than compensate the government which had cut the excise duty
on petrol and diesel in May.
"With fuel export tax for refiners
being reviewed every fortnight, we see limited impact on RIL's earnings,
with above mid-cycle margins achievable despite the tax. However, stock
implies cap at single-digit margins," said Morgan Stanley in a research
report.
The Centre announced the levy of additional excise duty/cess of Rs 6/litre on petrol and Rs 13/litre on diesel exports.
The
government also announced the levy of additional excise duty/cess of Rs
23,250/tonne on crude oil as special additional excise duty, since
domestic crude producers sell to domestic refineries at international
parity prices, and as a result, are making windfall gains.
Similarly in the case of aviation turbine fuel (ATF) exports, a special additional excise duty of Rs 6/litre was announced.
While
crude prices have increased sharply in recent months, the prices of
diesel and petrol have shown a sharper increase, the government had
said.
The refiners export these products at globally prevailing
prices, which are very high. As exports are becoming highly
remunerative, it has been seen that certain refiners are drying out
their pumps in the domestic market, the government had said.
According
to the Morgan Stanley report, the government regulations implies a
permanent $6-7/bbl (barrel of crude oil) lower refinery margin for RIL.
"With
the government looking to review the tax every fortnight, RIL can
sustain refinery margins at $15/bbl or above despite the tax as refining
markets remain very tight."
Even a $15/bbl gross refinery margin
(GRM) would imply earnings upgrades and not downgrades to Street
estimates, says Morgan Stanley.
However, the tax does affect
multiples considering RIL had not seen government interference in the
oil-to-chemical (O2C) Ain the past, it added.
In its research
report, Credit Suisse said the blended impact on RIL from cess on export
of petroleum products is about $7-8/bbl, translating to an annualised
impact of $3.5-4.0bn on EBITDA.
"The key thing to note here is
that this impact is not on base profits but is on the excess profits, as
current refining margins are very high. In our interaction with
investors, the key questions were around the duration of applicability
of this cess and the time lag impact on RIL, if refining cracks were to
correct but the cess continues for a quarter or two," Credit Suisse
said.
According to Credit Suisse, RIL was generating mid-cycle
GRM of $8-9/bbl. Hence, it needs refining margins to sustain at at-least
$17-18/bbl for minimal impact on the base business profitability
(current GRM is high at $30/bbl+, thus, the buffer is still high).
The
recent cess on export of petroleum products will more than compensate
the Central government that cut the excise duty on petrol by Rs 8/litre
and on diesel by Rs 6/litre in May 2022, Credit Suisee said.
The excise duty cut had impacted the government's tax revenue by Rs 1 trillion on an annualised basis.
"As
per today's notification, it imposed duty on domestically produced
crude (by $40/bbl.) and on export of petrol, diesel and ATF (cess of Rs
13/litre on diesel and Rs 6/itre each on petrol and ATF). This can
possibly fetch about Rs 1.4 trillion on annualized basis for the
government," Credit Suisse said.
The key question for oil
marketing companies (OMC) is if the government will use part of this
gain to compensate for loss in the marketing segment.
The key
variable here is sustenance of high refining margins (if crude prices
drop, then the marketing losses for OMCs would drop too), Credit Suisse
report said.
In its report J.P. Morgan said the windfall fuel taxes adds regulatory risks to the market.
The
government's measures on oil/gold taxes could create a minor
'China-style' regulatory overhang on Indian equities, J.P. Morgan said.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
Euro
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78.25
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75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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