Mukesh Ambani-led Reliance Industries’ share price has underperformed the benchmark indices so far this month, falling more than 8%. The fall in the stock price has largely come owing to fears emerging after the government of India decided to levy a Special Additional Export duty on exports of petrol, diesel and ATF. Analysts at HDFC Securities believe the concerns are overdone and have reiterated their ‘Add’ rating on the stock. The brokerage firm is expecting a recovery in the O2C businesses along with improvement in ARPU, subscriber addition, and new revenue streams. HDFC Securities has a target price of Rs 2,825 per share on Reliance Industries’ stock, projecting an upside of 18.5% from Friday’s low of Rs 2,383 per share.
Blown out of proportions?
HDFC Securities noted that over the last 15 days, gasoline cracks declined from the recent peak to $10.7/bbl (down by $33.2/bbl), Gasoil cracks declined to $35.1/bbl (down by $24/bbl) and ATF declined to $29.7/bbl (down by $25.6/bbl), implying negative spreads currently on the export of gasoline (net of USD 12/bbl export tax) and significantly reduced realisations on the export of diesel and jet kero for Indian refiners. “While the imposition of export levy remains a material short-term negative for the exporting refineries, we remain optimistic on government reducing/withdrawing the duty during its fortnightly reviews with (1) improvement in the availability of fuel in domestic market and (2) reduction in auto-fuel marketing losses as international prices decline,” analysts said.
Days after the implementation of the tax, Morgan Stanley said that ONGC and RIL were among the stocks that were to be most impacted by the move. However, the brokerage firm added that RIL was better placed than others to manage the new tax. Jefferies had said that RIL’s refining margins can take a hit up to $7/bbl.
Now HDFC Securities is expecting strong transportation fuel crack spreads to sustain over FY23 and FY24. “Even after factoring in the worst-case impact for RIL, strong product cracks and use of Russian crude should support our estimates of $12/13 per bbl GRMs over FY23/24E,” they added.
Strong quarterly results expected
In the upcoming quarterly results, the domestic brokerage firm expects Reliance Industries to report EBITDA of Rs 40,100 crore (+71% YoY; +28% QoQ), driven by all-time high refining margins, higher oil and gas price realisations, sequential improvement in ARPU for Reliance Jio, and continued growth in the retail business. “Consolidated APAT is estimated at INR 22,900 crore (+87% YoY, +41% QoQ). Petchem segment is likely to remain a drag,” HDFC Securities added.