Reliance Industries (RIL) is likely to benefit the most from the government’s decision to prune windfall taxes on oil exports as the company’s refinery at Jamnagar special economic zone (SEZ) has also been exempted from the purview of the impost. Over 92% of RIL’s exports of petroleum products are through the Jamnagar SEZ.
RIL and Rosenft-backed Nayara, two privately-owned refiners, make up for the bulk of petrol and diesel exports from the country.
State-run upstream companies such as ONGC and Oil India will also benefit from the 27% reduction of the new cess on domestically produced crude to Rs 17,000 a tonne.
In the stock market, RIL gained 2.5%, its biggest single-day gain since June 9. On Wednesday, RIL contributed as much as 184 points to the Sensex’ gains, which surged 629.91 points. While the shares of ONGC surged 4%, Oil India and Vedanta rallied 5.8% and 6.2%, respectively.
For state-run oil marketing companies such as Indian Oil Corporation (IOC) and Bharat Petroleum Corporation (BPCL), the move to eliminate export tax on petrol from Rs 6 a litre imposed on July 1 and prune taxes on shipment of diesel and aviation fuel by Rs 2/litre each, will be negative as the move reduces the possibility of any direct subsidy from the government to compensate them for their retail losses, analysts said. The OMC stocks remained flat on Wednesday.
Reacting to the development, Jeffries said RIL will be the key beneficiary of the move as it would lower the impact on its realised gross refining margin (GRM) to around $ 1/bbl compared with US$ 7-9/bbl when the duty was first levied on July 1. Citi also pegged the post-reduction realised GRM at the same level.
Jeffries said, “Given that >90% of RIL’s exports is via the SEZ unit, the exemption effectively lowers the impact of export duty on its realised GRM to ~US$ 1/bbl. This too, in our view, could be mitigated as the residual export volumes could now likely be placed in the domestic markets. In our view, this negates the regulatory overhang on RIL from the July 1 move.”
In a note, Citi said, “The reduction in windfall tax and exemption for SEZ units is in line with our expectations but is nevertheless a significant relief. We estimate the GRM impact for RIL could now decline to <$1/bbl vs. a potential $9-10/bbl impact earlier. While regional refining margins have fallen significantly since the windfall taxes were imposed, the latest development should preclude risks of earnings downgrades which had suddenly started looking quite real.”
Prashant Vasisht, vice president and co-head, Corporate Ratings, Icra, said despite the cut, the cess on crude oil remains quite steep at about $30/barrel and is likely to adversely impact the Ebitda of the upstream industry by about Rs 390 billion for FY2023.
“The impact on the overall GRMs of exporters is expected to be in the range of $1/barrel to $3/barrel depending on their proportion of exports and the Ebitda impact on the downstream industry is expected to be Rs 220 billion for FY2023,” Vasisht said.
Before the imposition of additional excise duty on July 1, the taxes on oil production in the form of oil development cess and royalties on India crude were roughly 31% or $35/barrel. The new impost roughly translated into another $40/barrel, increasing the effective tax to a hefty 65%. With the 12% cut in the new impost, the total taxes are a little over 50%.