Brokerages remain bullish on Reliance Industries despite windfall tax

Reliance Industries shares gained as much as Rs 32.9, or 1.4 per cent intraday, on the BSE on Monday, before finally closing trade at Rs 2,413.95 apiece

Global and domestic brokerages continue to have a ‘buy’ rating on Reliance Industries (RIL) despite the government’s move to levy new taxes on petrol, diesel, and aviation turbine fuel.

At least eight brokerages, including Goldman Sachs, BofA Securities, Nomura, and Jefferies, had a ‘buy’ rating on the stock on Monday, following the announcement of the new fuel taxes by the government on Friday.

Morgan Stanley remained ‘overweight’, while brokerage house Haitong Securities had an ‘outperform’ tag on RIL.

The bullish outlook by brokerages contributed to RIL shares recovering on the bourses on Monday, following the previous day’s plunge — its worst single-day fall in 19 months.

RIL shares gained as much as Rs 32.9, or 1.4 per cent intraday, on the BSE on Monday, before finally closing trade at Rs 2,413.95 apiece, up 0.2 per cent over the previous day’s close.

In contrast, peers such as Oil and Natural Gas Corporation (ONGC), Oil India, Mangalore Refinery and Petrochemicals (MRPL), and Hindustan Oil Exploration Company (HOEC) remained in the red on Monday, falling between 3.3 per cent and 5.7 per cent on the BSE.

The only other outlier, apart from RIL on Monday, was Chennai Petroleum Corporation (CPCL), up 0.6 per cent over the previous day’s close.

In two days, Oil India has fallen the most at nearly 20 per cent, followed by ONGC at 16.8 per cent, and MRPL at 13 per cent, reveals data compiled by BS Research Bureau. RIL, HOEC, and CPCL have fallen between 4.6 per cent and 6.9 per cent on the BSE.

In an updated report released on July 4, Morgan Stanley said fuel taxes imposed by the government would have a limited impact on RIL. It said the company could sustain a gross refinery margin (GRM) of at least $15 per barrel.

This GRM — or the amount a company earns by refining one barrel of crude oil — would imply an earnings upgrades for RIL, said the brokerage.

Goldman Sachs estimates the impact to RIL’s GRM from the tax on exports in the range of $1.5-12.7 per barrel.

The brokerage sees an upside risk to RIL’s Singapore GRM if its India exports do not see seasonal improvement.

Every $1 per barrel change in its GRM will impact its earnings before interest, tax, depreciation, and amortisation (Ebitda) by 3 per cent in the years ending March 2023 and March 2024, observed Goldman Sachs.

Jefferies sees no reason to lower RIL’s refining Ebitda estimate for the year ending March 2024. The impact of the tax means a 4 per cent cut to its Ebitda estimate for the company for the year ending March 2023.

Emkay has estimated an annualised duty-led revenue gain of Rs 1.35 trillion for the government, based on the current crude oil sales and run rate of transport fuel export.

This implies an effective revenue benefit of Rs 1 trillion in the nine-month period ending March 2023. “While this move was partly expected, we believe an ad-valorem tax could have been more optimal,” added Emkay.