RIL stock price fall excessive, offers good entry point: JPMorgan

NEW DELHI: After the shares of Reliance Industries (RIL) slumped around 9 per cent today on the imposition of export tax on petrol, diesel and air turbine fuel, global brokerage JPMorgan termed the stock reaction as excessive. In a note to investors, it said the fall offers an attractive entry opportunity.

It said RIL would have strong underlying cash flows and earnings even after paying export tax. RIL's export-oriented refinery would have to pay export tax, JPMorgan said, adding that the export tax works out to $27 per barrel on diesel and $13 per barrel on gasoline.

Every $1 per barrel GRM impacts RIL EBITDA by $400 million, it said.



"In our view, the large export tax on diesel is a clear negative for RIL, and effectively, the export duty on diesel (~27/bbl) means that RIL's implied refining surge in profits would now get capped. The key assumption we are making is that if the export unit is exempt from the export tax, then the earnings impact would be minimal on RIL.

Our earnings estimates for RIL are based on realised GRMs of ~18.5/bbl for FY23 and $12.5/bbl for FY24," the brokerage said.

Another foreign brokerage Jefferies said the blended impact for Reliance could be Rs 3.4/ltr translating to a $7/bbl impact on realized GRM.

Morgan Stanley said RIL's GRM would be negatively impacted by $6-8/bbl vs last week's margin of $24-26/bbl.

While imposing an export tax on petrol, diesel and ATF, the finance ministry has also slapped a windfall tax on crude oil produced in India. A Rs 6 per litre tax on export of petrol and ATF and Rs 13 per litre tax on export of diesel is effective from July 1, finance ministry notifications showed.

Additionally, a Rs 23,250 per tonne tax was levied on crude oil produced domestically.

The export tax is to deter companies such as Reliance and Rosneft-based Nayara Energy from preferring overseas markets over domestic supplies, reports said.

After the announcement, RIL shares nosedived 9 per cent to hit the day's low at Rs 2,365. The stock, however, recovered later to end the day at Rs 2,406 but was still down 7.3 per cent from Thursday's closing price.

Sushil Choksey of Indus Equity Advisors, who has been tracking RIL stock closely, said today's sharp reaction was more of a sentiment play. "Reliance has a value mix between various products. So they will have to move their product basket according to what the tax is and what is profitable," he told ET Now.

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