Reliance stocks: RIL stock price drops excessively, offers good entry point: JPMorgan

NEW DELHI: After (RIL) shares fell around 9% today following the imposition of an export tax on gasoline, diesel and air turbine fuel, the Global brokerage JPMorgan called the stock reaction excessive. In a note to investors, he said the drop presented an attractive entry opportunity.

He said RIL would have strong cash flow and underlying earnings even after paying the export tax. RIL’s export-oriented refinery would have to pay an export tax, JPMorgan said, adding that the export tax is $27 a barrel of diesel and $13 a barrel of gasoline.

Every $1 GRM per barrel impacts RIL’s EBITDA by $400 million, he said.

“In our view, the large export duty on diesel is clearly negative for RIL, and indeed the export duty on diesel (~27/barrel) means that the implied increase in RIL’s refining profits would now be capped.The key assumption we are making is that if the export unit is exempt from export tax, then the revenue impact would be minimal on the RIL.

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Our profit estimates for RIL are based on realized GRMs of around 18.5/bbl for FY23 and $12.5/bbl for FY24,” the brokerage said.

Another foreign brokerage, Jefferies, said the combined impact for Reliance could be Rs 3.4/litre, which would translate to a $7/barrel impact on realized GRM.

Morgan Stanley said RIL’s GRM would be negatively impacted by $6-8/bbl versus last week’s range of $24-26/bbl.

While imposing an export tax on petrol, diesel and ATF, the Ministry of Finance has also imposed an exceptional tax on crude oil produced in India. A tax of Rs 6 per liter on the export of petrol and ATF and a tax of Rs 13 per liter on the export of diesel is effective from July 1, according to notifications from the Ministry of Finance.

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

The export tax aims to deter companies such as Reliance and Rosneft-based Nayara Energy from preferring foreign markets to domestic supplies, according to reports.

After the news, RIL shares plunged 9% to hit the low of the day at Rs 2,365. The stock, however, rallied later to end the day at Rs 2,406 but was still in down 7.3% from Thursday’s closing price.

Sushil Choksey of Indus Equity Advisors, which closely follows RIL shares, said today’s strong reaction was more of a play on sentiment. “Addiction has a mix of value between various products, so they will have to move their basket of products based on the tax and what is profitable,” he told ET Now.

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Karen J. Nelson