We reckon the Rs 6/6/13 per litre export tax levied on petrol/ATF/diesel shall shave off $6.3/bbl GRM, or EPS upside of Rs 2.5/month for RIL below the bottom case—“exports of both refineries are taxed, but no export-parity pricing on domestic sales”. Even so, we retain present estimates as we bake in a conservative FY23E GRM of $12/bbl. As OMCs are net-buyers of petrol and diesel, they could achieve 11–51% if home sourcing is pegged to export-parity value.
All in all, we’re reducing ONGC’s internet oil FY23E value to $65/bbl following the $40/bbl tax, and downgrade it to ‘Hold’. ONGC’s estimated ~50% fuel value hike from Oct-22 is now in danger, and shall be optimistic for CGDs: IGL, MGL, GGL. Retain ‘BUY’ on RIL, OMCs and CGDs.
RIL: $6.3/bbl GRM influence
The GoI’s extra tax quantities to $6.3/bbl (diesel $26.2, Petrol/ATF $12.1) for RIL below base case. While it appears RIL’s export (SEZ) refinery shall additionally fall below tax purview, we really feel this may occasionally get modified and, therefore, current three eventualities: i) Worst-case: Impact of 38% (Rs 305 bn, $12.5/bbl) on FY23E consolidated earnings or Rs 5/month on EPS. ii) Base-case: 19% influence (Rs 152 bn, $6.3/bbl) or Rs 2.5/m on EPS. iii) Best-case: 6% (Rs 46 bn, $1.9/bbl) or Rs 0.8/m on EPS.
ONGC: $40/bbl hit on internet realisation
GoI has imposed an extra excise responsibility of Rs 23,250/ton ($40/bbl) on home crude oil manufacturing amid surging costs. This interprets into post-tax influence of 54% (Rs 380 bn, $30/bbl) on FY23 consolidated earnings or Rs 2.5/month. However, we imagine the GoI’s intent could be to cap ONGC’s realisations at $60–70/bbl, and therefore it ought to scale back cess as soon as oil costs fall. We are thus reducing FY23E common realisation to $65/bbl (from $90/bbl). This erodes ONGC’s consolidated earnings by 25% (Rs 131 bn) or EPS by Rs 1.2/month.
Outlook and valuation
The odds of the windfall achieve tax going away shall rise as soon as crude costs normalise in the long term. Based on the present system, we reckon ONGC’s fuel realisation would rise from $6.1/mmbtu to $9/mmbtu in H2FY23. But now, the danger of GoI capping ONGC’s fuel value realisation can also be excessive; nevertheless, that could be a optimistic for CNG corporations resembling IGL, MGL and Gujarat Gas (GGL). We are reducing ONGC’s FY23E EBITDAX by 18% and TP by 17% to Rs 148; downgrade to “HOLD”.
Our present forecasts on RIL already conservatively think about $12/bbl GRM for FY23E, which needs to be achievable regardless of the windfall tax. Hence we’re preserving earnings and TP (Rs 3,205) unchanged.
Source: www.financialexpress.com”