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 under the base case—“exports of both refineries are taxed, but no export-parity pricing on domestic sales”. Even so, we retain current estimates as we bake in a conservative FY23E GRM of $12/bbl. As OMCs are net-buyers of petrol and diesel, they may gain 11–51% if domestic sourcing is pegged to export-parity price.
All in all, we are cutting ONGC’s net oil FY23E price to $65/bbl following the $40/bbl tax, and downgrade it to ‘Hold’. ONGC’s estimated ~50% gas price hike from Oct-22 is now at risk, and shall be positive for CGDs: IGL, MGL, GGL. Retain ‘BUY’ on RIL, OMCs and CGDs.
RIL: $6.3/bbl GRM impact
The GoI’s additional tax amounts to $6.3/bbl (diesel $26.2, Petrol/ATF $12.1) for RIL under base case. While it seems RIL’s export (SEZ) refinery shall also fall under tax purview, we feel this may get changed and, hence, present three scenarios: 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% impact (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 net realisation
GoI has imposed an additional excise duty of Rs 23,250/ton ($40/bbl) on domestic crude oil production amid surging prices. This translates into post-tax impact of 54% (Rs 380 bn, $30/bbl) on FY23 consolidated earnings or Rs 2.5/month. However, we believe the GoI’s intent would be to cap ONGC’s realisations at $60–70/bbl, and hence it should reduce cess once oil prices fall. We are thus cutting FY23E average 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 gain tax going away shall rise once crude prices normalise in the long run. Based on the current formula, we reckon ONGC’s gas realisation would rise from $6.1/mmbtu to $9/mmbtu in H2FY23. But now, the risk of GoI capping ONGC’s gas price realisation is also high; however, that may be a positive for CNG companies such as IGL, MGL and Gujarat Gas (GGL). We are cutting ONGC’s FY23E EBITDAX by 18% and TP by 17% to Rs 148; downgrade to “HOLD”.
Our existing forecasts on RIL already conservatively factor in $12/bbl GRM for FY23E, which should be achievable in spite of the windfall tax. Hence we are keeping earnings and TP (Rs 3,205) unchanged.