Shares of Reliance Industries (RIL) plunged more than 7 percent on BSE on Friday, July 1, after the government raised export duties on petrol, diesel and air turbine fuel (ATF).
The government on Friday raised export duty on diesel by ₹13 per litre, on petrol by ₹6 per litre and on ATF by ₹6 per litre. Besides, the government imposed a cess of ₹23,250/t on domestic crude production.
"Reliance Industries is witnessing a sharp fall after the government has levied taxes on windfall gains made by domestic refineries. Earlier Reliance was firing on all cylinders but now there is a break in its refinery business as the commodity cycle is also reversing however other verticals have strong growth potential," said Santosh Meena, Head of Research, Swastika Investmart.
Meena underscored that some investors will look for buying opportunities in this correction ahead of AGM expected in July end because there is a buzz of some major announcements especially a path for separate listing of Jio and Retail businesses.
"Investors should watch out ₹2400-2350 demand zone because if it manages to hold this area then we can expect a recovery while if it slips below the ₹2350 level then it may head towards the ₹2200 level. On the upside, ₹2600 is a critical hurdle; above this, we can expect a fresh expansion phase," said Meena.
Meanwhile on Thursday, the company's retail brand licensing arm Reliance Brands Ltd (RBL) announced a strategic partnership with global fresh food & organic coffee chain, Pret A Manger, to launch and build the brand in India.
With this long-term master franchise partnership, RBL will open the food chain across the country starting with major cities and travel hubs.
The stock opened at ₹2580 against the previous close of ₹2594.05 and fell 8.66 percent to hit the intraday low of ₹2365. The stock ended at ₹2408.95, down 7.14 percent.
Higher crude oil prices have boosted the refining margins of oil refiners and RIL is one of the key beneficiaries of it.
As Mint reported earlier, quoting Moody’s Investor Services, the Singapore-Dubai hydrocracking margin averaged at a multi-year high of $39 per barrel in the week ending 24 June, close to 20 times the $2 average in 2021. Refining margins are at super-cycle levels because of a shortage of transportation fuels as demand outpaces supply in Asia, Moody’s said.
The rebound in demand for auto fuels following the easing of covid-led restrictions has boosted gross refining margins (GRMs). Supplies squeezed by the sanctions against Russia, following significant refinery closures during the pandemic, lifted them further. The mismatch in demand and supply has driven a surge in the margins of gasoline, gas-oil and jet fuels, Mint reported quoting Moody’s.
“Multi-year-low inventories, declining Russian exports, muted Chinese exports, lower diesel production in Europe and delays in commissioning of ME refineries are, in our view, tailwinds to refining margins in CY22," Mint quoted global brokerage firm Jefferies saying so.
Initial estimates suggest RIL could deliver 60 percent sequential growth in O2C (oil to chemical) Ebitda in Q1FY23 with the likelihood of earnings upgrades, added Jefferies.
Other brokerages, too, say RIL is set to benefit immensely from strong refining margins and gas prices.
Disclaimer: The views and recommendations made above are those of the broking firm and not of MintGenie.
