Reliance Industries joint CFO flags recession as a worry, bats for rollback of windfall tax

A global slowdown or recession is also cause for concern, said joint chief financial officer V Srikanth in a post earnings call on Friday. On July 1, the government imposed a windfall tax of Rs 13 per litre on diesel exports and rs 6 per litre on gasoline exports to limit extraordinary profits of private refiners like RIL, which has been maximising exports from its refineries in Jamnagar, Gujarat.

However, on July 20, the government exempted exports from special economic zones (SEZs) from the duties, lowered the export duty on diesel and aviation fuel by Rs 2 per litre and eliminated the Rs 6 per litre duty on gasoline.

“We have been seeing the whole concern of recession and slowdown on the back of both higher prices, as well as responses by various central banks all over the world, in terms of wanting to take interest rates up to curb inflation…any duty on exports will have an impact on our overall realisations,” Srikanth said.

RIL on Friday reported a 41% jump in consolidated profit to Rs 19,443 crore for the fiscal first quarter, on higher refining margins and revenue from its retail and telecom segments.

Analysts said the government’s partial rollback will benefit as more than 90% of its exports are through the SEZ unit.

“We believe most of RIL’s product exports take place from the SEZ refinery,” said JP Morgan India in a research note. “While there would still be some residual exports from the domestic refinery which would have to pay the ~$20/barrel tax, overall, we estimate the impact on RIL’s GRMs (gross refining margins) to be less than $2/bbl (and possibly even lower),” said JP Morgan India.

A squeeze in fuel supply due to the Russia-Ukraine conflict has pushed up GRMs to more than $20 per barrel (for complex refiners) — a record high — from $6-7 per barrel at the start of this year. Though the windfall gains of oil refiners such as

had been under the scanner, several headwinds such as higher operating expenses due to soaring freight and input prices are also part of the outlook, Srikanth added.

“Many focused on the strong fuel cracks (margins), saying fuel cracks more than doubled, but they do also miss the multiple offsets to that environment,” he said, adding that there were domestic fuel retailing losses because of capped realisations in April-June. “Opex (operating expenditure) does go up on the back of high energy and freight costs,” Srikanth added.

To increase exports, private fuel retailers like RIL and Nayara Energy have slashed fuel supply to their retail outlets by 50% (beginning March 17). This created a shortage of fuel and consumers flocked to retail outlets of staterun oil companies, which subsequently began running out of fuel.

Traffic at state-run oil companies’ outlets increased by 25%, against an expected 5%. To tide over the shortage,

and Bharat Petroleum Corporation Ltd began importing petrol and diesel.

At the end of June, the industry’s under-recoveries stood at Rs 19.9 for petrol and Rs 36.5 for diesel.