Shareholders expect Reliance Industries to unlock value in telecom, retail

Timeline for the listing of Jio Platforms and retail likely in next annual general meeting

Institutional shareholders of Reliance Industries Limited (RIL) are expecting big-ticket announcements from the company, including timeline for listing of its telecom and retail subsidiaries. They expect this to unlock value in the company, which has seen a sharp fall in market valuation on Friday.

This is due to windfall tax imposed by the Centre on refiners and oil producers.

“In the next annual general meeting of shareholders, we expect a clear timeline for the listing of Jio Platforms and retail,” said an official with a government insurance company. “This would give a lot of assurance to the shareholders,” added the official.

According to analysts, the windfall tax will shave off a substantial part of RIL’s oil-to-chemical business earnings as it will also be imposed on special economic zones from July 1.

Due to the tax, Reliance Industries’ gross refining margins (GRMs) would be negatively impacted by $6-8 a barrel, said analysts with Morgan Stanley and Jefferies. They said even though no sunset date has been specified (for the windfall tax), they expect it to be a temporary measure, given the inflated profit environment in refining today. Petrol and diesel are the key contributors to Reliance’s refining slate, contributing 72 per cent of the refining throughput.  

“We estimate $7 a barrel blended impact on RIL, excluding any exemption. With 58 per cent of RIL’s refined products being exported, the blended impact for Reliance could be Rs 3.4 a litre, translating to $7 a barrel impact on realised GRM,” a report by Jefferies said on Friday.

The government has imposed a sharp windfall tax of Rs 13 per litre on diesel exports and Rs 6 per litre on petrol exports. Reacting to the announcement, RIL’s shares lost 7 per cent or Rs 1.25-trillion value on Friday with the total market valuation at Rs 16.29 trillion. Of this, promoters’ net worth eroded by Rs 61,497 crore. Apart from the windfall tax, the government also announced multiple steps to secure fuel supplies for domestic markets. This is because several states reported shortages of diesel and petrol at the pumps. According to a new directive, India has made it compulsory to sell half of refined products within the country.

This, however, does not apply to RIL’s SEZ refinery with a capacity of 35 million tonnes per annum (MTPA).   RIL has another refinery with a capacity of 33 MTPA near the SEZ in Jamnagar. RIL currently sells about 40-50 per cent of its products locally via its petrochemical, B2B and retail fuel stations.

However, sales are heavily naphtha weighted and Morgan Stanley analysts say they are still awaiting details on RIL’s diesel sales locally. “Assuming full impact of the regulations on both diesel and petrol, RIL’s GRM would be negatively impacted by $6-8/bbl realistically vs last week’s margin of $24-26/bbl.

This would still be above our base case estimates on earnings. Every $1/bbl impacts RIL’s earnings by 2.5-3 per cent. Most other refiners largely sell locally and the impact on earnings will be limited,” said an analyst with Morgan Stanley. Overall, India exported 42 per cent of its diesel and 44 per cent of its petrol production in FY22.

RIL did not comment on the windfall tax.