Net profit at Reliance Industries, one of the largest petrochemical majors, is expected to jump by Rs 300 crore, thanks to the eight per cent cross the board hike in the customs duty.
The company, which dominates the polymer market in the country, will gain not only through the increase in eight per cent duty on all imports but also reduction in customs duty on paraxylene from 15 per cent to 13 per cent.
Profits are expected to move up by Rs 300 crore, initial estimates by analysts indicate.
However, it remains to be seen whether Reliance will hike domestic prices of its products taking advantage of the price differential. There is oversupply in some products like PVC and analysts say Reliance may not hike prices immediately. RIL recorded a net profit of Rs 1,653 crore for 1997-98.
The eight per cent duty hike increases the price of landed products like fibre intermediates, polymers and polyesters.
The fall in global prices during the last 18 months has seen a rise in imports leading to pressure on margins among domestic players. Both Reliance and IPCL have been dropping prices and this is now expected to end, if not reversed.
RIL posted a net profit of Rs 1,653 crore during 1997-98 despite depressed petrochemical prices and also dumping of certain products by polymer manufacturers from the Far East. Turnover was up 53 per cent to over Rs 13,404 crore.
Reliance will be hit slightly on account of higher prices for its naphtha imports, but analysts say the impact will only be marginal. "The domestic product prices are nearly five times higher than naphtha prices, so the balance is clearly tilted in Reliance's favour," said an analyst with a foreign brokerage.
According to Manish Kumar, senior analyst with Crisil Information Services, "Reliance, the largest importer of paraxylene for PTA, will be the gainers. Reliance may import close to 4.5 lakh tonnes of paraxylene during 1998-99."
With the rupee depreciating further against the dollar and the proposed eight per cent increase in customs duty will result in higher landed cost of imported polymers.
"The petrochemical major will now be able to hike its product prices. The net gain will be close to Rs 250 crore," says Suresh Iyer, senior analyst with P R Subramanyan & Sons.
Reliance will also pay less for its paraxylene, which it imports for its two newly commissioned PTA plants.
The duty on paraxylene has been reduced from 15 to 13 per cent and Reliance has already tied up imports till 1999, when its mega paraxylene project comes onstream at Jamnagar.
