Windfall tax: ONGC, Oil India shares in focus today. Here's why
For upstream oil PSUs, in the current windfall regime, realisations are not impacted until the price of $75 a barrel. However, declines are sharp below $75 per barrel. Typically, the lower oil prices are positive for OMCs, Kotak said on September 12.
- Sep 18, 2024,
- Updated Sep 18, 2024 8:09 AM IST
Upstream oil companies such as ONCG and Oil India Ltd are in focus on Wednesday morning after the government cut the windfall tax on domestically produced crude oil to ‘nil’ per tonne with effect from September 18. To recall, as oil prices moved up post-pandemic, upstream companies' net oil realisations, post statutory levies and taxes, had moved up in FY22. As prices further moved up post Russia-Ukraine conflict, the government had imposed windfall taxes from July 2022. With windfall taxes, the government takes away all the benefit of oil prices over $75 per barrel.
The tax is levied in the form of Special Additional Excise Duty (SAED) and is notified fortnightly based on average oil prices in two weeks. The last such revision took place effective August 31 when the windfall tax on crude petroleum was set at Rs 1,850 per tonne. Brent crude last traded just above $73 a barrel level.
"For upstream PSUs, in the current windfall regime, realisations are not impacted until the price of $75 a barrel. However, declines are sharp below $75 per barrel. Typically, the lower oil price is a positive for OMCs, as retail prices for petrol/diesel/LPG remain frozen, but we note that margins are glaringly high on petrol/diesel; a price cut is likely soon. Maintain SELL on BPCL, HPCL, IOC, Oil India; REDUCE on ONGC," Kotak Institutional Equities said on September 12.
YES Securities in a September 9 note said the windfall taxes for diesel, ATF and petrol are now NIL and the Indian refiners are reaping some benefit of discounted crude from Russia and few Middle east players. It prefers HPCL, followed by BPCL and CPCL.
"Our earnings change is nominal for upstream. For OMCs, while we have increased the auto fuel margin assumption, we now assume higher LPG losses and moderate GRM estimates. OMCs’ EBITDA increase for FY2025E is marginal at 2-6 per cent. Our FY2026-27E Ebitda and FVs are unchanged. Maintain SELL on IOC (FV: Rs110), BPCL (FV: Rs265), HPCL (FV: Rs190) and Oil India (FV: Rs350), and REDUCE on ONGC (FV: Rs280)," Kotak said.
Upstream oil companies such as ONCG and Oil India Ltd are in focus on Wednesday morning after the government cut the windfall tax on domestically produced crude oil to ‘nil’ per tonne with effect from September 18. To recall, as oil prices moved up post-pandemic, upstream companies' net oil realisations, post statutory levies and taxes, had moved up in FY22. As prices further moved up post Russia-Ukraine conflict, the government had imposed windfall taxes from July 2022. With windfall taxes, the government takes away all the benefit of oil prices over $75 per barrel.
The tax is levied in the form of Special Additional Excise Duty (SAED) and is notified fortnightly based on average oil prices in two weeks. The last such revision took place effective August 31 when the windfall tax on crude petroleum was set at Rs 1,850 per tonne. Brent crude last traded just above $73 a barrel level.
"For upstream PSUs, in the current windfall regime, realisations are not impacted until the price of $75 a barrel. However, declines are sharp below $75 per barrel. Typically, the lower oil price is a positive for OMCs, as retail prices for petrol/diesel/LPG remain frozen, but we note that margins are glaringly high on petrol/diesel; a price cut is likely soon. Maintain SELL on BPCL, HPCL, IOC, Oil India; REDUCE on ONGC," Kotak Institutional Equities said on September 12.
YES Securities in a September 9 note said the windfall taxes for diesel, ATF and petrol are now NIL and the Indian refiners are reaping some benefit of discounted crude from Russia and few Middle east players. It prefers HPCL, followed by BPCL and CPCL.
"Our earnings change is nominal for upstream. For OMCs, while we have increased the auto fuel margin assumption, we now assume higher LPG losses and moderate GRM estimates. OMCs’ EBITDA increase for FY2025E is marginal at 2-6 per cent. Our FY2026-27E Ebitda and FVs are unchanged. Maintain SELL on IOC (FV: Rs110), BPCL (FV: Rs265), HPCL (FV: Rs190) and Oil India (FV: Rs350), and REDUCE on ONGC (FV: Rs280)," Kotak said.