The Hindu Business Line : Budget impact: Customs duty cuts to have minor impact on Reliance

Advertisement

Mumbai March 2 The reduction in customs duty on man-made fibre intermediates, of which Reliance Industries Ltd is the largest Indian manufacturer, will have a marginally negative impact on that company, said industry analysts.

Budget 2007 proposed that customs duty on polyester fibres and yarns will be reduced from 10 per cent to 7.5 per cent, and on raw materials such as DMT, PTA and MEG from 10 per cent to 7.5 per cent.

RIL manufactures intermediates for its own use, but a portion of its output is also sold to third parties. "With duties coming down and with the intermediates' price linked to import parity prices, margins will be squeezed," said an analyst with a large securities firm.

"There would be pressure on realisations. But we see an EPS impact on Reliance of only 2 per cent, this is negligible and has already been taken into account by the market," said Mr Harendra Kumar, Research Head, ICICI Securities.

"I don't see any major impact," said Mr Arvind Mahajan, Executive Director, KPMG. "When import duties come down it is only those who are not competitive from a global perspective that get affected. RIL's business is very large, and highly integrated."

Negation

Intermediates are only part of the value chain of the company and any impact on that business will get negated somewhere along the way for RIL, said an industry source. Also, a 2.5 percentage point is not going to make that much of a difference, he said

The Budget holds some positives for Reliance Industries, they said.

Infrastructure status for gas pipelines could give RIL a tax holiday for that business for 10 years, though the benefits would be obtained in the long term only.

The fact that there was no cut in import duty on crude and crude products has been positive for refining companies, as a cut in import duty would have led to a fall in refining margins, according to Edelweiss Research.

The exercise of service tax on outsourcing of oil and gas services would however have a marginal negative impact for upstream firms such as ONGC, RIL, as costs will increase, said Edelweiss.

More Stories on : Budget | Excise and Customs | Reliance Industries Ltd | Textiles

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page