Windfall tax impact: ONGC, Oil India, MRPL, Chennai Petroleum shares surge. Here's what the road ahead looks like

Energy stocks Oil and Natural Gas Corporation (ONGC), Oil India, Mangalore Refinery & Petrochemicals (MRPL) and Chennai Petroleum Corporation surged as much as five per cent on Tuesday, a day after the government announced a reduction in the windfall tax on crude oil. 

The Centre cut windfall tax on crude to Rs 1,900 ($23.28) per tonne from Rs 2,100 per tonne, effective January 17.

Analysts say the rise in upstream company stocks could mainly be attributed to the government’s move more than halve the windfall tax on domestically-produced crude oil and reduced the levy on diesel. The revised tax rates become effective from December 2, 2022.

India, a major consumer, and importer of oil, has been buying Russian crude at well below a $60 price cap agreed by the West, according to a Reuters report.

Also Read: Windfall tax cut on crude, export taxes on aviation fuel, diesel

Individually, MRPL shares gained the most in the space, rising nearly five per cent to Rs 60.5 per share. Chennai Petroleum shares rose 4.5 per cent to Rs 235.9 apiece. ONGC and Oil India shares surged between 1-1.5 per cent to Rs 149 and Rs 228.2 apiece respectively.

The government in July 2022 imposed the windfall tax on crude oil producers and levies on exports of gasoline, diesel and aviation fuel after private refiners sought overseas markets to gain from robust refining margins, instead of selling more cheaply at home.

Also Read: Fuel prices: How much profit or loss are oil companies making on current petrol and diesel prices? Explained

“Upstream companies will see 41 per cent year-on-year (YoY) EBITDA increase to Rs 242 billion in Q3, due to steady net crude price realization and higher gas prices," said Avishek Datta, Research Analyst at  Prabhudas Lilladher. 

He added that the net crude oil realisation will likely be at $75 and PAT will be at Rs 13,700 crore due to lower other income and production. He belives sales volumes are likely to be flat sequentially. 

Also Read: Fitch expects windfall tax to be phased out in 2023

The brokerage maintained a 'buy' on ONGC and Oil India with targets of Rs 180 and Rs 300  respectively.