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Budget estimates leave room to cut excise by Rs4.75/l

Auto fuels’ excise estimate achievable even if it is cut by Rs4.75/l

Budget estimate of FY22E excise duty on auto fuels down 8% YoY

Budget estimate of excise duty on auto fuels in FY22E at Rs3.2trn is down 8% YoY vs FY21 revised estimate of Rs3.46trn. FY22E budget estimate of road and infrastructure cess on auto fuels at Rs1.98trn is down 12% YoY vs FY21 revised estimate of Rs2.24trn. Basic excise duty in FY22 budget estimate at Rs475bn is down 1% YoY.

Budget estimate of FY22E excise duty including AIDC up 7% YoY

Agriculture infrastructure and development cess (AIDC) of Rs2.5-4.0/l has been imposed on petrol and diesel, respectively in the budget while road & infrastructure cess and perhaps even basic excise duty appears to have been cut to keep total excise duty on auto fuels unchanged. We estimate AIDC to boost FY22E excise revenue by Rs505bn assuming FY22E auto fuel volumes are back to FY20 level, implying 11% YoY rise. FY22E excise duty on auto fuels including AIDC is estimated at Rs3.7trn, implying 7% YoY rise.

FY22 auto fuel excise budget estimate leaves scope to cut it by Rs4.75/l

We estimate excise duty on auto fuels at Rs4.35trn in FY22E to be 17% higher than budget estimate if FY22E auto fuel volumes are back to FY20 levels. It also means that excise on auto fuels would be in-line with FY22 budget estimate of Rs3.7trn even if excise duty is cut by Rs4.75/l from 1-Apr’21. Thus, excise duty cuts cannot be ruled out.

Auto fuel net marketing margin is at Rs1.04/l on 1-Feb’21 vs Rs1.83-2.22/l in FY19- FY20 and Rs3.01/l in FY21E even if there are no further price hikes. We remain optimistic that auto fuel net margin would recover to average Rs2.0-2.5/l in FY22E given GoI’s track record and impending privatisation. Marketing margin recovery is key to IOC’s share price not correcting, and GRM recovery to share price rising.

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