The petrochemicals manufacturing business of the Mukesh Ambani-owned Reliance Industries Limited is bound to register a substantial profit, now that the government has decided to raise the import duty on polymer products from 5 per cent to 7.5 per cent. The decision came on 10 May, and will have significant impact on sectors as diverse as mining and steel, fertilisers, spare parts of appliances as well as automobiles. Given that RIL is the dominant producer of polymers in India, which contributes to about 44 per cent of its petrochemicals revenues, the Goldman Sachs report will be a huge boost to the company. Further, RIL, which holds about 62 per cent of the polymer production share in the domestic market, will be benefitted by a big margin, as the domestic demand for polymers will be increasing by about 10 per cent. Moreover, the raised tariffs on polymer import will also help the other important domestic players, such as GAIL, and even Haldia Petrochemicals, which have been taking a hit from Chinese manufacturing companies dumping their products at throwaway prices and flooding the Asian markets, including that in India. The raising of import duties is a protectionist step by the government that is intended to cater to the interests of domestic manufacturing giants, and Mukesh Ambani’s RIL is poised to reap the maximum benefit, with its earnings per share (EPS) slated to go up by 3.2 per cent, according to industry reports.
However, the decision might adversely affect the small and medium industries that are dependent on cheap imports to buy raw materials for their manufacturing business. But more importantly, this will prevent the increasing clogging of the market with cheaply produced products from China, which is the market dominant within the continent and dictates terms of trade, particularly Chinese export and import duties in other countries, such as in India. But the new regulation will come as a breath of fresh air as the domestic polymer producers will be saved by the hiked import tariff, as a safeguard against heavy exports into the country. Overall, the petrochemicals business has been a big revenue earner for RIL, generating about Rs 88,108 crores in the fiscal year ending 31 March, which is up by 9.3 per cent from the year before. In fact, after the Indian Oil Corporation, RIL is India’s second largest private sector company by revenue and profit, and the raised import duty will further boost the company’s fortunes and market share in the domestic segment. This is also going to work in favour of RIL, which recently traded down 0.34 per cent at Rs 815.35 on 10 May, while Gail India shares went up by 0.2 per cent to Rs 340.50 and IOC shares traded with over 1 per cent gains at Rs 297.