60 percent fall in past one year and more than 10% fall in past one week, India being a huge energy importer benefits immensely from the crude oil price collapse. Also there are many sectors and companies withing those sectors that benefits hugely from the fall in crude oil prices. For example Paints industry is a direct beneficiary and Asian Paints in particular with very strong brand positioning. Following is the sector wise analysis on who is going to be benefited the most.
For paint manufacturers, crude derivatives are more than 35% of the raw materials they consume. Hence a sharp fall in crude prices will improve gross margins of paints companies. On an average, a 10 per cent drop in crude prices will improve gross margins of paint makers by 200-300 basis points.
Stocks to watch: Asian Paints, Berger Paints
Even though rubber forms 40-50 per cent of the raw materials of the tyre industry, crude oil derivatives are also one of the ingredients. The recent drop in crude prices will be an additional sweetener for tyre companies whose margins have expanded to double-digits in the past few quarters due to steady fall in natural rubber prices.
Stocks to watch: Apollo Tyres, MRF, CEAT
The FMCG sector will also benefit from low crude prices. Petroleum derivatives form the raw material for packaging items such as tubes, bottles and covers. Petroleum derivatives are also used in diapers, detergents, shampoos, cosmetics and perfumes.
Stocks to watch: Hindustan Unilvere, Dabur, Marico, Emami, Pidilite
Fuel expenses form around 40% of total revenues of airlines companies. For every $10 fall in crude oil prices, airline companies save close to 5 per cent of expenses. So, a benign crude oil along with rising passenger traffic, which is growing close to 20% in the past few months, should boost earnings of airlines companies and release some of the pressure of balance sheet.
Stocks to watch: Jet Airways
Crude oil forms 56 per cent of the raw materials required to produce lubricants. This should reduce the production costs for the lubricant companies. This should lead to operating margin expansion for lubricant companies in the coming quarters. Companies with strong brand franchise stand to benefit the most.
Stocks to watch: Castrol