Oiling the Wheels
OMCs:
- Positive impact on downstream oil companies because of lower subsidy burden. However, in short term they may suffer inventory loss (Oil stock which bought earlier before prices fall).
- HPCL is considered as best manged company among OMCs.
Paint companies:
- Paint companies use several crude derivatives. These account for 50% of input cost for them. However, full benefit of Crude price fall is not passed to Crude derivatives. Still operating margin can be enhance when Crude price are lowered.
- Companies serving Auto sector can also benefit indirectly because of increased demand of Auto. Nerolac is one such company which serve Auto sector.
Auto & Auto ancillary companies:
- Falling crude oil prices reduces operating cost of running automobiles and hence encourage people to drive more. This indirectly helps leisure industry.
- For India, fall in Crude price reduce inflation as well as Twin deficits which in turn give way to central bank in lowering interest rate. Lower interest rate can boost demand for Automobiles. This helps Auto & Auto ancillary sector
- Tyre companies also benefit. Synthetic rubber is big part of input cost for Tyre companies. Tyre companies may be encouraged to buy synthetic rubber instead of natural rubber.
Aviation:
- Fuel is 40% operating cost for aviation companies. Operating margin may increase. However, due to very high competition in sector, this leads to lower fair and these companies do not get full benefit of it. Overall it is positive still this could not be reason to buy aviation companies.
FMCG:
- Crude Oil derivatives is big part of RM cost of several FMCG companies. packaging, creams & hair oils (personal cares), detergents.
- HUL, Dabur, Marico are direct beneficiary of falling crude prices.
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