Crude @ $72/bbl: 10 stocks most likely to be impacted

Higher crude oil prices will benefit upstream companies but will negatively impact downstream ones unless they fully pass on the burden to consumers.

“Refiners like Chennai Petroleum Corporation (CPCL) and Mangalore Refinery & Petrochemicals (MRPL) will witness pressure on gross refining margins (GRMs) , rise in operating cost, higher interest cost due to rise in working capital requirement, etc. Aviation companies like Jet Airways, InterGlobe Aviation (IndiGo) will also see pressure on margins due to rising raw material cost (jet fuel) and higher working capital and finance cost,” Sumit Pokharna, Deputy Vice President Research at Kotak Securities, told Moneycontrol.

“We maintain our bullish view on Brent crude oil prices and expect prices to trade between $80 and $90 a barrel during the next two years,” he said.

In the near-term, some experts feel it could simmer down towards $60 a barrel because the bounce was largely on account of geopolitical factors. From $62 a barrel on April 9 to $67.45 on April 11, WTI oil prices have risen by around 8.5 percent in just three trading sessions.

"This significant positive momentum in oil prices is a result of geopolitical tensions between two nations i.e US and Syria, wherein the US has threatened to attack Syria with missiles for its use of chemical weapons used to kill civilians," Prathamesh Mallya, Chief Analyst- Non-Agri Commodities & Currencies, Angel Commodities Broking said.

"A single tweet from the US president to threaten Syria rattles global markets and commodities were not spared from this mayhem. We expect oil prices to correct towards $62 a barrel (CMP: $66.5 a barrel) in the near-term. MCX oil prices will head lower towards Rs 4,150 per barrel," he said.

Here is a list of top 10 stocks from different experts which are likely to witness a direct or indirect impact from the rise in crude oil prices:

Analyst: Priyank Upadhyay, AVP Commodity Research at SSJ Finance & Securities Pvt 

HPCL, BPCL, IOC
Oil marketing companies like Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), and Indian Oil Corporation (IOC) will be hit by rising crude prices. OMCs may be unable to pass on the entire rise to the end consumer as the government would not like to increase fuel cost at this juncture.

Reliance Industries
RIL derives more than 50 percent of its profit from refining and hence benefits from rising crude price. We believe rising crude price will improve its bottomline. (Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)

Chennai Petroleum Corporation
Rising crude price will improve GRMs and lead to inventory gains for the company.

Analyst: Mustafa Nadeem, CEO, Epic Research

ONGC
ONGC is one of the stocks that is likely to benefit from rising crude prices. Prices also broke a long-term declining trend and are looking healthy after a broad consolidation.

The numbers have been better as compared to previous quarters with a jump in net profit by 3 percent, a dividend of 60 percent and nine discoveries. We expect it to move higher given the overall change in dynamics.

Oil India
Technically, prices are looking attractive as it may also give better returns in coming months. Two recent hydrocarbon discoveries in Assam can further boost its bottomline in the coming quarters.

Cairn India
The company is primarily engaged in oil and gas exploration. It also sells its produce to other refineries which are from the public as well as private space. Since its pricing moves in tandem with crude oil prices, it may continue to do well.

Analyst: Soumen Chatterjee, Head of Research, Guiness Securities

Aviation Stocks:
Rise in ATF prices will have a negative impact on operational margins of aviation stocks as fuel accounts for almost 50 percent of the operating costs of an airline.

However, overall growth trends in the sector outpaces any such negatives. Lately, stock prices have moved steadily higher. We recommend investors to book profits and wait for dips (5-10 percent) to re-enter.

Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd

Indraprastha Gas IGL)
Key positives: Healthy profitability with strong cash generations from operations, low debt at present with debt-to-equity ratio of 0.03:1 and comfortable working capital position.

Petronet LNG
The company has completed the ongoing expansion project at Dahej by expanding terminal capacity to 15 mmtpa from 10 mmtpa in the last quarter of 2016.

Two storage tanks with a capacity of 1,70,000 each and regasification unit of 5 mmtpa were added in this expansion process. The project was completed at a total cost of Rs. 1,999.10 crore without raising any external debt.

It is in the process of further expanding capacity of the Dahej LNG terminal  to 17.5 mmtpa from 15 mmtpa and has awarded the EPC contract for regasification facilities in July 2016. This project is proceeding as per schedule and is likely to be commissioned in the first quarter of 2019.

Gujarat State Fertilizers & Chemicals
The management is considering setting up a phosphoric acid plant at Sikka to reduce the cost of phosphoric acid, which is a key raw material for its fertiliser business. It expects to achieve savings of $100-200/t on phosphoric acid.

The project is expected to cost Rs 1,200 crore and is awaiting the board's approval. The management also expects 1.7-2 MT of fertiliser sales volume and EBITDA over Rs 1,800/t for FY18.

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