Asian Paints, Jet Air, Ceat up 3-10% on crude prices fall

Moneycontrol Bureau

Paints, aviation and tyres companies' stocks rallied 4-10 percent intraday Tuesday following decline in crude oil prices, the major component of their operating expenses.

Crude oil prices fell nearly 8 percent on Monday on global weakness post Greece voted 'No' to bailout package, continuing downtrend for the third consecutive session. WTI crude, the US benchmark oil price slid 7.7 percent or USD 4.38 to close at USD 52.53 a barrel on the New York Mercantile Exchange and Brent crude, the global benchmark, lost 6.3 percent or USD 3.78 to USD 56.54 a barrel on ICE Futures Europe. Today both oil benchmarks gained 1-1.5 percent.

Volatility in Chinese stocks and likely rise in oil supply from Iran also added to the pressure on oil markets.

For tyre companies, 30 percent of raw material cost comes from crude derivatives that expenses form 20 percent of net sales. Accordingly, every 1 percent decline in crude prices can boost profit after tax of tyre companies by 2-2.5 percent.

In case of paint companies, softening of crude oil prices create margin tailwinds as oil constitutes a significant cost for most paints players. Falling in crude translates into softening for crude derivatives like Titanium Di-oxide and Rutile, the raw material for paint. Crude cushion will also help in lowering of freight costs for these companies.

For Asian Paints, 45-50 percent of raw materials are directly or indirectly linked to crude prices. In Q4FY15, gross margins expanded by 320 basis points Y-o-Y to 45.1 percent. For Berger Paints, crude & derivatives constitute 59 percent of cost of goods sold and its Q4 gross margins expanded by 330 basis points Y-o-Y.

As far as aviation companies are concerned, aviation turbine fuel constitutes major chunk of their expenses. Stocks have been rising on hopes that oil marketing companies may cut fuel prices after this correction in crude oil prices.

Oil retailers like IOC, HPCL, BPCL also gained 1-4 percent intraday, in addition to rally seen in previous session, as lower crude prices will aid margins for these oil marketing companies.