Paints shares recover, OMCs gain as crude oil prices decline marginally after hitting $81 per barrel

Shares of oil marketing companies, paint manufacturers, tyre makers and aviation firms recovered some of the losses on Tuesday as international crude oil prices slipped from $81 per barrel.

Crude oil prices eased on Tuesday, giving a relief to jittery investors. Oil prices had rallied above $81 per barrel on Monday, the highest level in over four months, triggering a sell-off in oil, gas, paints and tyre shares. Oil benchmark Brent Crude dropped 0.65% to $80.47 per barrel on Tuesday, leading to a recovery in crude-sensitive stocks amid a marginal uptick in the broader market.

Oil shares had tanked up to 7% on Monday as Brent Crude prices crossed $81 per barrel in global markets following fresh curbs on Russian oil companies and oil tankers by the US.

High crude oil prices weigh on OMCs’ margins

A spike in crude oil prices put pressure on the margins of oil and gas marketers due to high input costs. State-run oil marketers are unable to jack up retail prices in line with global prices which have impacted their profits and subsequently share prices.

Paints shares recover from lows

Leading paint manufacturers Asian Paints, Berger Paints India and Shalimar Paints gained up to 2% on Tuesday as crude oil prices slipped around 0.5% in global markets. Grasim Industries gained 1%.

Indigo Paints, however, hit the 52-week low of ₹1,232.9 apiece on he NSE in the opening session after falling nearly 3% on Monday. The stock recovered some of the losses later to trade 0.05% down at ₹1,251.

Akzo Nobel India and Kansai Nerolac Paints Ltd also traded lower up to 1%.

How does crude oil impact paint companies?

Crude oil derivatives account for around 25%-30% of the raw material cost of paint companies. Any spike in crude oil prices inflates the input cost and squeezes their margins. Paints makers are expected to see a dip in EBITDA margins in Q3 as crude oil hovers near three-month high levels and moderate sales volumes.

Tyre makers pare losses

Leading tyre makers Apollo Tyres, Goodyear India, MRF and JK Tyre and Industries recovered up to 4% on Tuesday due to easing crude oil prices.

Ceat Ltd, however, dropped up to 2% in early trade. The stock was trading 1.25% down at ₹3,044.55 per share.

Tyre makers’ margins significantly depend on crude oil as it is a source of synthetic rubber and other petrochemicals. A pick-up in crude prices inflates the raw material costs for tyre manufacturers.

Aviation shares mixed

Aviation shares were mixed as the owner of the country’s largest airline Indigo, InterGlobe Aviation Ltd, declined around 1% while budget carrier Spicejet gained up to 2%.

Indigo dropped over 1% to hit a low of ₹3,955.85 per share on the NSE before trading 0.52% lower at ₹3,980.7 apiece.

Spicejet shares rose by over 2% to ₹49 per share.

Fuel costs are a significant part of aviation companies’ input cost, accounting for 30-40% of their total costs. Any spike in crude oil prices also fuels Aviation Turbine Fuel (ATF) prices squeezing airline’s margins.