In this article, we will be discussing such 2 stocks which are the possible beneficiaries of the falling crude oil price scenario. So, let’s check them out as we move ahead!
2 Stocks to Watch:
The Crude prices are now on a downward trend which is currently trading between the range of $83-$88 per barrel.
The paints as well as the tyre industry use crude derivatives as their key raw material for the final products.
i) Asian Paints:
In Paint Sector, Asian Paints being the largest player in the sector is likely to be highly benefited from this positive factor.
The company has consistently posted an Operating Profit Margin (OPM) of around 24%-25%, but since the rise of crude oil over the last 1-1.5 years, the operating profit margins of the company have fallen to the levels of around 17%-18%.
And since the crude oil price is falling, the prices of its derivatives will also go down, and hence it will benefit Asian Paints in the coming quarters to improve the margins.
MRF is another big player in the tyre category where the company has consistently posted OPM of around 20% before the rise in crude oil prices.
But since the rise in crude oil, the margins of the company have significantly contracted and fallen to the levels of 11%.
What Should Investors Do:
Both the companies have posted and guided decent revenue growth, but due to key raw material inflation, the companies have suffered pressure on margins and profitability. The demand sentiment of the sector looks good, while the company also owns strong pricing passing power hence this company or the overall sector should be on the radar of the investor. Follow due diligence before making any investment decisions.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.