Auto, pharma, oil & gas may feel the jitters of Ukraine conflict

AUTOMOBILE
Analysts said there could be indirect impact due to supply chain disruptions as well as higher commodity costs through crude derivatives and metals. “There could be an indirect impact because of geopolitical instability and increase in commodity prices from steel, aluminium, copper, lead, crude derivatives like plastic and rubber, etc. Players who have manufacturing units in Europe could also be impacted,” said Jinesh Gandhi, senior vice president and deputy head of research at Motilal Oswal. Europe is dependent on Russia for a substantial part of its energy needs and companies operating in Europe stand to get affected if there are any supply disruptions because of sanctions on Russia. ICICIdirect said Tata Motors’ subsidiary JLR has manufacturing base in Europe and JLR derives 40% sales from the European region, so any geopolitical ramifications could impact the volume. Mahindra CIE derives around 49% sales from European regions with manufacturing set-up in Europe, while Apollo Tyres derives 33% sales from European regions with manufacturing facility there.

STOCKS THAT COULD BE HIT:
Mahindra CIE, Bharat Forge, Motherson Sumi

PHARMA
ICICIdirect’s head of research Pankaj Pandey said he does not expect any significant risk to drug makers besides Dr Reddy’s as their exposure to Russia and the Commonwealth of Independent States (CIS) is limited. Russia is not the major source of raw materials for pharma companies. Shares of Dr Reddy’s gained 2% on Friday tracking the rebound in the market but has lost 5% in the last one month. Russia/CIS accounts for 13% of Dr Reddy’s revenues and further currency devaluation due to sanctions on Russia could raise currency translation risk, it said.

STOCKS THAT COULD BE HIT:
Dr Reddy’s Laboratories

OIL AND GAS
Analysts said higher crude oil prices at around $100 per barrel could impact oil marketing companies which are not able to pass on the increases. Upstream companies such as ONGC, GAIL and Oil India could see some benefit. Morgan Stanley on Friday maintained a buy rating on ONGC with a target price of Rs 263.

STOCKS THAT COULD BE HIT:
Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation

PAINT COMPANIES
Analysts said there won’t be any significant impact on margins in the fourth quarter (January-March) but in the first quarter (April-June) there could be some impact if current prices sustain. “They use crude derivatives, monomer, titanium dioxide, etc. In the medium to long term if crude continues to go up, there will be some impact,” said Abneesh Roy, vice president-institutional equities at Edelweiss. Roy said paint companies could again opt for price hikes after taking 18-20% price hike in the last one year.

STOCKS THAT COULD BE HIT:
Asian Paints, Berger Paints, Kansai Nerolac