The sharp correction in crude oil prices to pre-war levels could significantly reduce the impact on India Inc.’s profitability this fiscal, with the hit now expected to be nearly half of the earlier stress-case estimate, even as geopolitical risks remain, Crisil Ratings said in its latest report.
According to Crisil Ratings, it had initially assessed 34 sectors exposed to the West Asia conflict and estimated that operating margins could decline by up to 200 basis points to around 12% this fiscal year under a prolonged conflict scenario involving the closure of the Strait of Hormuz.
However, with the Strait of Hormuz reopening following a tentative US-Iran memorandum of understanding (MoU), Crisil Ratings believes that, if the truce holds, profitability pressure on India Inc. could ease materially during the remainder of the fiscal year.
The agency now expects the impact on operating margins to be contained at around 100 basis points, with average margins settling at nearly 11%.
Brent seen averaging $80-85 per barrel
Crisil Ratings said its analysis of 34 sectors, representing around 65% of rated corporate debt, assumes Brent crude oil prices will average $80-85 per barrel during this fiscal as supplies normalise quickly.
The agency added that gas supplies are expected to normalise with a lag, assuming disruptions continue for nearly four months during the fiscal year. The reopening of the Strait of Hormuz is also expected to gradually reduce India’s dependence on high-cost spot LNG.
Against this backdrop, Crisil Ratings expects both revenue and margin impact to remain minimal for 24 of the 34 sectors, with recovery largely backloaded to the second half of the fiscal year.
The remaining 10 sectors are expected to face a more meaningful squeeze, with operating margins declining by one-tenth to one-third compared with pre-conflict estimates. Even so, the agency noted that the impact is significantly lower than its earlier stress scenario, which assumed supply disruptions lasting up to three quarters.
OMCs, fertiliser companies emerge as key beneficiaries
Among the 24 sectors expected to face limited disruption, Crisil Ratings said oil marketing companies (OMCs) and fertiliser manufacturers are likely to witness a sharp improvement in profitability.
The agency estimates OMCs incurred net under-recoveries of ₹40,000-45,000 crore between March and May. However, even if excise duties return to pre-conflict levels and retail fuel prices remain unchanged, OMCs are expected to report operating profits this fiscal, offsetting earlier losses.
Similarly, Crisil Ratings said the fertiliser sector should see only a limited impact on profitability, supported by priority gas allocation, improving supply conditions, and continued government subsidy support.
Airlines, ceramics among sectors still under pressure
Crisil Ratings noted that, of the 10 sectors expected to remain under pressure, four have a stable or neutral credit outlook because of their strong balance sheets, which should help absorb lower profitability.
The remaining six sectors carry a moderately negative credit outlook due to weaker profitability, higher working capital requirements, and relatively moderate balance-sheet strength.
Among the sectors expected to remain under pressure, airlines are likely to witness first-half margin compression that may not fully reverse because of currency pressures, capacity rationalisation and limited pricing power.
Commodity-linked sectors, including flexible packaging, specialty chemicals, and polyester textiles, are also expected to face margin pressure as elevated input costs may not be fully passed on to customers.
The diamond polishing industry is expected to continue facing demand disruptions, weighing on both volumes and profitability and delaying recovery. Despite these challenges, Crisil Ratings emphasised that no sector is currently expected to witness a severe impact on either revenue or profitability.
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