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Crude realisation: Oil's slick grip threatens corporate margins, profits

April 19, 2024 14:26 IST

Corporate margins and profits in India remain vulnerable to changes in crude oil prices in the international market.


Illustration: Dominic Xavier/

Historical quarterly data from listed companies (excluding banks, finance and insurance, oil and gas, and power sectors) indicate an adverse correlation between corporate margins and crude oil prices.

An increase in companies’ core operating margins was observed in 2020-21 (FY21) following a sharp decline in crude  oil prices in the first half of calendar year 2020 after the outbreak of the pandemic.


For instance, operating margins reached a record high of 20.3 per cent of net sales in the October-December quarter of FY21 as oil prices dropped to a record low of $33.7 in the April-June quarter (Q1) of FY21 from $66.4 a year ago.

However, margin gains for companies  were reversed in 2021-22 (FY22) and the early part of 2022-23 (FY23) as Brent crude oil surged to a record high of $113.8 per barrel in Q1FY23.

This rally was fuelled by post-pandemic economic recovery worldwide and supply-chain disruptions caused by the Russia-Ukraine conflict.

Elevated energy prices led to increased operating costs for Indian companies, resulting in a decline in corporate margins to 15.5 per cent of net sales in the July-September quarter of FY22 quarter from 19.6 per cent a year ago.

This cycle reversed again in FY23 as crude oil prices declined, boosting corporate margins.

This cycle is once again swinging, with Brent crude oil up nearly 18 per cent since the end of December 2023.

As in the past, the rise in crude oil prices has been accompanied by an increase in industrial commodity prices as well.

For instance, the London Metal Exchange, which tracks prices of industrial metals like copper, aluminium, zinc, and lead, is up 10 per cent year-to-date.

This is likely to result in higher manufacturing costs for Indian companies, with a lag of four to six months.

“In the past two/three quarters, gains in corporate profits largely resulted from a decline in energy and commodity prices, while revenue growth was in low single digits.

"These gains are likely to reverse in forthcoming quarters if the recent rally in crude and commodity prices sustains,” says Dhananjay Sinha, co-head of equities and head of research at Systematix Group.

Here are the 12 companies from the BSE  500 universe that could experience significant impact from a rise in crude oil prices.

The analysis excludes oil and gas, power producers, and gems and jewellery companies.

Cement companies


Balkrishna Industries

Exide Industry


Interglobe Aviation

Kajaria Ceramics


National Aluminium Company

Krishna Kant & Ram Prasad Sahu
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