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How Crude price affects Indian stock market?

Do you know, In India total 1.16 crore domestic fliers were recorded in March 2018 only (28% rise from March 2017 when 90.5 lakh were recorded). According to Ministry of Civil Aviation website 7.32 million people flew domestic in November 2017.

In India total three aviation stocks are listed :

Spice Jet Interglobe Aviation Jet Airways

(I am considering only major Aviation companies here)

According to International Air Transport Association IATA, India will displace the UK for the third place in 2025. So if we consider on an average 25% increase in domestic fliers then in 5 years it would be around 3.67 Crore in just five years or even more.

So these stocks can become future multibaggers.

Let’s see how they have been delivered returns

From last 1–2 years they just eroded the wealth of investors. Why?

Answer is increasing Brent crude :

For aviation Industry major raw material is oil or fuel and as India is a net importer of oil so India's oil imports in 2017 surged to a record 4.4 million barrel per day. These companies also have to compete in terms of charges also so they can’t even charge beyond a certain level so this door is closed. They don’t have any choice but to become dependent on Crude price. Only INDIGO has positive book value other are in -ve .

Air traffic in India rose 15.80 per cent year-on-year to 280.24 million during April-February 2017-18. Witnessing a growth of 18.50 per cent over the previous year, total passenger traffic stood at a 264.97 million in FY17. India’s passenger traffic grew 15.80 per cent y-o-y to 280.24 million during April-February 2017-18.

As of March 2018, there are nearly 550 commercial aircraft in operation in India. Still these companies are struggling just because of crude.

This was just an example, Let’s come to your daily life.

How many of you use these in your daily life?

Image source : uflexltd.com

I think almost everybody.

Let me tell you a very interesting thing, these products are being packed by UFLEX, which was incorporated in the year 1988, is a Small Cap company (having a market cap of Rs 2122.66 Crore) operating in Packaging sector.

In 5 years this stock delivered 271% return , 119% in three years but -23% in last years why?

Again.

Source : businessinsider

Uflex uses derivatives of oil as raw material so

Revenue - Expenses = EBITDA Let’s come to its P/L statement:

Source: http://www.uflexltd.com/pdf/financials/Consolidated/UFLEX-UNAUDITED-CONS-31DEC2017.pdf

So raw material used went approx 102 crore more then previous quarter so profit went down by almost 50%

Conclusion: Most of the companies/Industries are interrelated and surging oil prices affects one or another in direct on indirect way.

Thank you.

Akshay Seth , Research Analyst ( SEBI Regd.) https://www.linkedin.com/in/akshay-seth-1b7a1668/

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