MUMBAI: If the government were to completely stop Russian crude imports by the state-owned oil companies, to avoid the 25% punitive tariffs on exports to the US, it will only shave 10% off oil companies'net income, foreign rating agency, Fitch Ratings, said in one of its latest reports.
The Trump administration has imposed a 25% reciprocal tariffs on India effective August 7, and an additional 25% penal levy for importing Russian oil from August 27, taking the applicable rates on Indian goods to 50% which is the highest along with those of Brazilian goods.
Since the punitive second rate came in, bilateral relationships have soured to such an extent that the proposed sixth round of trade meeting, scheduled for August 21, has been postponed indefinitely with both sides eschewing questions on the next date.
Referring to the 25% punitive tariffs slapped for Russian oil imports, rating agency said it does not see the government asking oil refiners it owns to stop booking Russian oil, and said it at all it stops shipping in the discounted Russian crude oil, it will only have marginal impact on their bottom lines.
“Our base case is that the government will not limit purchases of Russian crude by oil marketing companies. If these were curtailed, it would hurt OMCs’ Ebitda, but we estimate that the Ebitda impact would be around 10% in the case of a full halt.
“Russian crude accounts for 30-40% of crude imports by state-owned oil marketing companies (OMCs), with its discounted price supporting their earnings before interest, taxes, depreciation, and amortisation (Ebitda) and profitability,” Fitch said.
If at all these imports are halted these OMCs’ ratings, would be unaffected, it said, adding however, HPCL-Mittal Energy has a lower rating buffer and its credit profile could be more vulnerable to a sharp deterioration in earnings that could hinder its deleveraging prospects.
Fitch assumes a very minimal direct tariff impact on IT services companies, along with those companies that are domestically focused. Oil & gas, cement, engineering & construction, telecom and utilities are at lower risk of a direct impact.
And if the tariffs stay significantly higher than Asian peers, it sees a moderate downside risk to FY26 growth forecast to 6.5%.
"Indian companies could also be affected if US tariffs divert supply to other markets, including India, as this can present downside risks to our domestic price assumptions for some products, such as steel and chemicals," it said.
“Though most Indian corporates have low direct exposure to US tariffs, even those sectors which are currently unaffected such as pharmaceuticals, face the rising risk of second-order impacts from existing high tariffs unless a trade deal is not secured,” Fitch Ratings said in a report.
On other sectors, like pharma, it said significant tariffs on drugs are not yet factored into the rating base case but could pose downside risks to its operating performance. Noting that the US is a key export destination for pharmaceutical companies which they meet as much as 40% of the US generic drug market. For instance, the biosimilars-focused Biocon Biologics derives around 40% of its sales from the US, mostly from production sites in India and Malaysia which will thus be hit with the higher tariffs.
On the other hand, direct automotive exports to the US, including parts, are limited. The US accounts for close to 20% of sales for auto supplier Samvardhana Motherson International, but mostly from production bases in the US, or those in Mexico that benefit from tariff exemptions under the US-Mexico-Canada trade agreement.
Similarly for agrichemical producer UPL, US buyers make up for 10-12% of total revenue, and any tariff on its products could potentially affect its competitiveness in the US market.