India Inc braces for fallout of Russia-Ukraine crisis

Stocks of Indian companies with exposure to Europe fell on Tuesday amid concerns about the impact on their sales in case the Russia-Ukraine crisis worsens and the US and its allies impose economic sanctions on Russia.

While top conglomerates, including Reliance Industries, the Tata group, and Aditya Birla Group, said they did not have any significant exposure to Russia, executives of some of the oil and gas, pharmaceutical, and tea companies said they were monitoring the situation closely as they earned substantial income from the region.

Russian President Vladimir Putin on Monday ordered troops into two breakaway regions of eastern Ukraine after announcing that Russia would recognise their independence.

This led to sharp reactions, with Germany freezing a new gas pipeline and Britain hitting Russian banks with sanctions on Tuesday.

British Health Minister Sajid Javid told a TV channel that “the invasion of Ukraine has begun”.

US President Joe Biden has not yet used the word “invasion”, but it is widely expected that the US is set to order sanctions on separatist regions of Ukraine.

India and China have asked all sides to show restraint.

Shares of Tata Motors, the parent firm of Jaguar Land Rover (JLR), fell 3.28 per cent on the BSE as investors feared any conflict would hit JLR’s sales in Europe.

Pharma major Dr Reddy’s Laboratories was down 2 per cent, while shares of Motherson Sumi, a key automobile parts supplier to European companies, closed almost flat.

Oil and gas sector officials said the Ukraine crisis was unlikely to have any immediate impact on India, but any rise in crude oil prices could be a cause for concern as it would push the import bill up.

On Tuesday, Brent crude was hovering near the $100 per barrel mark.

HPCL chairman and managing director M K Surana warned of supply chain disruptions if the situation in Ukraine worsened.

“There are three factors affecting crude oil prices. One is the Russia-Ukraine crisis.

"The second is a contrarian view coming over Iran-US discussions.

"The third is the constant inability of OPEC to ramp up production up to the need.

"So, there is a shortage of 900,000 barrels per day,” Surana told a TV channel.

The worsening geopolitical situation may also impact a few acquisitions by Indian oil companies in the region.

Currently, talks are on between Novatek, Russia’s largest producer of liquefied natural gas (LNG), and an Indian private player for a long-term supply deal.

Besides, a consortium of Indian companies, including Petronet LNG and ONGC Videsh (OVL), were in talks to acquire a 9.9 per cent stake from Novatek in Arctic LNG 2, a gas field.

Sources said if any sanctions were imposed, then these discussions could slow down.

At present, GAIL is having a long-term LNG deal with Gazprom for importing around 2.5 million tonnes (MT) of LNG per year.

Officials of the government-owned companies, including OVL, Indian Oil Corporation (IOC), Oil India (OIL), and Bharat PetroResources (BPRL), are worried about their investments to the tune of $13.63 billion in Russia’s oil and gas projects.

Of this, $4.84 billion was spent on two assets — Vankor and Taas Yuryakh.

“As of now, there is no impact on OVL and other companies.

"Issues may appear only if the crisis intensifies and the US and EU impose sanctions,” said a top PSU official, asking not to be quoted.

Russian major Rosneft-backed Nayara Energy's Vadinar refinery in Gujarat is also unlikely to have any impact on its crude procurement as the company is dependent on west Asian crude oil.

The share of Russia in India's crude oil imports is around 1 per cent, while the country is dependent on west Asia for around 63.4 per cent.

A Nayara official refused to comment.

Executives of the pharmaceutical industry said Russia was one of the key markets for exports -- ranking fourth after the US, South Africa, and the United Kingdom -- and any disruption would be a concern.

Russia accounted for 2.41 per cent of India's pharmaceutical exports in the fiscal year ended March 2021, according to the data from the Pharmaceuticals Export Promotion Council.

The US, in comparison, accounted for 31.57 per cent of India's pharma exports in FY21.

Indian firms exported $591 million worth of medicines to Russia in 2020-21, as compared to $7,723.5 million worth of exports to the US.

Sun Pharmaceutical Industries and Dr Reddy's Laboratories have a significant presence in the Russian market.

A Sun Pharmaceuticals spokesperson said the company was monitoring the situation in Russia and Ukraine and was hoping for the best outcome.

“We are in constant touch with our employees in both countries and they are safe.”

A DRL spokesperson said the company has had a strong presence in the region for over three decades.

“We hope for a peaceful resolution. In case of an escalation, ensuring the well-being of our staff, meeting patient needs, and business continuity would be our main priorities.

"We are monitoring developments closely and are preparing accordingly,” the official said.

Officials representing Indian tea exporters said Russia is one of the biggest markets for Indian tea, accounting for about 18 per cent of its total exports, though Ukraine is a very small market at around 3 million kg.

“Russia is a very important market for Indian tea.

"As it is, Iran shipments continue to be plagued by payment issues.

"Now, if tea exports to Russia get impacted, then more tea will be available in the domestic market and there will be an oversupply situation.

"It will be a serious challenge for the industry,” said Nayantara Palchoudhuri, chairperson, Indian Tea Association.