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Informist, Thursday, Sep 19, 2024

MUMBAI – The revenue growth of India's basmati rice industry is expected to moderate to 4% in 2024-25 (Apr-Mar), after rising 20% in the previous year, CRISIL Ratings said in a release today. Even with this moderate rise, the industry's revenue is seen touching an all-time high of 700 bln rupees this year, it said.

Policy support measures such as removal of minimum export price and rising demand in both domestic and international markets will drive the industry's revenue growth, according to CRISIL Ratings. "These tailwinds, combined with likely fall in input costs, will raise operating margins for players this fiscal," it said.

Moreover, strong profitability of the industry will also result in minimal need of debt to fund its capital expenditure and to replenish inventory, thereby keeping credit profiles stable, it said.

The industry's volume is expected to rise 10% to around 9 mln tn, which would be enough to offset a nearly 5% fall in realisation and lead to an increase in the overall industry revenue. The fall in realisation will be due to a decline in paddy prices, but the fall will be limited owing to steady demand, the rating agency said.

The observations are based on an analysis of 43 companies rated by CRISIL Ratings, it said and pointed out that these companies account for 45% of overall Indian basmati industry by revenue.

In August 2023, the government imposed minimum export price of $1,200 per tn on basmati rice and reduced it to $950 per tn in October. On Friday, the government dispensed with this imposition.

This decision, "which follows adequate availability of basmati rice in domestic market, should help to enhance exports," it said, as players will now be able to export basmati rice where realisation is lower than the minimum export price. That will help the Indian basmati industry to cater to overseas markets in lower price segments, thus leading to higher volume.

Besides, a steeper fall in input prices will raise operating margins of basmati rice manufacturers by 50-75 basis points to 6.7-7.0% this financial year. Paddy prices are expected to fall 10-12% this financial year because of a larger harvest expected owing to a normal monsoon and increase in sowing acreage, it said.

The higher paddy output, lower procurement price and steady demand will together encourage players to replenish their stocks, which had dropped to the lowest level, 110-120 days, seen in past five years as demand outpaced procurement in the post-pandemic world. This restocking should cause the inventory to revert to the normative levels of 140-150 days by end of this financial year. However, the rise in procurement will crank up the industry's working capital requirement, it said.

"Exports, which form nearly 72% of basmati rice sales, are likely to grow 3-4% on-year this fiscal as countries look to secure their food supplies amid geopolitical uncertainties. Domestic sales are likely to rise by around 6%, driven by demand from the HoReCa (hotel, restaurant and cafe/catering) segment, lower prices, and a steady rise in household income," the release said, quoting Nitin Kansal, director at CRISIL Ratings.

Going forward, geopolitical issues impacting demand for basmati rice and the trajectory of monsoon in terms of volume, distribution and timeliness will bear watching, the rating agency said.   End

US$1 = 83.68 rupees

Reported by Abhijit Doshi

Edited by Ashish Shirke

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