support such as removal of minimum export price (MEP) and rising demand in both domestic and international
markets, said ratings agency Crisil in a media release.
“These tailwinds combined with a likely fall in input costs will raise operating margins for players this fiscal. Strong profitability will also result in minimal need of debt to fund capital expenditure and to replenish inventory,
thereby keeping credit profiles stable,” said Crisil, adding, “An analysis of 43 companies rated by CRISIL Ratings, which account for 45% of overall Indian basmati industry by
revenue, indicates as much.”
The Government of India, on September 14, 2024, announced an immediate removal of MEP to support the export of
basmati rice. The announcement, which follows adequate availability of basmati rice in domestic market, should help to enhance exports.
MEP of $1,200 per tonne was imposed on basmati rice in August 20231 as a temporary measure in response to the rising domestic prices of rice. Following the removal of MEP, players will now be able to
export basmati rice where realisation is lower than the MEP. That will help the Indian Basmati industry to cater to overseas markets in lower price segments, thus leading to higher volume.Nitin Kansal, Director, CRISIL Ratings said, “Exports, which form ~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 ~6%, driven by demand from the HoReCa (hotel, restaurant and café) segment, lower prices, and a steady rise in household income.”
According to Crisil, the volume growth is expected to be ~10% (~9 million tonne), which will be enough to offset a nearly 5% fall in realisation and lead to an increase in the overall industry revenue.
“A steeper fall in input prices will raise operating margins of basmati rice manufacturers by 50-75 bps to ~6.7-7.0% this fiscal. Paddy prices are expected to fall 10-12% this fiscal because of a larger harvest expected owing to a normal monsoon, and an increase in sowing acreage.
The higher paddy output, lower procurement price and steady demand will 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 re-stocking should cause the inventory to revert to the normative levels of 140-150 days by end of this fiscal,” said Crisil.
The rise in procurement will, however, crank up the working capital requirement.
Smriti Singh, Team Leader, CRISIL Ratings said, “Basmati rice companies are expected to increase their processing and packaging capacities by ~10% on-year this fiscal to meet the growing demand. Debt levels are
seen stable as companies are expected to fund capex and increased procurement using healthy accrual
flowing from higher revenue and profitability. That would lead to stable credit profiles.”
CRISIL Ratings expects gearing and interest coverage for its rated basmati rice companies at around 1.0 time and 4.5 times, respectively, this fiscal, compared with 0.9 time and 5.0 times, respectively, on average in the past three fiscals.
In the road ahead, geopolitical issues impacting demand for basmati rice and the trajectory of monsoon — in terms of volume, distribution and timeliness — will bear watching.