Operating margins of basmati rice companies set to rise: Crisil

Updated July 28, 2020

social social social social Operating margins of basmati rice companies set to rise: Crisil


New Delhi, July 28 (IANS) Operating margins of basmati rice companies are set to rise 100-150 basis points this fiscal because of lower paddy prices and stable volume demand abroad, credit ratings agency Crisil said.

These factors have made them one of the few segments of the Indian economy to buck the impact of both the Covid-19 pandemic and the global slowdown, an analysis of 105 companies rated by Crisil have showed.

"Paddy prices are expected to fall 17 per cent in current fiscal from an average of Rs 36 per kg seen last fiscal due to good monsoon and stable acreage," Crisil said in a report.

"On the other hand, export realisation is unlikely to decline in the same proportion as paddy prices because orders from key markets continue to be strong. Demand from the US, the UK and the Middle East (excluding Iran), which account for more than half of India's annual basmati export of around 4.4 million tonnes, has increased because these countries are building food security buffers amid the Covid-19 pandemic."

The report pointed out that Iran, which imports around 1.3 million tonne annually, is expected to register 20 per cent lower volume from India as payment-related issues continue from last fiscal because of US sanctions.

"However, higher demand from other markets abroad should offset this. On average, export realisation is seen at Rs 63 per kg this fiscal compared with Rs 69 per kg in the last fiscal," the report said.

"Realisation from the domestic market, accounting for 2 million tonne sales annually, is seen stable at Rs 52 per kg on strong retail demand."

As per the report, rigid food habits and strong preference for basmati rice will prevent downtrade to non-basmati varieties in the retail market.

"But domestic volume may de-grow 20 per cent because of extended lockdowns impacting demand from the hotels, restaurant and cafes (Horeca) segment," the report said.

"Given this, the credit ratio of CRISIL-rated basmati rice companies could remain higher than CRISIL rated portfolio. The key monitorables going ahead will be the extent of lockdown and timely sowing of paddy, which can impact the prices of both rice and paddy. That, in turn, will have a bearing on the credit profiles."

Additionally, the report said that demand has remained strong during the lockdown, and rice companies have started to accept orders by seeking higher advances or letters of credit.

"They plan to use the advance monies to cut working capital debt," the ratings agency said.

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