Crisil predicts ₹ 50,000 crores in basmati rice sales this fiscal year
According to Crisil, a combination of high realization and healthy demand will help the basmati rice sector record strong year-on-year sales growth of more than 30% to more than ₹50,000 crores in fiscal 2023, the highest ever.
‘However, sales will fall by 5-7% next fiscal year as basmati rice realization is forecast to drop due to an increase in paddy area, resulting in more supply,’ it added. Volume demand is predicted to stay consistent at 6.8 million tonnes. The higher realization will boost operating profitability by 100-125 basis points (bps) this fiscal year, while the absence of capex and increased cash accrual will keep credit risk profiles steady.’
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Exports, which account for 64% of basmati sales by volume, are expected to climb 11% year on year to 4.4 million tonnes this fiscal year, owing to strong demand from important countries such as the Middle East and the United States. In the first nine months of the 2017 fiscal year, India exported 3.19 million tonnes of basmati rice (a 16% increase year on year).
‘Domestic demand, on the other hand, should register 8-9% volume growth to 2.4 million tonnes, riding on higher demand from the hotel, restaurant, and café segment, which is likely to do better this fiscal on account of increased social gatherings as the pandemic tapers. ‘Household demand is likely to stay constant,’ according to the research.
‘Basmati sector sales would likely expand 30% this fiscal, with volume increasing 10% and realization increasing 20%,’ said Nitin Kansal, Director at CRISIL Ratings. Due to geopolitical tensions, the volume of exports is growing, and India is benefiting from less basmati exports from flood-hit Pakistan, which is a major exporter of basmati. Sector sales will fall by 5-7% in the coming fiscal year due mainly to price reductions.’ A 1% increase in paddy (major raw material) prices in fiscal 2023 will contribute a percentage point to operating profitability, which will stabilize at 7%. Profitability will stay stable in the coming fiscal year since paddy prices are projected to fall. Improved operating profitability will result in higher cash accrual, which will enhance basmati players’ financial risk profiles, albeit they will most likely use the full cash accrual to pay increased working capital requirements in the current fiscal.’
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‘Though the absence of capex will limit the CRISIL rated basmati players’ requirement of external long-term funding, their working capital borrowings will rise as rice procurement will increase this fiscal to meet higher demand,’ said Rachna Anand, Team Leader, CRISIL Ratings. On the other hand, increased cash flows from the business will control the overall leverage of the players, keeping credit profiles constant. ‘ Working capital management, monsoon intensity, and the next agricultural harvest will all be closely monitored in the coming months.
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