Basmati rice sales are expected to fall by 5-7% next fiscal year as basmati rice realisation softens due to an increase in paddy acreage, resulting in increased supply. Volume demand is expected to remain consistent at 6.8 million tonne, as per CRISIL.
Higher realization will improve 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 stable.
Exports, which account for 64% of basmati sales by volume, are expected to grow 11% year on year to 4.4 million tonne this fiscal, owing to strong demand from key markets such as the Middle East and the United States. In the first nine months of this fiscal, India exported 3.19 million tonne of basmati rice (a 16% increase year on year).
"Domestic demand, on the other hand, is expected to increase by 8-9% to 2.4 million tonne due to increased demand from the hotel, restaurant, and café segment, which is expected to fare better this fiscal due to increased social gatherings as the pandemic fades. Household demand should remain stable," According to the report.
"Basmati sector sales will likely rise 30% this fiscal, with volume increasing 10% and realization increasing 20%," as per Nitin Kansal, Director at CRISIL Ratings. "Increased food grain demand amid geopolitical issues is driving export volume growth, and India is benefiting from lower basmati exports from flood-affected Pakistan, a key basmati exporter. Sector sales will fall by 5-7% in the coming fiscal year due solely to price reductions."
"A 1% increase in paddy (key raw material) prices in fiscal 2023 will add a percentage point to operating profitability, which will stabilize at 7%. Profitability will remain stable in the coming fiscal year as paddy prices are expected to fall. Improved operating profitability will result in higher cash accrual, which will improve basmati players' financial risk profiles, though they will most likely use the entire cash accrual to fund increased working capital requirements in the current fiscal," as per CRISIL report.
"Though the absence of capex will limit the CRISIL rated basmati players' requirement of external long-term funds, their working capital borrowings will rise as paddy procurement will increase this fiscal to meet increased demand," said Rachna Anand, Team Leader, CRISIL Ratings. Increased cash flows from business, on the other hand, will control the overall leverage of the players, keeping credit profiles stable. Working capital management, monsoon intensity, and the next crop harvest will all be closely monitored in the coming months.
