Basmati rice sales to cross Rs 50,000 crore this fiscal, says Crisil

It added: “Next fiscal, however, sales will decline by 5-7% as basmati rice realisation is expected to soften with anticipated increase in paddy acreage, leading to higher supply. The volume demand is expected to remain stable at ~6.8 million tonne. Higher realisation, compared with increase in raw material prices, will also improve operating profitability by 100-125 basis points (bps) this fiscal, while the absence of capex and increased cash accrual will keep credit risk profiles stable.”

According to the ratings agency, exports, comprising 64% of basmati sales by volume, are estimated to log a healthy growth of ~11% on-year this fiscal to ~4.4 million tonne, riding on strong demand from key markets such as the Middle East and the US. India has already exported 3.19 million tonne (growth of 16% on-year) of basmati rice in the first nine months of this fiscal.

“Domestic demand, on the other hand, should log 8-9% volume growth to 2.4 million tonne, riding on higher demand from the hotel, restaurant, and café segment, which is expected to fare better this fiscal on account of increased social gatherings as the pandemic tapers. Household demand is expected to remain stable,” said the report.

Nitin Kansal, Director, CRISIL Ratings said, “Basmati sector sales will likely rise ~30% this fiscal, with volume growing 10% and realisation increasing ~20%. Growth in export volume is driven by two factors: increased food grain demand amid geo-political issues, and India benefitting from lower basmati exports from flood-affected Pakistan, a key basmati exporter. Next fiscal, sector sales will reduce by 5-7% solely due to moderating prices.” Increase in the prices of paddy (key raw material) by about 18% in fiscal 2023 will add a percentage point to operating profitability, which will stabilise at ~7%. Profitability will remain at a similar level next fiscal as paddy prices are expected to fall. The improved operating profitability will, in turn, result in higher cash accrual, which will improve the financial risk profiles of basmati players, though they will likely utilise the entire cash accrual to fund increased working capital requirement in the current fiscal.”

Rachna Anand, Team Leader, CRISIL Ratings said, “Though 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. However, increased cash flows from business will control the overall leverage of the players, keeping credit profiles stable.” Looking ahead, working capital management, monsoon intensity, and the next crop harvest will bear watching.