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HomePosts Tagged "CRISIL Ratings"
Agribusiness, Foodgrains, India, Industry Reports / Analysis

Policy changes to aid export volume growth; credit profiles to remain stable.

India’s basmati industry will see revenue growth moderate to 4 per cent on-year this fiscal from a phenomenal 20 per cent seen last fiscal. Despite the moderation, revenue will touch an all-time high at nearly Rs 70,000 crore, driven by policy support such as removal of minimum export price (MEP) and rising demand in both domestic and international markets. These tailwinds combined with 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. An analysis of 43 companies rated by CRISIL Ratings, which account for 45 per cent 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. To recall, 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.

 “Exports, which form 72 per cent of basmati rice sales, are likely to grow 3-4 per cent on-year this fiscal as countries look to secure their food supplies amid geopolitical uncertainties. Domestic sales are likely to rise 6 per cent, driven by demand from the HoReCa (hotel, restaurant and café) segment, lower prices, and a steady rise in household income”, Nitin Kansal, Director, CRISIL Ratings.

Volume growth is expected to be 10 per cent (9 million tonne), which will be enough to offset a nearly 5 per cent fall in realisation and lead to an increase in the overall industry revenue. The fall in realization will be due to a decline in paddy prices, however, the fall will be limited owing to steady demand.

A steeper fall in input prices will raise operating margins of basmati rice manufacturers by 50-75 bps to ~6.7-7.0 per cent this fiscal. Paddy prices are expected to fall 10-12 per cent 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. 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 per cent 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.

Policy changes to aid export volume growth;

Agribusiness, India, Industry Reports / Analysis, Oilseeds, Trade

CRISIL Ratings noted improved operating margins and stable credit profiles, with government policies supporting profitability through extended zero import-duty measures.

For domestic refiners of edible palm oil, revenue is expected to grow 10 per cent this fiscal on steady demand and higher realisations. Operating profitability is seen rising 40-50 basis points (bps) to 3.5 per cent owing to favourable prices and continuation of duty-free imports.

Healthy balance sheets and the absence of major debt-funded capital expenditure (capex), over the medium term, will keep the credit risk profiles of palm oil refiners stable. A study of nine companies rated by CRISIL Ratings, accounting for a third of the industry revenue of Rs 75,000 crore, indicates as much.

Palm oil dominates edible oil consumption in India, with 38-40 per cent share in volume. Palm oil is used largely in the food processing and hotels, restaurants and catering (HoReCa) segments, which account for 45-50 per cent of the overall consumption. The household and industrial segments consume the rest.

Rising urbanisation and increased consumption of processed and outside food will keep palm oil demand firm. Hence, the industry is set to witness volume growth of 3-4 per cent this fiscal to 93 lakh tonnes.

India has ample refining capacities but does not produce much crude palm oil (CPO) to feed the refineries and is dependent on the world’s largest producers — Malaysia and Indonesia — for over 90 per cent of its CPO requirement. Over the years, the global palm acreage has stagnated owing to sustainability and environmental concerns, ultimately leading to price rise.

 Rahul Guha, Director, CRISIL Ratings said, “In the latest budget, the Government’s endeavour to strengthen the domestic production of oil seeds to support domestic availability was amply clear, but the outcome could be little long drawn. In the meantime, global CPO output is expected to remain stagnant at 78-79 million tonnes, leading to price rise of 7-8 per cent this fiscal. Along with steady volume increase, this will lead to Indian edible palm oil industry revenues rising 10 per cent this fiscal.”

The operating margins of Indian refiners are set to improve 50 bps to 3.5 per cent on account of increased economies of scale, firm commodity hedging policies and continuation of duty-free imports of CPO.

Says Rishi Hari, Associate Director, CRISIL Ratings, “In fiscal 2023, the Government of India had extended the zero import-duty structure for CPO for two straight years until March 2025. The duty structure was earlier set to expire in March 2024. The import duty for CPO was as high as 40% pre-pandemic. The extension will help regulate domestic supplies and keep prices in check, whilst supporting profitability this fiscal.”

Amid stagnant global supplies, Indian refiners are unlikely to add capacities over the medium term, and cash accrual will be more than adequate to cover incremental working capital requirement and maintenance capex. Hence, credit profiles will remain stable this fiscal, with total outside liabilities to tangible networth (TOLTNW) and interest coverage ratios estimated at 1.25 times and 4 times, respectively. That said, the impact of geopolitical challenges and international edible oil trade dynamics will bear watching.

CRISIL Ratings noted improved operating margins and

Acquaculture, India, Industry Reports / Analysis, Trade

Higher revenues and lower procurement costs will help Indian shrimp exporters sustain operating margin around 7 per cent this fiscal, according to CRISIL.

Indian shrimp exporters will see revenues grow 8-10% this fiscal as demand from key importing nations recovers and realisations improve. The revenue growth will be despite the higher duties for Indian exporters in the United States (US) and locational advantages enjoyed by key competing nations.

Higher revenues and lower procurement costs will help Indian shrimp exporters sustain operating margin around 7 per cent this fiscal, despite supply chain disruptions and higher logistics costs because of geopolitical uncertainties.

Credit profiles will remain healthy as debt remains in check because of improving cash accrual, prudent working capital management and limited capital expenditure (capex) due to surplus capacities. An analysis of 69 shrimp exporters rated by CRISIL Ratings, accounting for almost two-thirds of the industry’s revenues, indicates as much.

India, Ecuador and Vietnam account for around two-thirds of global shrimp exports, while the US, China and Japan consume more than half of the global produce.

In the past two fiscals, Ecuador surpassed India to become the largest shrimp exporter, backed by higher acreage, favourable climate and significant investments to improve the genetic quality of brood stock. Ecuador also benefited from its proximity to the US and the European Union as Asian exporters grappled with higher logistics costs amid container shortages.

That said, recent investigations by the US Department of Commerce (USDOC)1 with regards to countervailing duty (CVD) and anti-dumping duty (ADD) on shrimp exporting nations could have a bearing on their competitiveness.

Himank Sharma, Director, CRISIL Ratings, said, “Indian shrimp exporters stand to benefit as demand improves for two reasons. First, lower channel inventories at importers’ end, who had reduced purchases in the past few months, will need to be replenished. Second, higher spending on discretionary and food items, as economic outlook improves for Western economies (the key consumers), will drive-up volume and realisations for exporters. Volume and realisations of Indian shrimp exporters will go up in tandem by 4-5 per cent each, driving the revenue growth.”

Albeit, the final determination of CVD for Indian exporters and the key competing nations, along with the outcome of ADD investigations by the USDOC on Ecuador and Indonesia, will be monitorable. A higher ADD for the competing countries could be a shot in the arm for Indian exporters.

Procurement costs for Indian shrimp players will reduce this fiscal because of better production vis-à-vis last fiscal, when the summer crop had taken a hit due to sudden rise in temperatures early in the season. Thus, higher revenues and lower procurement costs, this fiscal, will keep operating margins stable at around 7 per cent, despite increased logistics costs due to geopolitical tensions.

Working capital requirement will moderate as purchase costs reduce. To add, surplus processing capacities available with Indian exporters will limit capex, which will reduce dependence on external borrowings.  Nagarjun Alaparthi, Associate Director, CRSIL Ratings, said, “Strong cash flows kept the balance sheets of shrimp exporters comfortable in the past decade. As debt addition remains muted this fiscal, and cash generation will improve due to better revenues and stable operating margin, gearing and interest coverage will improve. Credit profiles, thus, will strengthen over

Higher revenues and lower procurement costs will

Agro chems – Chemicals, India, Industry Reports / Analysis

Sluggish exports and domestic demand will weigh on the operating profitability of agrochemicals manufacturers.

For the first time in a decade, Indian agrochemicals makers will see a drop in revenue – by up to 3 per dent on-year in fiscal 2024 – for three reasons: one, falling prices globally following a supply deluge from China; two, muted demand for exports (53 per cent of revenues) owing to destocking by global manufacturers; and three, the impact of lower reservoir levels on rabi sowing according to CRISIL Ratings.

Operating margins, too, may plunge by 400-450 basis points (bps) to a decadal low of 10-11 per cent this fiscal, due to lower volumes and realisations, impacting cash accruals for agrochemicals players.

The current tepid demand is prompting agrochemicals manufacturers to prune capital expenditure (capex) plans. That, along with healthy balance sheets for most, should provide sufficient headroom to withstand business pressures.

An analysis of 48 companies rated by CRISIL Ratings, accounting for nearly 90 per cent of the Rs 78,000 crore agrochemical sector as of fiscal 2023, indicates as much.

 Poonam Upadhyay, Director, CRISIL Ratings said ″Increased supplies of low-priced products from China prodded global agrochemicals companies to increase inventory by 45 days between January and June 2023 (see chart 2). The subsequent destocking amid a slowing global economy led to slump in exports from India in the first half of this fiscal. However, with global manufacturers restocking before the onset of the cropping season in Latin America and the US – which accounts for 55 per cent of India’s exports – a recovery in overseas demand should begin from November 2023. ″

Volume growth within India will be in low single digit this fiscal given that inventories with domestic manufacturers are high because of lower exports. Erratic monsoon, resulting in low reservoir levels and posing a risk to rabi sowing, which typically accounts for 35% of domestic pesticide consumption, could also be a challenge.

Sluggish exports and domestic demand will weigh on the operating profitability of agrochemicals manufacturers. Already, the operating margin of most of them had shrunk 700-1,000 basis points on-year in the first quarter this fiscal due to substantial inventory losses following steep price erosion. With product realisation bottoming out and demand likely to pick up from the third quarter, operating profitability should improve sequentially. Yet it will be lower at 10-11 per cent this fiscal, compared with 15.2 per cent last fiscal.

″With sectoral challenges constraining cash flows, prudence in capital spend is imperative. CRISIL Ratings rated agrochemicals companies are expected to lower their annual capex by up to one-third this fiscal to Rs 4,000 crore to reduce reliance on external debt and keep debt metrics at adequate levels. Due to lower profitability, interest coverage and the ratio of total-debt-to-Ebitda1 are expected to moderate yet shall remain comfortable at ~6.4 times and ~1.5 times, respectively, this fiscal, compared with ~10 times and ~1.0 time, respectively, last fiscal”, explained Shounak Chakravarty, Associate Director, CRISIL Ratings .

Demand momentum – both, in India and abroad, weather conditions in key export markets and prices of key products and raw materials, especially Chinese, will bear watching in the road ahead.

Sluggish exports and domestic demand will weigh

Acquaculture, India, Supply Chain, Trade

India’s shrimp exports to China are likely to cross $ 1.2 billion this fiscal compared to $ 0.8 billion in the previous financial year

The shrimp sector will see revenue growth of 5 per cent year-on-year in fiscal 2024, driven by increasing demand from China, which will shore up exports to a near-lifetime high of $ 5.3 billion seen in fiscal 2022. This growth will largely be volume-driven, allowing the operating margin to bounce back to 7.5 per cent as costs soften, according to CRISIL Ratings.

Debt is likely to contract and part-funding such as capex and incremental working capital requirements will be comfortably absorbed by the strong balance sheets of the players, it added.

India, Ecuador and Vietnam are the top three suppliers of shrimp, while the US, EU and China are the top three consumers. India supplies 70 per cent of its produce to these three regions.

In the year 2023, Indian shrimp players were impacted due to extreme heat waves affecting production, shortage of containers and higher logistics costs to the US and EU and exports to China were muted amid continued lockdowns there. This has led to Ecuador, one of India’s major competitors, seizing the lead in shrimp exports.

In 2023-24, however, good produce backed by normal weather patterns and steady demand from China is expected to drive revenue for the Indian players.

India’s shrimp exports to China are likely to cross $ 1.2 billion this fiscal compared to $ 0.8 billion in the previous financial year. With logistics costs normalising, demand from the US and Europe should revive from the lull last season.

“Buyers from the US and Europe prefer shrimps processed in India because of better quality- and disease-control measures. With supply chains getting restored, Indian exporters can replace Ecuadorian suppliers and regain their lost market share.

“Revival in the Chinese economy will also aid growth in shrimp exports from India. Revenue will grow 5 per cent in fiscal 2024 on the back of volume growth of 8-10 per cent despite the reduction in realisations,” Himank Sharma, Crisil Ratings Director said.

However, the report said, with the drop in input costs being steeper than that in realisations, the margin may inch up to the erstwhile level of 7.5 per cent.

Meanwhile, in anticipation of higher demand, shrimp players are expanding capacities and will add close to 20 per cent of their existing gross block this fiscal.

“The shrimp sector has displayed financial prudence for quite some time now. Hence, despite moderate debt addition over the medium term, credit profiles will remain strong.

“Total outside liabilities to tangible net worth and interest coverage ratios will remain comfortably 0.5 times as on March 31, 2024, and 8 times in fiscal 2024, respectively,” Nagarjuna Alaparthi, Crisil Ratings Associate Director said.

India's shrimp exports to China are likely