Basmati Rice Sales: Basmati rice sales will exceed Rs 50,000 this fiscal year, says Crisil

It added: “However, in the next fiscal year, sales will fall by 5-7% as realization of basmati rice is expected to slow down with expected increase in rice acreage, resulting in higher supply. Volume demand is expected to remain stable at ~6.8 million tons. Higher realization versus increases in commodity prices will also improve operating profitability by 100-125 basis points (bps) this fiscal year, while lack of capital spending and increased cash accrual will keep credit risk profiles stable.”

According to the rating agency, exports, which account for 64% of Basmati sales by volume, will see healthy growth of ~11% yoy to ~4.4 million tons this fiscal year, supported by strong demand from key markets like the Middle East East East and the USA. India has already exported 3.19 million tons (year-on-year growth of 16%) of basmati rice in the first nine months of this fiscal year.

“Domestic demand, on the other hand, should see volume growth of 8-9% to 2.4 million tonnes, supported by higher demand from the hotel, restaurant and cafe segment, which is expected to fare better this fiscal year on the back of increased social gatherings during the pandemic weakens. Household demand is expected to remain stable,” the report said.

Nitin Kansal, Director of CRISIL Ratings, said: “Sales in the Basmati sector are expected to grow approximately 30% this fiscal year, with volume up 10% and realization up approximately 20%. The export volume growth is being driven by two factors: increased demand for edible grains due to geopolitical issues and India benefiting from lower Basmati exports from flood-hit Pakistan, a major Basmati exporter. In the next fiscal year, the sales of the sector will fall by 5-7% due to more moderate prices alone.” The increase in rice (key raw material) prices by about 18% in fiscal 2023 will increase operating profitability by one percentage point, which will peak at ~ 7% will stabilize. Profitability will remain at a similar level in the next fiscal year as rice prices are expected to fall. Improved operational profitability will, in turn, translate into higher cash reserves, which will improve the financial risk profiles of Basmati players, although they are likely to use all of the cash reserves to fund increased working capital needs in the current fiscal year.”

Rachna Anand, Team Leader of CRISIL Ratings, said: “Although the lack of capital expenditure will limit the CRISIL-rated Basmati players’ need for outside long-term funding, their working capital raising will increase as Paddy sourcing will increase this fiscal year to accommodate the increased to meet demand. However, increased cash flows from the business will control overall player indebtedness and keep credit profiles stable.” Looking ahead, working capital management, the intensity of the monsoon and the next crop need to be watched.