MUMBAI, 30 July (Commoditiescontrol): Indian crude palm oil (CPO) refiners are expected to outperform their rivals in the edible oil processing industry this fiscal year, according to a recent report by CRISIL Ratings. The Mumbai-based ratings agency projects a 10% revenue growth for domestic edible palm oil refiners, driven by steady demand and higher realisations. Operating profitability for these refiners is anticipated to rise by 40-50 basis points (bps) to 3.5%, supported by favourable prices and the continuation of duty-free imports. This optimistic outlook is underpinned by healthy balance sheets and the absence of significant debt-funded capital expenditure over the medium term, ensuring stable credit risk profiles for palm oil refiners.
A study of nine companies rated by CRISIL Ratings, which represent a third of the industry's revenue of Rs 75,000 crore, confirms these findings.
Palm oil dominates edible oil consumption in India, accounting for 38-40% of the volume. It is primarily used in the food processing and HoReCa (hotels, restaurants, and catering) segments, which consume 45-50% of the overall supply, with the household and industrial segments accounting for the remainder. Rising urbanisation and increased consumption of processed and outside food are expected to keep palm oil demand firm, leading to a projected volume growth of 3-4% this fiscal year to 93 lakh tonnes.
India has ample refining capacity but relies heavily on Malaysia and Indonesia for over 90% of its crude palm oil (CPO) needs. Global palm acreage has stagnated in recent years due to sustainability and environmental concerns, leading to rising prices.
Rahul Guha, Director at CRISIL Ratings, noted, "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 a little long drawn. In the meantime, global CPO output is expected to remain stagnant at 78-79 million tonnes, leading to a price rise of 7-8% this fiscal. Along with steady volume increases, this will lead to Indian edible palm oil industry revenues rising 10% this fiscal."
Operating margins for Indian refiners are set to improve by 50 bps to 3.5% due to increased economies of scale, firm commodity hedging policies, and the continuation of duty-free imports of CPO. Rishi Hari, Associate Director at CRISIL Ratings, highlighted, "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."
With global supplies stagnant, Indian refiners are unlikely to add capacities over the medium term. Cash accruals will be more than adequate to cover incremental working capital requirements and maintenance capex, ensuring stable credit profiles with total outside liabilities to tangible net worth (TOLTNW) - a key indicator of a company's financial leverage, credit risk, and overall financial health - and interest coverage ratios estimated at 1.25 times and 4 times, respectively.
However, the impact of geopolitical challenges and international edible oil trade dynamics will require close monitoring.
(By Commoditiescontrol Bureau; +91 98201 30172)
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