Ind-Ra: Indian Rice Exporters to Gain Market Share; Liquidity Profile of Millers to Remain Stretched

India Ratings and Research (Ind-Ra) expects credit profile of rice exporters to improve over the near-to-medium term on the back of increased market share, higher realisations and improved liquidity. Significant production shortfall in parts of South Asia is likely to result in a substantial gain in market share by various Indian exporters. Ind-Ra expects Indian rice exports to account over 29% of the global rice trade in marketing year (MY) 2017-18 (MY 2016-17: 26.70%).

Ind-Ra believes subdued yields across major South and East Asian rice producers should result in higher realisations and marginal improvement in export volumes. Weak output levels in Vietnam and other parts of South Asia have resulted in a sharp spike in international prices, primarily on the back of increased demand from exporters to deliver forward export orders.

 

Ind-Ra expects leverage levels of domestic players to increase in FY18-FY19 due to higher inventory values arising from increased procurement costs, leading to sustained negative cash flow from operations. However, the agency does not anticipate any significant rating action on domestic players on the back of stable margins as higher procurement costs will be passed on to the end customers.

The agency expects demand to remain strong on the back of higher paddy procurement target and minimum support price. In June 2017, the government of India decided to increase the minimum selling price of common grade paddy by 5.4% to INR1,550 per quintal. The procurement target was also increased to 37.50 million tonnes in MY 2016-17 from 34.34 million tonnes in the previous year.

Indian basmati exports grew 35% yoy to INR136 billion in 1HFY18 on the back of a significant growth in offtake by Iran. While the timely lifting of the temporary import ban by the Iranian government on 22 November 2017 is expected to augur well for Indian rice exporters, yet, significant volume gain in Basmati exports is unlikely mainly on account of weak demand from countries such as Saudi Arabia and Kuwait. Iran is likely to replace Saudi Arabia as the largest exporter of Indian Basmati rice. Saudi Arabia reported a 13% decline in rice imports in 1QFY18.

Despite the recovery in demand from Iran and the US, Ind-Ra expects total growth in Basmati export volumes to remain range bound between 3% and 5%. On the other hand, higher realisations are expected to result in a significant growth in export value, leading to a marked increase in top line for majority of the Basmati exporters. Basmati players are also likely to report significant inventory gains particularly from aged products. Both these events are likely to be credit positives for players in the Basmati sector.

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