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CRISIL SME Tracker: Wheat millers facing the heat as demand slumps

SMEs account for bulk of wheat mills in india in value terms

Business Standard 

Wheat
Representative image

Small and medium enterprises (SMEs) in milling, which sell loose and unbranded flour, have been left smarting as consumers gradually shift to packaged and branded flour instead.

To be sure, is one of the largest crops in India and logged a production of 102 million tonnes in agricultural marketing year 2019. About half of the production is purchased in the form of grain while the remainder is processed into flour by mills.

The wheat milling industry logged a compound annual growth rate of 5-6 per cent in revenue in the last three years.

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SMEs have a significant share of about 70 per cent in the wheat milling industry, given low entry barriers and relatively low capital-intensity. Stiff competition and limited ability to pass on the rise in has historically meant thin operating margins of 2-3 per cent for wheat mills.

Revenue growth is expected to moderate further in fiscal year 2020 as demand tapers. This is mainly because consumers in urban and semi-urban locations are shifting to packaged and branded flour because of the convenience it offers, along with easier availability and a rise in income levels in recent years.

Besides, the biscuit industry, a major consumer of wheat flour, is witnessing a moderation in demand. As a result, millers who are contract manufacturers for large biscuit manufacturers are facing the heat. Given all this, no significant capacity addition is expected in the wheat milling industry in the near term.

First Published: Mon, September 02 2019. 20:57 IST
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