Key Points

The firm stated that this comes after a 15 per cent revenue growth witnessed in fiscal 2025.

As a result, operating margin is expected to shrink 30-50 basis points to 3.3-3.5 per cent. Nevertheless, stable working capital requirements and lower capital expenditure (Capex) will keep credit profiles stable.

An analysis of 82 Crisil Ratings-rated edible oil refiners, which form around 40 per cent of the industry's revenue, indicates as much. For the record, India imports over 60 per cent of its edible oil requirements, with crude palm oil accounting for more than 50 per cent of these imports and soybean oil, sunflower oil, and other oils accounting for the rest.

Except for soybean oil, whose prices may harden due to growing biodiesel demand, prices of other major oils, such as crude sunflower and palm oil, are set to decline, reducing the overall weighted average price.

To top it off, the Indian government has moved to widen the duty differential between crude and refined oils by halving the basic customs duties on crude palm, soybean, and sunflower oils, taking the effective duties on them to 16.5 per cent from 27.5 per cent, while keeping duties on refined oils unchanged at 35.75 per cent.

This will not only protect domestic refiners from cheaper imports of refined oils but also lower price realisations by 4.5-5 per cent this fiscal and support demand growth.

Jayashree Nandakumar, Director, Crisil Ratings said, "Volumes are seen growing steady at 2.8-3 per cent this fiscal to 25.5-26 million metric tonnes, a tad higher than the average of 2.7 per cent in the five years through fiscal 2025. Demand is seen growing across segments, including household, HoReCa (hotel, restaurant and catering), and food processing amongst others."

This diversified volume growth will partially offset lower realisations, but the industry revenue may still de-grow by 2-3 per cent this fiscal year. Declining revenues due to falling realisations will bring in profitability challenges for companies due to their high-cost 40-50 day crude oil inventory.

Rishi Hari, Associate Director, Crisil Ratings stated, "Any change in input prices is typically passed on to consumers within 15-25 days. Hence, although demand remains healthy, with a decline in realisations, players will be able to pass on only a part of the high-cost inventory to consumers. This is likely to impact their profitability by 30-50 basis points, with operating margins declining to 3.3-3.5 per cent. Here, branded players, who typically hold higher inventory compared to their non-branded counterparts, will be more impacted."

Nevertheless, credit profiles may still remain intact as players are expected to avoid large debt-funded capex this fiscal year, with capacity utilisation remaining at 70-80 per cent. Debt servicing metrics, such as net cash accrual to total debt and interest coverage, are both expected to remain adequate at 0.11 times and 2.4 times, respectively.

Further, total outside liabilities to adjusted net worth will remain range-bound at a steady 1.5-1.7 times over the medium term. The upshot of geopolitical uncertainties in the Middle East for the sector is that it may push up freight costs, which could then increase the landed cost of crude edible oils. Consequently, realisations and hence profitability could get a marginal lift.

The firm added that the extent and duration of the turbulence in the Middle East will remain a key monitorable, along with changes in India's import duty structure and international trade dynamics.

- ANI