Basmati prices likely to firm up in near term despite tepid demand

KOLKATA: The Basmati price have gone up 11.7% in the past one month, promising some respite to traders even as excess supply and weak demand are expected to continue in the near term, according to credit rating agency ICRA and some experts.
Most of the companies are expected to report a decline in profitability in 2015-16, which will weaken the leverage profile of these companies. Listed companies such as KRBL, LT Foods and Kohinoor Foods with established brands such as India Gate, Dawat and Kohinoor armed with strong distribution networks are likely to be better placed to deal with the situation, the agency said. “The scenario of excess supply and weak international demand is expected to linger in the near term, impacting the financial profile of basmati rice players,“ Sabyasachi Majumdar, co-head of corporate rating at ICRA, said.

The industry is expected to witness weak sales growth or degrowth and decline in profitability in 2015-16, Majumdar said. “Inability to liquidate stocks and recover funds from debtors are likely to increase the funding requirements and hence leverage. Nevertheless, players with established brands and strong distribution network are likely to be better placed to cope with the challenges,“ he said. Majumdar said that the situation is likely to improve only from the next basmati paddy harvest season in the second half of FY17.

Prerana Desai, vice president, Edelweiss Agri Research, said that the prices of basmati paddy had bottomed out in February 2016 when it touched Rs 4,600 per quintal. “Though it has gone up to Rs 5,250 per quintal, the prices will keep on languishing for some time,“ she said.

While basmati price is consumed across the globe, West Asian countries account for most of the imports. Within West Asia, Iran and Saudi Arabia are the two largest buyers, together accounting for over 50% of basmati rice exports from India.

However, even as Iran emerged as one of the largest importers of basmati rice in recent years, the country imposed a ban on basmati rice imports from India in 2014-15, citing its own healthy rice crop and large basmati inventory. The ban led to a decline in Iran's proportion of total exports from India from 37% in 2013-14 to 24% in 2014-15.