Edible oil prices may ease after duty cut; refiners eye 10-12 pc revenue growth: Crisil

Consumers could see some relief in edible oil prices in the coming months following the Centre’s decision to cut import duties on crude edible oils, even as refiners are expected to post 10-12 per cent revenue growth this fiscal, according to a report by Crisil Ratings.

The duty reduction is expected to soften domestic realisations by 5-6 per cent in the second half of the current fiscal, potentially improving affordability during the festive season. However, elevated global prices, strong first-half performance and steady consumption are likely to keep the industry on a growth trajectory.

Crisil Ratings expects revenue growth for edible oil refiners to moderate from 14-16 per cent last fiscal, when a rise in prices during the second half boosted earnings. Despite the expected moderation, average realisations this fiscal are projected to remain 8-10 per cent higher than last year.

Edible oil imports

India imports more than 60 per cent of its edible oil requirement, leaving domestic prices closely linked to international markets. Crude palm oil (CPO), which accounts for more than half of the country's edible oil imports, remains a key benchmark for domestic pricing.

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Global CPO prices are expected to rise 9-11 per cent this fiscal, supported by weather-related supply concerns in major producing regions and sustained demand for biodiesel. Higher production of soybean, sunflower and mustard oils could provide some relief, but tight palm oil supplies are likely to keep prices elevated.

In the first half of the current fiscal, global CPO prices rose 11-13 per cent, taking average landed costs to around $1,240 per tonne. The increase, along with import duties of 16.5 per cent on crude edible oils, supported higher domestic prices and stronger realisations for refiners.

Duty cuts boost demand

The latest duty changes have reduced the effective import duty on crude palm and soybean oils to 11 per cent from 16.5 per cent. For crude sunflower oil, the duty has fallen to 5.5 per cent from 16.5 per cent. The continued duty differential between crude and refined oils is expected to support domestic refining activity.

“The duty rationalisation should temper industry realisations by 5-6 per cent in the second half, but the resultant improvement in affordability should lend fresh impetus to consumption,” said Rahul Guha, senior director at Crisil Ratings.

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Demand is expected to remain resilient across households, food processing companies and the hotel, restaurant and catering (HoReCa) segment. Overall edible oil consumption is projected to grow 2.7-3 per cent to around 26.5 million metric tonnes this fiscal.

Revenue growth

For refiners, higher volumes are expected to help offset softer prices. Earnings before interest, taxes, depreciation and amortisation (EBITDA) per tonne are projected to increase 10-12 per cent from last fiscal to Rs 3,850-3,950. Operating margins are expected to remain broadly stable at 3.4-3.6 per cent, supported by first-half inventory gains and prudent hedging.

Crisil Ratings analysed 84 rated edible oil refiners, accounting for nearly half of the industry's revenue. Their capital expenditure is projected at Rs 1,600-1,800 crore this fiscal, translating into an estimated 10 per cent increase in refining capacity.

Healthy cash generation and controlled borrowing are expected to keep credit profiles stable. The key risks remain global edible oil prices, geopolitical developments in the Middle East, further changes in India's import duty regime and shifts in global trade flows.