Edible Oil
Corporates
Food / India
2012 Outlook: Indian Edible Oils
Liquidity under Pressure
Outlook Report
Rating Outlook
Rating Outlook
Negative Outlook: Fitch Ratings‟ outlook for the Indian edible oil industry in 2012 is negative. The agency expects higher revenue growth led by firm pricing on global cues of lower stock to consumption ratio to be offset against higher input costs resulting in margin pressures. Fitch expects the margin pressures coupled with higher working-capital needs and expansion plans to exert pressure on the liquidity profiles of most edible oil companies. Prices to Remain Firm: Fitch expects the prices of most edible oils will remain firm. A limited increase in global crude palm oil (CPO) production expected by Fitch will be off-set by higher demand from India and China. Soyabean production growth is likely to be lower in 2012 due to poor weather conditions in South America. Further Fitch expects overall production of mustard and groundnut oilseeds to decline due to lower acreage and yields that would result in lower crushing and output. Refining to Boost Trading: Reduction in export duty on refined palm oil and increase in duty on CPO by Indonesia is likely to result in lower capacity utilisation for refiners and a surge in trade of refined palm oil. Margin Pressure: The operating margins of established companies (particularly refiners) would be squeezed by competition from even small-sized, refined palm oil importers. However, companies with backward integration extending to the plantation level would have increased control over supplies and be in a better position to mitigate this risk to an extent. Fitch expects margin pressures in other edible oils (excluding palm) when palm oil is available at a significant price discount (more than 20%) to the other edible oils. Liquidity Pressure: Most edible oil companies will have lower operating cash flow (CFO) over 2012. This, coupled with higher working-capital needs (on account of increased
Food / India
2012 Outlook: Indian Edible Oils
Liquidity under Pressure
Outlook Report
Rating Outlook
Rating Outlook
Negative Outlook: Fitch Ratings‟ outlook for the Indian edible oil industry in 2012 is negative. The agency expects higher revenue growth led by firm pricing on global cues of lower stock to consumption ratio to be offset against higher input costs resulting in margin pressures. Fitch expects the margin pressures coupled with higher working-capital needs and expansion plans to exert pressure on the liquidity profiles of most edible oil companies. Prices to Remain Firm: Fitch expects the prices of most edible oils will remain firm. A limited increase in global crude palm oil (CPO) production expected by Fitch will be off-set by higher demand from India and China. Soyabean production growth is likely to be lower in 2012 due to poor weather conditions in South America. Further Fitch expects overall production of mustard and groundnut oilseeds to decline due to lower acreage and yields that would result in lower crushing and output. Refining to Boost Trading: Reduction in export duty on refined palm oil and increase in duty on CPO by Indonesia is likely to result in lower capacity utilisation for refiners and a surge in trade of refined palm oil. Margin Pressure: The operating margins of established companies (particularly refiners) would be squeezed by competition from even small-sized, refined palm oil importers. However, companies with backward integration extending to the plantation level would have increased control over supplies and be in a better position to mitigate this risk to an extent. Fitch expects margin pressures in other edible oils (excluding palm) when palm oil is available at a significant price discount (more than 20%) to the other edible oils. Liquidity Pressure: Most edible oil companies will have lower operating cash flow (CFO) over 2012. This, coupled with higher working-capital needs (on account of increased