India's Edible Oil Consumption To Reach 26.5 Million Tonnes As Refiners Eye Double-Digit Revenue Growth

Mumbai, Sep 15: India's edible oil refiners are expected to register a 10-12 per cent revenue growth this financial year despite an import duty cut on crude edible oil, a report said on Thursday.

While the duty cut this September would soften domestic realisations in the second half of this fiscal, elevated global edible oil prices, strong first-half performance and improving consumption would support revenue growth.

Edible oil refiners are set to clock healthy revenue growth of 10-12 per cent this fiscal despite a lowering of import duty on crude edible oil, compared to 14-16 per cent growth last fiscal, which benefited from a price rise in the second half, Crisil Ratings said in a report.

Global edible oil prices remain elevated

India imports over 60 per cent of its edible oil requirement, making the industry highly sensitive to global price movements.

Crude palm oil (CPO), which accounts for more than half of India's edible oil imports, is the key pricing benchmark for the domestic edible oil basket, and the movements in global CPO prices are transmitted to domestic markets.

Global edible oil prices are expected to remain elevated this fiscal amid weather-related supply concerns in major producing regions and sustained biodiesel demand.

Crisil Ratings expects global CPO prices to rise 9-11 per cent this fiscal. While higher production of soybean, sunflower and mustard oils could provide some relief, tight palm oil supplies are likely to keep global edible oil prices firm.

Import duty cuts to moderate prices

To moderate food inflation and improve affordability, the government recently reduced import duties on crude edible oils.

The effective import duty on crude palm and soybean oils has declined to 11 per cent from 16.5 per cent, and that on crude sunflower oil to 5.5 per cent from 16.5 per cent.

However, a meaningful duty differential between crude and refined oils remains, continuing 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.

"The full-year picture, however, remains favourable, with firm global edible oil prices and strong first-half realisations expected to keep average realisations 8-10 per cent above last fiscal," Crisil Ratings Senior Director Rahul Guha said.

Consumption growth to support revenue

According to the report, consumption has remained resilient despite higher prices and is expected to strengthen further as lower retail prices improve affordability in the second half, particularly during the festive season.

Demand is likely to grow across households, food processing companies and the hotel, restaurant and catering (HoReCa) segment, and overall edible oil consumption is projected to rise 2.7-3.0 per cent to about 26.5 million metric tonnes this fiscal.

Therefore, the combination of higher average realisations and healthy volume growth should drive robust industry revenue growth this fiscal, despite softer pricing in the second half.

Profitability and capacity expansion outlook

"Healthy volume growth and operating leverage should support profitability. EBITDA per tonne is seen up 10-12 per cent from last fiscal to Rs 3,850-3,950. Inventory gains in the first half are likely to offset softer pricing in the second half, keeping operating margins broadly stable at 3.4-3.6 per cent, while prudent hedging should limit the impact of commodity price volatility," Crisil Ratings Director Jayashree Nandakumar said.

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With demand rising steadily, refiners have expanded capacity over the years, and in FY27, the capex of refiners is seen at Rs 1,600-1,800 crore, translating into a 10 per cent increase in refining capacity.

Prudent funding of capex, supported by healthy cash accruals, should keep incremental borrowings in check and support stable credit profiles.

However, according to Crisil Ratings, global edible oil price trends, developments in West Asia, changes in India's import duty regime and evolving global trade dynamics will remain key factors to monitor for the sector.

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