Profitability of sugar, fertiliser, dairy sectors to remain stable in FY22: ICRA

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Profitability of sugar, fertiliser, dairy sectors to remain stable in FY22: ICRA

Synopsis

“Going forward, ICRA expects the elevated international prices to sustain till Q1 FY2023. Despite rising input prices, support from the GoI has been amply demonstrated in FY2022 in the form of large additional subsidy support, which is expected to keep the industry’s business risk profile stable.”

ICRA expects dairy industry to record 9-11% revenue for FY2022 and 7-10% CAGR over the next three years.

With only three months left to close the financial year 21-22, rating agency

on Wednesday said that profitability of sugar, fertiliser and dairy sectors will remain stable in FY22.

Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA said that the sugar industry ended SY2021 with a production of 31.2 million metric tonnes of sugar, exports of 7.1 million metric tonnes and a closing stock of 8.3 million metric tonnes equivalent to 3.7 months of sugar consumption. A balanced demand-supply position for sugar resulted in an uptrend in prices from August 2021 and this is expected to be maintained at higher levels in 2022 as well, given the supply constraints continuing from Brazil as well as increased diversion towards ethanol in India, restricting sugar production.

“Additionally, an advancement of 20% ethanol blending with petrol timeline to 2025 by the Centre has spurred a flurry of investments for distillation capacities with some of them commencing operations in 2022 itself, which augurs well for the inventory position in SY2022, which is likely to be curtailed to around 6-7 million metric tonnes A confluence of factors, including prices stabilising at higher levels, higher sucrose diversion as well as encouraging export outlook underscores expectations of strengthening profitability (notwithstanding increase in cane prices) and coverage metrices for integrated sugar mills, besides improvement in working capital intensity in FY2023,” Majumdar added.

Covid-19 had a moderate impact on the domestic dairy industry. On the demand side, the liquid milk segment (which represents over half of revenues) has been largely stable, but contraction was observed in consumption of the value-added dairy products. However, in the recent months, there has been strong revival in both milk and non-milk products, supported by the opening up of institutional and hotels, restaurants and catering segments. ICRA expects the industry to record 9-11% revenue for FY2022 and 7-10% CAGR over the next three years.

“On the supply side, the pandemic-hit milk production levels, coinciding with the cattle breeding and insemination period, is expected to keep procurement prices at elevated levels, which, coupled with inflationary cost trends and stable selling prices, shall trim industry margins in FY2022. We expect the credit profile of organised dairy players to remain stable, led by favourable demand outlook and stable earnings,” said Sheetal Sharad, Vice President & Sector Head, ICRA.

Majumdar, who also commented about the fertiliser sector said “FY2022 started off on a positive note with the clearance of the entire subsidy backlog by the Central government and timely subsidy release thereafter. However, with a steep rise in the fertiliser prices and key inputs in the international markets the profitability of the phosphatic fertilizer industry has faced significant headwinds so far in FY2022. With imports declining sharply amid elevated international prices the systemic inventory levels have also dropped significantly. The GoI, however, has been raising subsidies on phosphatic fertilisers to shield the industry and farmers from the impact of elevated international prices. Going forward, ICRA expects the elevated international prices to sustain till Q1 FY2023. Despite rising input prices, support from the GoI has been amply demonstrated in FY2022 in the form of large additional subsidy support, which is expected to keep the industry’s business risk profile stable.”

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