Edible oil players may see 2-3 pc decline in revenue this fiscal: Crisil Ratings report

Edible oil refiners are expected to witness a 2-3 per cent year-on-year decline in revenue to Rs 2.6 lakh crore in FY26 due to lower realisations, a report said on Tuesday.

However, volumes are likely to grow 2.8-3.0 per cent year-on-year, Crisil Ratings said in the report.

As a result, operating margin is expected to shrink 30-50 basis points to 3.3-3.5 per cent. But stable working capital requirements and lower capital expenditure (capex) will keep credit profiles stable, it stated.

India imports over 60 per cent of its edible oil requirements, with crude palm oil accounting for more than 50 per cent of these imports and soybean oil, sunflower oil, and other oils accounting for the rest.

Except for soybean oil, whose prices may harden due to growing biodiesel demand, prices of other major oils, including crude sunflower and palm oil, are set to decline, reducing the overall weighted average price, the ratings agency said.

In addition, the report said that the government has moved to widen the duty differential between crude and refined oils by halving the basic customs duties on crude palm, soybean, and sunflower oils, taking the effective duties on them to 16.5 per cent from 27.5 per cent, while keeping duties on refined oils unchanged at 35.75 per cent.

This will not only protect domestic refiners from cheaper imports of refined oils but also lower price realisations by 4.5-5 per cent this fiscal and support demand growth, it added.

''Volumes are seen growing steadily at 2.8-3 per cent this fiscal to 25.5-26 million metric tonnes, a bit higher than the average of 2.7 per cent in the five years through fiscal 2025. Demand is seen growing across segments, including household, HoReCa (hotel, restaurant and catering), and food processing, amongst others,'' Crisil Ratings Director Jayashree Nandakumar said.

This diversified volume growth will partially offset lower realisations, but the industry revenue may still de-grow by 2-3 per cent this financial year, the report stated.

Declining revenues due to falling realisations will bring in profitability challenges for companies due to their high-cost 40-50 day crude oil inventory, it added.

''Any change in input prices is typically passed on to consumers within 15-25 days. Hence, although demand remains healthy, with a decline in realisations, players will be able to pass on only a part of the high-cost inventory to consumers. This is likely to impact their profitability by 30-50 basis points, with operating margins declining to 3.3-3.5 per cent.

''Here, branded players, who typically hold higher inventory compared to their non-branded counterparts, will be more impacted,'' Crisil Ratings Associate Director Rishi Hari said.

However, credit profiles might remain intact as players are expected to avoid large debt-funded capex this fiscal, with capacity utilisation remaining at 70-80 per cent.

Debt servicing metrics, such as net cash accrual to total debt and interest coverage, are both expected to remain adequate at 0.11 times and 2.4 times, respectively.

The geopolitical uncertainties in the Middle East may push up freight costs, which could then increase the landed cost of crude edible oils, hence marginally lifting realisations and profitability, it said.

That said, the extent and duration of the turbulence in the Middle East will remain a key monitorable, along with changes in India's import duty structure and international trade dynamics, the report added.

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