While exports to Iran are likely to be affected, higher demand from other markets in the region, such as Saudi Arabia, Iraq, the United Arab Emirates and Yemen, will provide an offset
India’s basmati rice export volume is expected to remain steady in the current and the next fiscal despite the ongoing Middle East conflict, with growth of up to 2 per cent over the export volume of 6.06 million tonne (MT) logged last fiscal. While exports to Iran, a key market, are likely to be affected, higher demand from other markets in the region, such as Saudi Arabia, Iraq, the United Arab Emirates and Yemen will provide an offset.
A report by Crisil Ratings, the working capital cycle of basmati rice exporters is likely to stretch due to logistical hurdles such as inadequate availability of ships, longer transit times and payment-related challenges, resulting in a rise in working capital debt.
“Disruptions in the Strait of Hormuz, which is a critical transit route for rice exports to the Middle East, could lead to blockage of goods and delayed payments from customers in the near term. Nevertheless, Indian basmati rice export volume is likely to remain resilient due to 5 to 6 per cent higher demand expected from other Middle Eastern countries such as Saudi Arabia, Iraq, the United Arab Emirates and Yemen, which account for 55 to 60 per cent of the export volume,” stated Nitin Kansal, Director, Crisil Ratings.
Next fiscal, basmati rice realisation is seen steady because of resilience in demand and near-stagnant production of basmati paddy in key producing areas following excess rains, as per the report. Basmati rice exporters are also exploring alternative routes to avoid the Strait of Hormuz to ensure supply to the Middle East region.
“The alternative routes may lead to an increase in transit times. This, in turn, could lengthen the working capital cycle of basmati rice exporters, leading to a 10 to 15 per cent increase in working capital requirements, for which they will need to raise additional debt. However, healthy balance sheets of Crisil rated companies will keep their credit profiles stable,” stated Smriti Singh, Associate Director, Crisil Ratings.
The report added that Crisil Ratings expects gearing and interest cover for its rated basmati rice companies at around 0.8-0.9 times and around 3.5 times, respectively, next fiscal.
