Mumbai, Jul 28 (PTI) Even as the COVID-19 pandemic and the global slowdown has affected many industries, basmati rice companies are set to witness 100-150 basis points increase in operating margins in financial year 2020-21 due to lower paddy prices and stable volume demand overseas, according to a report.

Paddy prices are expected to fall by 17 per cent in the current fiscal from an average of Rs 36 per kg last fiscal due to good monsoon and stable acreage, Crisil said in a report.

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Operating margins of basmati rice companies are set to rise 100-150 basis points this fiscal because of lower paddy prices and stable volume demand abroad, making them one of the few segments of the Indian economy to buck the impact of both the COVID-19 pandemic and the global slowdown, Crisil said.

Demand from key markets like the US, the UK and the Middle East, excluding Iran, which account for more than half of India's annual basmati export of around 4.4 million tonnes, continues to be strong.

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The increase in demand in these countries is mainly because they are building food security buffers amid the COVID-19 pandemic, the report said.

Iran, which imports around 1.3 million tonnes annually, is expected to register a 20 per cent decline in volume from India due to payment-related issues being faced from last fiscal because of the US sanctions.

However, higher demand from other markets abroad is expected to offset this, Crisil said.

Realisation from domestic market, accounting for 2 million tonnes sales annually, is seen stable at Rs 52 per kg on strong retail demand.

Rigid food habits and strong preference for basmati rice will prevent down-trade to non-basmati varieties in the retail market. However, domestic volume may de-grow by 20 per cent because of extended lockdowns impacting demand from hotels, restaurants and cafes, it said.

"Spreads between blended realisation and paddy prices are expected to improve to Rs 31 per kg against Rs 29 per kg last fiscal. That would crank up operating profitability to 5.5-7.5 per cent this fiscal, compared with 4.5-6 per cent last fiscal," Crisil Ratings Senior Director and Head of Analytics Subodh Rai said.

Demand has remained strong during the lockdown, and rice companies have started to accept orders by seeking higher advances or letters of credit, he said.

They plan to use the advance monies to cut working capital debt.

"As much as 94 per cent of the total debt is short-term for working capital requirements. Higher advances leading to reduction in debt will improve the liquidity profile significantly, which is an important credit driver for the rice industry," Crisil Ratings Director Nitin Kansal said.

"The interest coverage of basmati rice companies could improve to 2.4 times this fiscal from 2.1 times last fiscal, and leverage ratio to 1.9 times from 2.2 times. That will be a credit positive," he added.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)