Edible oil sector may see fourfold capex rise

India Ratings says there is likely to be fresh capital investment of Rs.450 Cr in 2014-15

Mumbai  May 27, 2014: With the outlook turning positive for edible oil refiners, new investment in the oilseed crushing and refining industry is likely to see a fourfold rise this financial year.

India Ratings say there is likely to be fresh capital investment of Rs.450 crore in 2014-15 as compared to Rs.100.7 crore in FY14 and Rs.516 crore in FY13.

Large producers such as Liberty Oil Mills, Haryana Oils & Soya and Rasoya Proteins (RPL) have already readied investment plans. Market leader Ruchi Soya Industries has focused on consolidation in its business, with increased focus on brand promotion.

“There is requirement of higher working capital for refiners, especially on account of inventory and receivables. This is because refining, unlike trading, requires companies to stock inventory for a higher period (especially raw materials and finished products). Receivable days are also expected to increase, as most players would be in the process of trying to expand their reach (for both branded and unbranded products) and would be required to extend additional credit period to their distributors/customers,” said the report.

RPL, for example, has embarked on investment of Rs.400 crore for three years on capacity expansion of its manufacturing units across Maharashtra. “With this investment, we are planning to expand edible oil and other businesses in the agri sector. For the first time, we are entering into the branded rice segment, with non-basmati 'Rasoya' brand sale. Also, we are exploring the possibility to set up a bran processing unit to produce rice bran oil with raw material procured from our own mill,” said Prashant Duchakke, executive director.

RPL also proposes to set up a plant for manufacturing ethanol from maize and other agro produce, due to the potential in rising demand for the greener fuel under the mandatory blending programme with petrol.

Meanwhile, with the 2.5 per cent rise in import duty on refined oil to 10 per cent, the duty differential between crude and refined oil is 7.5 per cent. This widens the price differential between the landed cost of crude and refined edible oil, making refinery operations economically viable again. According to industry estimates, refineries generate a profit of Rs.2-3 a kg on refining crude palm oil currently, from a Rs.1 loss a few months earlier. Consequently, its import has surged.

Data compiled by the apex trade body, the Solvent Extractors’ Association (SEA), showed India’s vegetable oil import was 832,760 tonnes in April, a 27 per cent rise from April 2013.

B V Mehta, executive director of SEA, had earlier said: “There is a difference between Indian and global prices. So, import of crude oil is attractive.”

India’s vegetable oil consumption is likely to increase to 18.1 million tonnes for the oil year 2013-14 (November-October) as compared to 17.4 mt in 2012-13. The import share is likely to be 65 per cent, versus 61 per cent the previous year.

Courtesy: Business Standard