Indian refined sunflower oil volumes are expected to decline 8-10% in fiscal 2025, with domestic consumers shifting back to soybean oil amid a price correction on back of a healthy soy harvest. Profitability of sunflower oil refiners, however, will expand 50-60 basis points (bps) on stable prices, hedging policies and the government’s announcement of continuing duty-free imports.

Strengthened balance sheets with strong accretions in fiscal 2021 and 2022 and the absence of major debt-funded capital expenditure over the medium term will keep the credit risk profile of refiners stable.

A CRISIL Ratings study of 10 companies that account for more than 70% of the ~Rs 31,000 crore domestic sunflower oil industry indicates as much.

The Indian edible oil industry is dominated by palm oil with a share of ~40% in volumes followed by soybean oil and sunflower oil with a 20% and 15% share respectively. Demand for sunflower oil depends partly on the price movement of its substitutes such as palm oil and soybean oil.

Says Jayashree Nandakumar, Director, CRISIL Ratings, “With a bumper crop, the price of soybean oil is likely to correct by $100 per tonne on-year and be on a par with sunflower oil in fiscal 2025. The resultant shift in consumption towards soybean oil will lower sunflower oil volume to 28-29 lakh tonne in fiscal 2025 (see chart 1 in annexure) from ~32 lakh tonne in fiscal 2024, although volume would remain higher than the historical average of five years through fiscal 2024.”

India houses significant sunflower oil refining capacities and imports over 95 percent of its sunflower crude requirement. While, the refined sunflower oil is predominantly consumed within the country, the movement in its prices largely depends on that of the imported crude.

Despite declining volume, the crude prices are expected to remain firm this fiscal as shipping and freight costs continue to be high amid the Red Sea crisis resulting in geopolitical uncertainties in the Middle East.¹ This, coupled with robust domestic demand, will result in sustenance of refined sunflower oil prices at current levels. Given lower volume and firm prices, the industry is expected to degrow 6-8% in fiscal 2025.

Says Rishi Hari, Associate Director, CRISIL Ratings, “Despite the degrowth, profitability of refiners would improve 50-60 bps supported by favourable spreads on robust demand and no anticipated sharp fluctuations in prices. Also, refiners have firm hedging policies in place to avoid downside price risks. This, coupled with the government announcement on continuation of duty-free imports of crude sunflower oil will support the margins of refiners.”

Moreover, with ample refining capacities added during the Covid-19 pandemic, refiners are unlikely to embark on large capacity addition in fiscal 2025. With major addition to debt unlikely and healthy accrual, sunflower oil refiners should be able to maintain a robust financial risk profile.

Net cash accrual to total debt and interest coverage ratios will stay strong at ~0.6x and ~14x, respectively (see chart 2). Total outside liabilities to adjusted net worth ratio is expected to be healthy below 1x over the medium term.

On the road ahead, the impact of ongoing geopolitical challenges and international edible oil trade dynamics will be monitorable.

¹ Geopolitical tensions in the Middle East since October 2023 have led major freight companies to suspend shipping through theRed Sea route.