Edible oil prices to remain benign unless we have some major weather shocker: Ruchi Soya CEO

“Two sorts of drivers have been critical in the marketplace for the last two years. The smaller players have tended to struggle on account of the larger working capital requirement. The market volatility tests the smaller players’ risk management capacity and to that extent, the market is on a growth mode of between 3% and4% year-on-year.” says Sajeev K Ashtana, CEO, Ruchi Soya

Commodity prices have come down but are likely to remain low because no large supply is getting added. This could be a pure function of what is happening in the commodity market in terms of adjustment. What is your view? Is the drop in oil here to stay?

Supply was never an issue, there were problems of how the supply side was connecting to the demand side and that part is easing. The trend is here to stay. The only issue that we must watch out for is the US weather right now and if that stays on course which it seems it would, then I would expect the prices to remain benign. It is beneficial both for the companies as well as for the consumers.

By when will the consumer start benefiting?

Consumers have been benefiting nearly for several weeks now. In last two months, the prices have dropped at consumer level by Rs 20-30 a litre for oil and, since there is a lot of mechanism that works on a pass through basis, that is a huge benefit both on the fight towards inflation as well as the benefit in terms of the overall expense basket that continues to be there. We expect the situation to remain pretty much similar in the coming weeks.

The market seems to be consolidating when it comes to the edible oil business right now, you currently have a market share of around 8% or so. What is the market share gain that you anticipate when it comes to edible oil? I am deviating from the softness in prices but just wanted to understand this?

Two sorts of drivers have been critical in the marketplace for the last two years. The smaller players have tended to struggle on account of the larger working capital that they require. The market volatility puts all the smaller players in the risk management capacity of what they had so to that extent you know the market is in a growth mode in any case between 3% to 4% year-on-year.

It is certainly beneficial for the larger players clearly because of their capacity to deploy more working capital, have superior risk management, have better brands in place and the distribution capability. I would expect that we will not only continue to grow but we should grow better than what the market trends are and that is what we have been working towards as well.

I am sure the Street is curious to know as to what is happening to the performance of the non-oil business as well considering that currently 98% of your revenues are coming in from oil and it is a meagre 2% from the non-oil business but how about expanding that capacity too?

Just two small correction; our edible oil revenues are about 80% plus, the balance 20% comes from the non-edible oil portfolio which is a very large foods portfolio that we have in the biscuits and confectionery, breakfast cereals etc. likewise our Nutrela brand is a very strong brand, we have got atta and honey etc. so that is 20% that is nearly growing at 15% year-on-year. We are in the process of acquiring Patanjali’s food business as well which is nearly Rs 4,000 crore and just subject to a couple of approvals which is expected to happen very soon as well.

The whole idea is that edible oil will continue to grow at a particular pace and along with the secular growth in the country as well as what we put forward the foods portfolio, we expect to grow at anywhere between 15% and 20% year-on-year and that is a big focus of the company that we are going to have. I think in the second quarter onwards this pace is going to pick up.

What is the right way of understanding the demand scenario and I am talking about the global demand supply scenario because that is the moving part while here we can talk about a 5% uptick may be more sales around Diwali, less sales closer to Dussehra that is all subjective but ultimately it is the global trend which would determine where prices are headed what is your understanding as to where the big picture is?

Yes, the big picture is very clearly refined. I would like to elaborate on a couple of things. There has been a broader demand destruction globally, on account of a few factors which have had an impact. One is that clearly the biodiesel mandates in the European Union are being questioned and I think they will get diluted, which means the edible oil will go less and less into the biodiesel.

Similarly, we are seeing the easing of sanctions on the food exports out of Russia, already the US has declared and, we expect the food movement out of Russia is going to significantly improve. Likewise, Ukraine has also been quite positive and in the last couple of weeks, we are seeing movement of grains and oil seeds. Similarly, in the South American weather, all that worries are behind us so in general overall I am expecting that demand wise, supplies are all there.

The big issues were in terms of not being able to manage logistics and not connecting efficiently to the destinations which kind of added a war premium on the commodities. The world is in pretty much a good balance