CRISIL Rating has predicted that the revenue of the Indian cashew processing industry will grow beyond Rs. 30,000 crore next fiscal year due to higher realisation and rising domestic demand, and this is driven by 15% on-year growth in revenue this fiscal year and the next.
Operating margins will improve by 200 basis points (bps) to an all-time high of 7% this fiscal year and will remain at a similar level next fiscal year, supported by an 8–10% increase in the spreads between raw cashew nut (RCN) and kernel prices. A study of 30 cashew processors rated by CRISIL Ratings, which account for 15% of the industry’s revenue, specifies as much.
India is the world’s largest cashew consumer, processing nearly half of all cashew kernels and consuming 40% of global output, while the United States is far behind, accounting for only 10-15% of global consumption.
But India exports only ~10% of its output, down from 35% in pre-pandemic times. That’s because of a vast rise in domestic demand, which has replaced exports. Similarly, the availability of cashew kernels at competitive prices from Vietnam, which accounts for around half of the annual global output, has allowed export destinations to replace their purchases.
The price of cashew kernels is expected to be Rs. 615–625 per kg this fiscal, up almost 5% on-year, on swelling domestic demand, driven by the opening up of hotels, restaurants, and cafes after the pandemic, changing food preferences, and increased affordability among consumers.
On the other hand, increased acreage leading to higher RCN production is pulling down RCN prices, while continued end-user demand creates the reverse pull-on effect. As a result, RCN prices are expected to remain stable at Rs 95–100 per kg this fiscal year and next. As a result, the spread between kernel and RCN prices is expected at Rs 230-250 per kg2 this fiscal (Rs 210-230 per kg last fiscal) and is likely to remain at similar levels next fiscal as well.
Himank Sharma, Director, CRISIL Ratings, said that cashew processors are currently operating at near-full capacity. With demand increasing, capacity will increase by 5% over the medium term.
Nonetheless, there will be little dependence on debt to fund this as well as the increased working capital requirement because cash flows are robust. Higher accrual and controlled debt will help improve credit risk profiles.
The credit outlook for India’s cashew industry remains positive, recovering sharply as the pandemic abated. “Overall, we expect total outside liabilities to tangible networth to improve to 2.5 times over the medium term from 3.4 times last fiscal year, and interest coverage to 3 times from times.”Delays in crop arrival from Africa or lower RCN output due to unanticipated rains and pest attacks pose downside risks to the growth estimates.