Higher 'dal' prices spoil the broth for millers: CRISIL SME Tracker

Crisil Research expects higher raw material prices following lower crop output in kharif 2019 to weigh on the operating margins and working capital cycles of small and medium enterprises (SMEs) engaged in milling dal (pulses) in fiscal 2020.

Given the seasonal nature of dal milling industry, have high working capital requirements. Raw material cost accounts for over 60 per cent of their revenue. Also, given that the industry is highly unorganised, millers have limited ability to pass on the increase in raw material cost to end-consumers. 

In kharif 2019, sowing was delayed due to late arrival of the south-west monsoon. And then, there was excess rainfall in September-October, which led to floods in states such as Odisha, Karnataka, Madhya Pradesh and Maharashtra, damaging crops. Considering that these states account for around 53 per cent of the country’s pulses production, crop output is estimated to decline over 5 per cent year-on-year.

Also, sowing forrabi crops such as Bengal gram was lower on-year in November-December 2018, owing to negative farmer sentiment towards the crop amid lower mandi prices. As a result, arrival of major dals (arhar, Bengalgram, black gram, green gram and masoor) in the market during January-December 2019 was down 36 per cent, compared with 2018. This, in turn, has led to a sharp increase of about 15 per cent year-on-year in prices.

These two factors — lower market arrivals of raw dals and increase in mandi prices — are expected to lead to higher working capital requirements and increase in raw material costs, and thereby added pressure on the operating margins of the SMEs.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel