Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong operational, financial, and managerial support from Bunge Global

BIPL, is indirectly held by Bunge Global, through its wholly owned subsidiaries Bunge Mauritius Holdings Ltd and Bunge Asia Pte Ltd. Bunge Global is one of the world’s leading oilseeds processing companies. BIPL derives significant benefits from its international parentage. Bunge Global’s geographic diversity and vast distribution network help BIPL optimise its edible oils business. Bunge Global has provided a letter of comfort for the bank facilities of BIPL and has supported the latter in funding its acquisitions and working capital.

Strong market position in the edible oil and bakery fats segments

BIPL's robust market position is driven by strong brands such as Dalda and Gagan in the domestic edible oil industry and Masterline in the bakery fats industry. BIPL is focused on the refined oil business and has extended the Dalda brand to include a range of edible oils. Operating income increased at a CAGR of 6% to over Rs 7191 crore in fiscal 2024 from Rs 5423 in fiscal 2019. Intense competition in the edible oils segment has resulted in low operating margin of 3-5%, historically. The high-margin bakery fats segment is expected to support profitability over the medium term. BIPL’s retail presence is supported by brand acquisitions. The company will continue to consolidate its position in the domestic edible oil industry in India given its high growth potential and India being the world largest consumer of edible oils.

Strong financial risk profile

The capital structure is strong, backed by the absence of long-term debt and large networth of over Rs 1,940 crore as on March 31, 2024. Debt protection metrics continue to remain strong in fiscal 2024 and expected to remain healthy too in the medium term as well due to low debt policy of the company. The gearing remained less than 0.01 as of March 31, 2024, and is expected to remain low going forward as well.

Weaknesses:

Exposure to intense competition in the fragmented edible oils business

The edible oil industry has low capital and technological requirement and, consequently, is highly fragmented. It has a large number of small, unorganised players across the value chain. As edible oil is a price-sensitive product, these players primarily cater to regional demand in order to avoid high marketing and distribution costs. Apart from intense competition in the loose edible oils segment, BIPL faces competition in the branded segment from well-established brands. Majority of the revenue is derived from the edible oils segment and vanaspati, where intense competition results in low operating margin. BIPL intends to scale up operations in the high-margin bakery fats segment to improve realisations.

Susceptibility to volatility in raw material prices

Profitability is susceptible to volatility in raw material prices. Despite prudent hedging policies, in line with Bunge Global’s global risk management practices, any sharp volatility in input prices may adversely impact BIPL’s operating margin, as seen during fiscal 2024, operating margin recovered to 2.3% due to range bound movement of crude oil prices but in fiscal 2023 operating margins declined to -0.2% from 4.4% in fiscal 2022. Going forward, operating margins are expected to improve to 5-6% this fiscal due to inventory gains.