LT Foods to consider price hikes to counter margin impact from Red Sea tensions
Ashwani Arora, MD and CEO of the company that produces and sells the Daawat brand of rice does not anticipate any impact on consumption volumes from the Red Sea crisis.
Gurugram-based LT Foods, the company behind Daawat rice, is assessing how the Red Sea crisis might affect its business. The company's CEO, Ashwani Arora, said they might raise product prices to offset increased costs due to higher freight rates.
Arora said freight rates to Europe and America have surged and there is an increase in the voyage time by 10-15 days. While these developments are unlikely to have any impact on the volumes, LT Foods, which is one of the largest exporters of basmati rice from India, is might see some pressure on profitability, he said.
"...we have seen in the COVID time also the freight rate had gone up 7-8 times, and it is universal, and we are positive that we will pass on to the consumer," he said.
Houthi attacks have led shipping companies to avoid the Suez Canal route, through which nearly 15% of the global trade is routed. The alternate routes are longer and have caused a spike in freight rates.
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Arora noted that historically, the company has grown in double digits, and this is likely to continue. The company expects 10% compound annual growth rate (CAGR) in Basmati, other specialty rice, and organic food and ingredients segments over FY25 to FY29, per its investor presentation. In the ready to eat and ready to cook segments, however, it anticipates 33% CAGR over the same period.
Discussing recent product launches, Arora highlighted the success of the Daawat Biryani Kit, Daawat Cuppa Rice, and rice crackers, which are gaining traction in the market.
India's Basmati rice production this year has been higher by around 10-15%, according to Pankaj Goel of All India Rice Exporters of India (AIREA). India exports nearly 4.5 million tonne of Basmati rice every year, with bulk of the exports going to Iraq and Saudi Arabia.
CRISIL Ratings in a January 25 note noted that Indian exporters of rice and marine products are adversely affected by the strife in the Red Sea. The rating firm said a prolonged crisis on the key shipping route can affect the profitability and working capital cycle of export-oriented industries and trigger supply chain issues that could renew inflationary pressures. Basmati rice exporters, who ship a third of India’s produce to these regions, are feeling the pressure and are selling part of their inventory in the domestic market.
LT Foods has a market capitalisation of ₹6,943.32 crore. The stock has gained more than 79% over the past year.
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(Edited by : Shweta Mungre)
First Published: Jan 29, 2024 3:18 PM IST
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