CRISIL: Indian Shrimp Exports to Rise

India’s shrimp sector will see revenue grow ~5% on-year in fiscal 2024, driven by increasing demand from China, which will shore up exports to a near-lifetime high of ~USD5.3 billion seen in fiscal 2022. This growth will largely be volume-driven, allowing operating margin to bounce back to ~7.5%, as costs soften. An analysis of 98 shrimp exporters rated by CRISIL Ratings, accounting for two-thirds of the industry revenue, indicates as much.

Better demand will prompt shrimp processors to expand their capacities. Debt to be contracted for part-funding such as capex and incremental working capital requirements will be comfortably absorbed by the strong balance sheets of the players.

For the record, India, Ecuador, and Vietnam are the top three suppliers of shrimp, while the US, the EU, and China are the top three consumers. India supplies ~70% of its produce to these three regions.

In fiscal 2023, Indian shrimp players got battered on three fronts — first, extreme heat waves reduced produce; second, shortage of containers and higher logistics costs dented exports to the US and EU; and third, exports to China remained muted amid continued lockdowns there.

This has led to Ecuador, one of India’s major competitors, seizing the lead in shrimp exports. Riding on the cost competitiveness afforded by its relative proximity to the US and EU, Ecuador could supply the produce earmarked for China into the two key markets last fiscal, leading to a jump of ~25% in its exports even as India’s exports declined ~9% on-year.

In fiscal 2024, however, good produce backed by normal weather patterns and steady demand from China, as its economy opens, will drive revenue up for Indian players. Indeed, India’s shrimp exports to China are likely to cross USD 1.2 billion this fiscal compared with ~USD 0.8 billion in the last one. With logistics costs normalizing, demand from the US and Europe should revive from the lull last season.

Himank Sharma, Director, CRISIL Ratings, said in a statement, “Buyers from the US and Europe prefer shrimps processed in India because of better quality- and disease-control measures. With supply chains getting restored, Indian exporters can replace Ecuadorian suppliers and regain their lost market share. Revival in the Chinese economy will also aid growth in shrimp exports from India. Revenue will grow ~5% in fiscal 2024 on the back of volume growth of 8-10% despite a reduction in realizations.”

Last fiscal, shrinking volume and increased input costs of shrimp production to the processors, led to operating margin falling 50-60 basis points. However, depreciation in the rupee shielded profitability to a large extent.

This fiscal, with volumes reaching a lifetime high, input costs will normalize, while realizations taper. However, with the drop in input costs being steeper than that in realizations, the margin may inch up to the erstwhile level of 7.5%.

In anticipation of higher demand, shrimp players are expanding capacities and will add close to 20% of their existing gross block this fiscal. That said, higher revenue and adequate cash accrual will ensure low reliance on debt.

Any adverse fluctuation in currency rates, global economic vulnerabilities, climatic impact on shrimp production, or regulatory changes remains key monitorable.

Source: The Economic Times of India