1/12/2017 (Economic Times) - Hyderabad: Indian edible oil companies are expecting a strain on their margins with the recent import duty increase on crude and refined palm oil, which is the highest in a decade, making edible oil expensive.

Industry insiders expect the increase to be of Rs 7 a litre, of which Rs 1-2 is likely to be absorbed by the companies while the rest would be passed on to consumers.

However, they expect no impact on demand as prices have been on the lower side since a decade and the edible oil growth story would continue. India, which is the world’s biggest importer of edible oils, and imports nearly 80 per cent of its requirements, doubled the import duty on crude and refined palm oil to 30 per cent and 40 per cent from 15per cent and 25per cent, respectively, earlier this month.

Import duty on crude and refined soya oil too was increased to 30 per cent and 35 per cent from 17.5per cent and 20 per cent, respectively. Large companies such as Adani Wilmar and Ruchi SoyaBSE -2.20 %, which hold the largest share in the market, have expressed concern over their margins due to a rise in duty. “The increase in duty on palm oil, which is the largest oil consumed in India, would result in an increase of Rs 7 a litre, of which we will be absorbing around Rs1-2 a litre while the rest Rs4-5 — would be passed on to the consumers,” said Satendra Agarwal, chief operating officer, Ruchi Soya.

Edible oils being a low margin business, absorbing a price impact of even Rs 2 would strain margins, Agarwal said. Arindam Saha, associate director, Care Ratings, said, “The average operating margin of the edible oil companies is around 3.8 per cent - 4 per cent and the inability to pass on the hike even by a rupee or so per kg will put pressure on the profitability margin. However, impact will be less on organised players having branded sales.”