Analysts predict an increase in the debt burden in the agricultural sector

The crop production sector was negatively affected by the deteriorating price environment for Russian grain in both the domestic and international markets, analysts noted. However, supporting the agro-industrial complex is still a priority for the state; trends are being created to change its measures towards intensive development of the sector. In the second half of 2023, experts expect the price environment to recover and sales markets to expand, which will support industry representatives.

The rating agency analyzed companies engaged in crop and livestock farming with revenues of more than 300 million rubles. and a debt-to-operating profit ratio ranging from 0 to 30. EBITDA of companies in the agency’s portfolio at the end of 2022 decreased by an average of 3% due to rising costs, while revenue increased by 22%. EBITDA margin decreased by 4 percentage points. This is due to an increase in the cost of fixed assets and logistics costs. In 2023, further pressure is expected on companies' financial performance due to the devaluation of the ruble. In such conditions, an intensification of M&A activity is expected, including the acquisition of less stable companies by large players in the 2023/24 season. 

The debt burden of companies in the agricultural sector may increase in 2023 due to rising production costs and rising import prices, experts say. However, the industry's preferential lending system provides comfortable levels of interest on EBITDA. The liquidity of the rated companies is assessed at a moderate level, with sufficient undrawn credit lines and projected operating cash flow. The share of short-term borrowings in the credit portfolio of agricultural companies is up to 60%, so a trend is expected to lengthen payment terms when making payments to suppliers.

From the point of view of operating profit, the agricultural sector is affected by the dynamics of world food prices , which show a correction in 2023 against the backdrop of last year’s high base, said Finam analyst Anna Buylakova. There is also cost inflation due to the devaluation of the ruble and increased costs of logistics. “At the same time, investment activity this year may intensify due to the establishment of new commercial ties. We may see a consolidation of assets around major players, following the example of the purchase of the NMZhK Group by the Rusagro agricultural holding,” she believes.

Thus, the debt burden may be affected by both a slight deterioration in the operating profitability of the segment and an increase in investment activity, Buylakova continues. In her opinion, an increase in lending rates may put pressure on investment activity in the second half of 2023, especially considering that the amount of funds for subsidizing preferential lending to the agricultural sector this year was reduced to 157.9 billion rubles. (RUB 177 billion in 2022). In some cases, there will be a decrease in the debt burden, the analyst believes. In particular, Rusagro expects a decrease in the Net Debt / EBITDA indicator (2.6x in the second quarter of 2023) due to the normalization of EBITDA, which has come under pressure over the past 12 months, including due to the postponement of grain sales, Buylakova adds.