August 21, 2023

India's dairy industry to see 14-16% growth due to strong demand

Strong demand for value-added products (VAP) and stable consumption of liquid milk will lead to a revenue growth of 14-16% for India's organised dairy industry this fiscal, said a CRISIL report.

It further added that there will be fewer price hikes with raw milk supply improving and, consequently, profitability will recover 20-50 basis points. Last fiscal, disruptions in raw milk supply had led to multiple hikes in retail milk prices, pushing up the topline but impacting profitability. CRISIL Ratings analysed 38 dairies which accounted for approximately 60% of the organised segment revenue, based on which — given healthy balance sheets — the credit profiles of organised dairies will remain strong.

"We believe the strong revenue growth in VAP seen over the past few years will continue," said Mohit Makhija, senior director of CRISIL Ratings. "This fiscal, the segment should grow 18-20% and consequently, the share of VAP in overall revenue could rise to approximately 40% from about 35% four fiscals back. Given that demand from both retail and institutional segments remains strong, the share of VAP will continue to rise. On the other hand, liquid milk revenue will grow 8-10% this fiscal backed by steady demand."

The CRISIL report stated that strong demand prospects have encouraged organised dairies to incur capital capital expenditure in both, this fiscal and the next, especially for VAP, which will account for about 60% of expenditure. The overall revenue of the industry will grow by 14-16% this fiscal year driven by healthy volume growth of 9-10% and by higher realisations.

"Milk price hikes will be much less intense this fiscal at around Rs2 (US$0.02) per litre compared with a cumulative Rs5-7 (US$0.06-0.08) per litre last fiscal, primarily because of two reasons — improvement in raw milk supply on better availability of fodder and timely vaccination and artificial insemination of cattle," said Anand Kulkarni, director of CRISIL Ratings. "Additionally, the full impact of previous price hikes will improve the profitability of organised dairies by 20-50 bps this fiscal to about 5.5%."

Last fiscal, milk procurement prices had risen about 14% on account of several challenges on the supply side, such as significant increase in fodder cost, impact on yields due to cattle disease and disruptions in artificial insemination schedules.

Going forward, CRISIL said improvement in supply-side variables will be an important factor be monitored and a healthy increase in milk collection will be critical for stability in retail milk prices.

- Financial Express