Consecutive double-digit revenue growth for dairies this fiscal year: report

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New Delhi: India’s organized dairy revenue is expected to see the second consecutive year of double-digit growth at 11-12%, a notch below last year’s 13% growth, CRISIL said in a note.

“This will be driven by healthy demand for value-added products (VAP; 28% of overall sales), although fluid milk sales remain flat and the full-year benefit from retail price increases implemented over the past fiscal year is materializing. Within VAP, a strong recovery is expected in demand for cold RFP such as ice cream, curd and flavored milk 1. Operating profitability should however moderate to 5% this financial year, due to a rise in prices supply, as well as transport and packaging costs. “, said CRISIL in the report.

Improved operational performance, together with well-managed balance sheets and better control of working capital will support a revival of dairies’ investment plans, while maintaining their ‘stable’ credit outlook.

An analysis of 40 dairies rated by CRISIL Ratings, which account for about 60% of organized sector revenue of nearly Rs 1.05 lakh crore, indicates the same.

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“We expect the demand for ice cream, curds and flavored dairy products to peak this summer due to excessively hot temperatures. The last two summers have been affected by Covid-19. ghee and paneer, a strong recovery in the HoReCa segment (hotels, restaurants and cafes) and price increases last fiscal year will drive VAP revenue growth of 13-14% this fiscal year,” said Aditya Jhaver, Director, CRISIL Ratings.

On the other hand, fluid milk sales are expected to support revenue growth of 9-10% this fiscal year, given the full-year benefit of the two price increases in the prior fiscal year, even if volumes remain stable. Dairies had raised milk prices by Rs 2 per liter each in June 2021 and February 2022, which is expected to lead to a 4-5% year-on-year growth in average achievement for this financial year.

With demand continuing to exceed supply, even during the flood season this year, purchase prices would continue to rise by 5%. This, and the impact of inflation on transport and packaging costs, will moderate the operating profitability of the CRISIL dairies to 5% this fiscal year, compared to approximately 5.3% last fiscal year. And incremental retail price increases will dampen operating profitability.

Strong domestic demand for VAP and liquid milk will limit exports of skimmed milk powder (SMP) and prune stocks.

“Dairies, including cooperatives, are relaunching investment plans for this financial year after sitting on the sidelines for two years. Although this will increase long-term debt, controlled working capital debt due to the moderation in SMP stocks and strong operating performance will maintain their credit outlook’ We expect key debt metrics such as TOL/TNW2 and interest coverage to remain comfortable at 2-4-2.5x and ~7.5 times, respectively, this fiscal year, compared to 2.7 times and 7.7 times, respectively, the prior fiscal year, added Tanvi Shah, Associate Director, CRISIL Ratings.