India’s organized dairy turnover is forecast for the second consecutive year of double-digit growth – at 11-12%, a notch below last year’s 13% growth.
This will be driven by healthy demand for value-added products (VAP; 28% of overall sales), although fluid milk sales remain flat and full-year benefits from the retail price increases implemented during the last fiscal year are realized. Within VAPs, a strong recovery is expected in demand for cold VAPs such as ice cream, curds and flavored milk1. However, operating profitability should moderate to 5% this financial year, due to an increase in supply prices, as well as transport and packaging costs.
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 60% of organized sector revenue of almost Rs 1.05 lakh crore, indicates the same.
According to Aditya Jhaver, Director of CRISIL Ratings, “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. This, together with stable demand the growth of household consumption oriented products such as ghee and paneer, the strong recovery of the HoReCa segment (hotels, restaurants and cafes) and the price increases of the last financial year will lead to growth revenue of 13-14% of VAP in this fiscal year.”
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 outstrip supply, even during the harvest season this year, purchase prices would continue to rise by around 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.
According to Tanvi Shah, Associate Director, CRISIL Ratings, “Dairies, including cooperatives, are reviving investment plans this fiscal year after being absent for two years. Controlled turnover due to SMP inventory moderation, and sound operational performance will maintain their credit outlook “stable. 7.7 times, respectively, in the last fiscal year.”
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Article first published: Sunday, May 29, 2022, 1:08 p.m. [IST]