According to CRISIL Ratings, the organised dairy sector in India is set for the second straight fiscal of double-digit revenue growth — at 11–12%, a mark below last fiscal’s 13% growth.
This will be driven by healthy demand for value-added products (VAP; 28% of overall sales), even as sales of liquid milk stay steady and the full-year benefit of retail price hikes implemented last fiscal is realized.
Within VAP, a strong recovery is expected in the demand for cold VAP such as ice-cream, curd, and flavoured milk. Operating profitability, however, will moderate to 5% this fiscal year because of a rise in procurement prices as well as transportation and packaging costs.
The better operating performance, along with sufficiently managed balance sheets and better control over working capital, will support a revival in the capex plans of dairies, and yet keep their credit outlooks “stable”.
An examination of 40 dairies rated by CRISIL Ratings, which account for 60% of the organised sector revenue of close to Rs. 1.05 lakh crore, indicates as much. The demand for ice-cream, curd, and flavoured milk products is expected to peak this summer due to inordinately hot temperatures.
The last two summers were affected by Covid-19. That, along with stable demand growth for household consumption-driven products such as ghee and paneer, a strong recovery in the HoReCa (hotels, restaurants, and café) segment, and price hikes from last fiscal, will drive 13-14% revenue growth in VAP this fiscal.
On the other hand, liquid milk sales should sustain 9–11% revenue growth this fiscal, given the full-year benefit of two price hikes last fiscal, even as volumes remain steady. Dairies have hiked milk prices by Rs. 2 per litre in June 2021 and February 2022, which should result in a 4-5% on-year growth in average realisation this fiscal.
With demand continuing to outpace supply, even during the flush season this year, procurement prices will continue to grow at 5%. That, and the impact of inflation on transportation and packaging costs, will moderate operating profitability of CRISIL-rated dairies to 5% this fiscal year from an estimated 5.3% last fiscal. And incremental hikes in retail prices will cushion operating profitability. Strong domestic demand for VAP and liquid milk will limit exports of skimmed milk powder (SMP) and prune inventory.