The strong revival of the hotels, restaurants and catering (HoReCa) segment and the increase in retail prices are likely to help the dairy industry achieve 12-14 per cent revenue growth this fiscal, according to a report. Indian dairy companies are estimated to achieve revenue growth of 12-14 per cent in FY23 on a year-on-year basis, backed by a strong revival in demand, especially the HoReCa segment and an increase in retail prices, ICRA said in a report. However, the operating profit margins are expected to contract by 120-160 bps on a year-on-year basis as the retail price hikes are expected to provide only partial support to the input cost pressures, it added.
ICRA expects the industry to maintain a stable credit profile, supported by a favourable demand outlook and moderate debt levels. Milk production yields in the first half (H1) of FY23 were hampered by the prevalence of Lumpy Skin Disease (LSD), notably among cows in the northern states. Although a successful immunisation programme helped contain the disease, ICRA expects a slight moderation in milk production growth to 4-5 per cent in the current fiscal. “Raw milk procurement prices increased in FY22, led by healthy demand and constricted milk availability as a result of disruption in cattle insemination programmes earlier during the pandemic. Raw milk prices have continued to rise in the current fiscal too, owing to rising cattle feed and fodder prices for dairy farmers,” ICRA Sector Head and Vice President Sheetal Sharad said.
While erratic monsoons in various parts of the country impacted fodder availability, rising prices of grains like maize, wheat and soybean led to soaring cattle feed concentrate prices, she noted. “Apart from that, the prevalence of LSD briefly limited milk availability. Furthermore, companies faced rising logistics, processing and packaging expenses. “Given the healthy demand expectations over the festive and wedding seasons, we anticipate raw milk prices to stay firm in H2 FY23 as opposed to a typical correction in the flush season. Retail prices for dairy products have thus gone up in the current fiscal to make up for higher costs,” she added.
The report further stated that revenues from value-added products (VADPs) witnessed a healthy year-on-year growth of 18-20 per cent in FY22.
The early commencement of summer demand, relatively higher temperatures and the waning impact of the pandemic boosted growth, it said. “We anticipate the VADP segment to continue to grow at a similar 18-20 per cent in FY23 as well. The industry has been able to liquidate skimmed milk powder (SMP) inventory in FY22 in line with expectations, aided by good demand recovery in the institutional and the HoReCa segment and recovery in domestic SMP prices,” Sharad said.
Revenues in the liquid milk segment are predicted to expand at a faster rate of 7-9 per cent in FY23, owing to growing per capita consumption and rising realisations, she noted. “However, on the flip side, increased input costs for dairy companies continue to be a worry. Thus, more retail price hikes could follow in the backdrop of the current inflationary scenario,” she stated. Sharad said although credit metrics for dairy companies are projected to moderate in FY23 due to margin pressures, regular raw milk supply with LSD under control and feed cost stabilisation for farmers and a healthy demand outlook should help dairy companies’ credit profiles in the medium term.ICRA anticipates moderate capex with most private companies focusing on VADP capacity expansion and moderate SMP inventory levels, resulting in a stable credit profile for the industry, she added.