India’s organised dairy sector is likely to achieve 11-12 per cent revenue growth this financial year, the second straight year of double-digit growth, mainly driven by healthy demand for value-added products (VAP), according to a report.
Revenue growth of the organised dairy sector this financial year will be a notch below the last fiscal’s 13 per cent growth, according to the report by Crisil Ratings.
This revenue growth will be driven by a healthy demand for VAP (28 per cent of overall sales), even as sales of liquid milk stays steady and the full-year benefit of retail price hikes implemented last fiscal is realised, it noted.
Within VAP, strong recovery is expected in the demand for ice cream, curd and flavoured milk, the report stated.
However, operating profitability would moderate to 5 per cent this fiscal, because of a rise in procurement prices as well as transportation and packaging costs.
The improved operating performance, along with adequately 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’.
“We expect demand for ice cream, curd and flavoured milk items 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, strong recovery in the HoReCa (hotels, restaurants and cafe) segment, and price hikes of last fiscal will drive 13-14 per cent revenue growth in VAP this fiscal,” Crisil Ratings Director Aditya Jhaver noted.
On the other hand, liquid milk sales should sustain 9-10 per cent revenue growth this fiscal, given the full-year benefit of two price hikes last fiscal, even as volumes remain steady, it added.
Dairies had hiked milk prices by Rs 2 per litre each in June 2021 and February 2022, which should result in a 4-5 per cent year-on-year growth in average realisation this fiscal.
Also, the impact of inflation on transportation and packaging costs will moderate operating profitability to 5 per cent this fiscal from an estimated 5.3 per cent last fiscal.
The report stated that 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, it said.
“The dairies, including cooperatives, are reviving capex plans this fiscal after staying away for two years. While this will increase long term debt, controlled working capital debt due to moderation in SMP inventory and healthy operating performance will keep their credit outlook ‘stable’,” Crisil Ratings Associate Director Tanvi Shah added.