India’s organized dairy sector expected to achieve double-digit revenue growth – CRISIL Ratings report

INDIA – India, the world’s largest milk producer, is expecting to achieve a second straight fiscal of double-digit revenue growth in the organized dairy sector, according to a report by CRISIL Ratings.

CRISIL attributes the growth of 11-12%, a notch below last fiscal’s 13% growth, to a healthy demand for value-added products (VAP; 28% of overall sales), and stable demand growth for household consumption-driven products such as ghee and paneer.

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Strong recovery in the HoReCa (hotels, restaurants, and café) segment and price hikes of last fiscal will also drive the revenue growth in VAP this fiscal.

This growth will be witnessed even as sales of liquid milk stay steady and the full-year benefit of retail price hikes implemented last fiscal is realized, according to the report.

Within VAP, a strong recovery is expected in the demand for cold VAP such as ice cream, curd, and flavored milk due to inordinately hot temperatures.

However, the rise in procurement prices, as well as transportation and packaging costs, would moderate operating profits to 5 percent.

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On the other hand, liquid milk sales should sustain 9-10% revenue growth this fiscal, given the full-year benefit of two price hikes last fiscal, even as volumes remain steady.

Additionally, Dairies had hiked milk prices by Rs 2 per liter each in June 2021 and February 2022, which should result in 4-5% on-year growth in average realization this fiscal.

The incremental hikes in retail prices will cushion operating profitability while Strong domestic demand for VAP and liquid milk will limit exports of skimmed milk powder (SMP) and prune inventory, as stated by the report.

The report added that the operating profitability of CRISIL-rated dairies is set to 5% this fiscal from an estimated 5.3% last fiscal due to the impact of inflation on transportation and packaging costs as well as the procurement prices that are likely to continue to grow at 5%, even as demand continues to outpace supply.

Meanwhile, the report showed that improved operating performance, along with adequately managed balance sheets and better control over working capital will support a revival in the Capital expenditure (Capex) plans of dairies.

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The Capex plans 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’.

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