Business Standard: July 12, 2018
Mumbai: Encouraged by rising demand for value-added products, the dairy sector in India is likely to see Rs 130-140 billion of investment in the next three years, says rating agency CRISIL.
To strengthen the procurement and processing infrastructure, companies in the organised sector have invested a similar amount in the past three years. CRISIL’s recent study says the Indian dairy industry would see compounded annual growth (CAGR) of 14-15 per cent annually for the next three years.
Companies with a focus on value-added products are set to do well but those with focus on bulk liquid milk selling would remain laggards, says the study, due to oversupply of liquid milk as a commodity.
“Organised dairies are likely to see spending of Rs 140-billion over the next three (financial) years fiscals, similar to the previous three, to enhance processing capacity by 25-30 per cent and strengthen milk procurement. Prudent funding mix and better cash generation will keep the capital structure of organised dairies satisfactory, with gearing of 1-1.2 times, in spite of sizable capital expenditure,” said Poonam Upadhyay, associate director.
The new investments are expected to be funded with moderate dependence on borrowing, including soft loans from the government’s Dairy Processing & Infrastructure Development Fund, beside public and private equity.
CRISIL studied 100 dairy companies, accounting for around 60 per cent of the organised segment’s revenue. With steady growth in milk sales, the sector should see revenue of Rs 7,500 billion by 2020-21, from Rs 5,700 billion in 2017-18, it says.
Gujarat Co-operative Milk Marketing Federation (GCMMF), which sells the Amul brand of dairy products, has announced Rs 50 billion of investment to be completed by 2022 on processing capacity and distribution. Increasing demand at home and from Indians abroad has helped its turnover reach Rs 295 billion for FY18.
After acquisition of Reliance Dairy to boost geographical reach, Heritage Foods plans a big expansion in North India. Heritage has also acquired Shah Motilal Foods, based in Telangana, and Vaman Milk Foods, based in Punjab, for Rs 120 million and Rs 200 million, respectively. It now has a big capital expenditure (capex) plan, with expansion planned in segments such as curd, cheese and yogurt.
“The company is well poised for growth, along with expanding return on capital, already highest in the sector," said Aditya Narain, head of research at Edelweiss Securities, in a recent report.
Parag Milk Foods' profit is estimated to rise 49 per cent over FY17-20, due to a focus on value-added products, with established brands and capex already undertaken.
Arshad Perwez, an analyst with JM Financial, says India’s milk production has been increasing at a steady CAGR of 4.4 per cent between 1994-95 and 2017-18 -- foodgrain production's comparative rise was 1.5 per cent in the period. Urbanisation and changes in dietary patterns has driven consumption growth, while improvement in yield has aided growth in production over the years, he added.
India’s milk production is estimated at 165.5 mt for 2017-18, an increase of 3.8 per cent from the previous year.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.