Strong demand to drive revenue growth of 14-16% for organised dairy industry, says CRISIL

According to a CRISIL estimate, India's organised dairy industry will see revenue growth of 14-16% this fiscal due to strong demand for value-added products (VAP) and consistent consumption of liquid milk.

Furthermore, it was stated that when the supply of raw milk improved, there would be fewer price increases and that as a result, profitability would increase by 20-50 basis points.

According to CRISIL Ratings' analysis of 38 dairies, which represented about 60% of the organised segment's income, given their sound balance sheets, organised dairies' credit profiles will continue to be solid.

Mr. Mohit Makhija, Senior Director, CRISIL Ratings said, “We believe the strong revenue growth in value-added products (VAP) seen over the past few years will continue. This fiscal, the segment should grow 18-20% and consequently, the share of VAP in overall revenue could rise to ~40% from ~35% four fiscals back.”

It further stated that organised dairies have been urged to invest money in capital projects in both the current fiscal year and the one next, particularly for VAP, which will make up 60% of the budget. This fiscal year, the industry's overall revenue is expected to increase by 14-16% due to good volume growth of 9-10% and greater realisations.

Mr. Anand Kulkarni, Director, CRISIL Ratings said that the milk price hikes will be much less intense this fiscal at around Rs. 2 per litre compared with a cumulative Rs. 5-7 per litre last fiscal, primarily because of two reasons — improvement in raw milk supply on better availability of fodder, and timely vaccination and artificial insemination of cattle.

As capex will be funded by a responsible combination of debt and equity, it was said that the credit risk profiles are anticipated to stay steady. As of March 31, 2024, gearing is considered as comfortable at 1.4 times, up from 1.3 times the previous year. In addition, interest coverage will be excellent this fiscal year, at 9-9.5 times, up from 9.5-10 times the previous fiscal year.

A healthy rise in milk collection and improvement in supply-side variables would be crucial moving forward, according to CRISIL, for the stability of retail milk pricing.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.