According to a report released on Thursday, the organized dairy sector is expected to achieve a revenue growth of 14-16 percent in the fiscal year 2023-24. This growth will be driven by robust demand for value-added products and consistent consumption of liquid milk. The report, published by Crisil Ratings, also predicts that the enhanced supply of raw milk will mitigate the occurrence of frequent price hikes, ultimately leading to a recovery of profitability by 20-50 basis points.
“We believe the strong revenue growth in VAP (Value Added Products) seen over the past few years will continue. This fiscal, the segment should grow 18-20 per cent and consequently, the share of VAP in overall revenue could rise to 40 per cent from 35 per cent four fiscals back,” Crisil Ratings Senior Director Mohit Makhija said.
Furthermore, he noted that due to the sustained strong demand from both retail and institutional sectors, the proportion of value-added products (VAP) is expected to keep increasing. Conversely, supported by consistent demand, the revenue from liquid milk is projected to experience growth of 8-10 percent in this fiscal year.
Additionally, the report highlighted that during the previous fiscal year, disruptions in the supply of raw milk resulted in several increases in retail milk prices. While this led to a 19 percent increase in the topline revenue, it had an adverse effect on the profitability of the organized dairy industry.
In this context, he mentioned that due to their sound financial positions, organized dairy companies will maintain robust credit profiles.
The projected revenue expansion of 14-16 percent for this fiscal year will be propelled by a robust volume growth of 9-10 percent and increased realizations.
“Milk price hikes will be much less intense this fiscal at around INR 2 per litre compared with a cumulative INR 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.
“Additionally, the full impact of previous price hikes will improve the profitability of organised dairies by 20-50 bps this fiscal to 5.5 per cent,” Crisil Ratings Director Anand Kulkarni said.
In the previous fiscal year, milk procurement costs surged by 14 percent due to various supply-side challenges. These challenges included a notable rise in fodder expenses, reduced yields resulting from cattle diseases, and disruptions in artificial insemination schedules.
The credit risk profiles are expected to remain stable as capex will be funded by a prudent mix of debt and equity, it added.
