Indian dairy industry is expected to grow by 13-14% this fiscal year
The Indian dairy industry is expected to grow by 13-14 percent this fiscal year, owing to continued strong consumer demand and improved raw milk supply. While rising consumption of value-added products will support demand, adequate milk supply will be driven by favorable monsoon conditions, according to Crisil Ratings.
The increase in raw milk supply will also result in higher working capital requirements for dairy producers. That, combined with continued capital expenditure (capex) by organised dairies over the next two fiscal years, will result in debt levels rising. Nonetheless, credit profiles will remain stable, aided by robust balance sheets. A Crisil Ratings analysis of 38 dairies, accounting for approximately 60% of the organized segment revenue indicates as much.
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Mohit Makhija, Senior Director at Crisil Ratings, stated, “Despite modest growth of 2-4% in realisation, the dairy industry’s revenues are expected to rise on the back of healthy 9-11% growth in volumes. The value-added product segment, which accounts for 40% of industry revenues, will be the primary driver, fueled by rising income levels and consumer preference for branded products. Rising sales of value-added products and liquid milk in the hotels, restaurants, and cafes (HORECA) segment will also help drive revenue growth.
Milk supply
The strong consumer demand will be bolstered by improved raw milk supply, which is expected to rise by about 5% this fiscal year due to improved cattle fodder availability, given the favorable monsoon outlook. The normalisation of artificial insemination and vaccination processes, which have previously been disrupted, will help to increase milk availability. Furthermore, various measures, such as genetic improvement in indigenous breeds and an increase in the fertility rate of higher yield breeds, will help to boost milk supply.
Dairies’ operating profitability is expected to improve by about 40 basis points to around 6% this fiscal year as milk procurement prices remain stable. Also Read | UAS-Bengaluru developed raw milk chilling devise for small dairy farmers
Rucha Narkar, Associate Director at Crisil Ratings, stated, “While dairies’ revenue and profitability will improve this fiscal year, debt levels are expected to rise, primarily for two reasons. One, a healthy milk supply during flush season will result in increased skimmed milk powder (SMP) inventory, which will be consumed over the rest of the year. SMP inventory typically accounts for approximately 75% of a dairy’s working capital debt. Two, sustained milk demand will necessitate increased debt-financed investments in new milk procurement, processing capacity, and expansion of distribution network .”
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