Dairy industry revenue expected to grow by 13-14% due to strong demand, increased supply of raw milk
Milk Demand: The revenue of the country's dairy industry is expected to grow by 13 to 14 percent this financial year, the main reason for this is strong consumer demand. With the improvement in the supply of raw milk, the price and consumption of milk products will increase and the demand will be supported.
According to a report released by rating agency Crisil, milk supply is also expected to be good due to the possibility of good monsoon in the country. The revenue of the country's dairy industry is expected to grow by 13 to 14 percent this financial year, the main reason for this is strong consumer demand.
With the improvement in the supply of raw milk, the price and consumption of milk products will increase and the demand will be supported. According to a report released by rating agency Crisil, milk supply is also expected to be good due to the possibility of good monsoon in the country. Due to the increased supply of raw milk, the need for working capital for dairy companies will also increase. Also, due to increased investment by organized dairies in the next two financial years, their loan level is also expected to increase. Despite this, the credit profile is expected to remain stable due to a strong balance sheet.
CRISIL Ratings Senior Director Mohit Makhija says that the dairy industry is seeing a growth of 9 to 11 percent in volume revenue. The milk products category can contribute 40 percent to the industry revenue. He says that due to an increase in income, consumers are getting more attracted to branded products. The sales of milk products in the hotel, restaurant, and cafe segment will also increase the revenue of companies. According to the report, milk supply is expected to increase from 230 million tonnes last financial year to 240-245 million tonnes this financial year. The annual capital expenditure made by 38 dairies in the last two financial years has been Rs 2,600-2,700 crore.
The strong revenue growth seen in VAP (value-added products) over the past few years will continue. This fiscal year, the segment should grow by 18-20 percent and as a result, VAP's share in total revenue may increase to 40 percent from 35 percent in the last four financial years, Crisil Ratings said. Further, the report said that in the last financial year, retail milk prices increased several times due to a disruption in raw milk supply, which led to a 19 percent increase in revenue, but impacted the profitability of the organized dairy sector. In this environment, given the healthy balance sheet, the credit profile of organized dairies will remain strong.
Rucha Narkar, Associate Director, Crisil Ratings, says that although the revenue and profitability of the dairy industry will improve this financial year, on the other hand, the level of debt will also increase. There are two main reasons for this, one is that skimmed milk powder is made from the supply of milk during the flush season, whose inventory will be high, and is used throughout the year. This skimmed milk powder accounts for 75 percent of the debt in the working capital of the dairy. The second reason is that the increasing demand for milk will also require investments by the companies to purchase new milk, increase milk processing capacities, and expand the distribution network.
