Branded 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, according to CRISIL Ratings Director Anand Kulkarni.
Additionally, Kulkarni said the full impact of previous price hikes will improve the profitability of organised dairies by 20-50 basis points this fiscal to 5.5 percent.
India is the largest producer of milk in the world, and notably, its dairy sector is still dominated by unorganised players. As per industry estimates, around 48 percent of the milk produced in the country is either consumed at the producer level or sold to non-producers in rural areas. The balance 52 per cent of the milk is marketable surplus sold mainly to consumers in urban areas.
"Last fiscal, milk procurement prices had risen 14 percent on account of several challenges on the supply side, such as significant increase in fodder cost, impact on yields due to cattle disease, and disruptions in artificial insemination schedules," CRISIL Ratings said.
The ratings agency said it is improving the supply of raw milk to reduce intensity of price hikes as well as aid sector revenue this fiscal.
During the last financial year, disruptions in raw milk supply had led to multiple hikes in retail milk prices, pushing up the topline 19 percent but impacting profitability.
"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 percent and consequently, the share of VAP in overall revenue could rise to around 40 percent from 35 percent four fiscals back. Given that demand from both retail and institutional segments remains strong, the share of VAP will continue to rise. On the other hand, liquid milk revenue will grow 8-10 percent this fiscal backed by steady demand,” said Mohit Makhija, Senior Director at CRISIL Ratings.
Strong demand prospects have encouraged organised dairies to incur capital expenditure in both, this fiscal and the next, especially for VAP, which will account for 60 percent of the spend.
The overall revenue growth of 14-16 percent this fiscal will be driven by healthy volume growth of 9-10 percent and by higher realisations, the rating agency said.
"The credit risk profiles are expected to remain stable as capex will be funded by a prudent mix of debt and equity. Gearing is seen comfortable at 1.4 times as on March 31, 2024, versus 1.3 times a year earlier. Interest coverage will remain strong too, at 9-9.5 , this fiscal, compared with 9.5-10 times last fiscal. Working capital cycle is expected to be stable as healthy demand will limit build-up of skimmed milk powder inventories at the year end," it said.
Going ahead, an improvement in supply-side variables will be an important monitorable and a healthy increase in milk collection will be critical for stability in retail milk prices, as per CRISIL.
