Price hike to limit slide in profitability of organized dairy sector in India

Cow Milk

Dairy

India

Published Aug 24, 2022

Tridge summary

The recent hike in retail milk price by Rs 2 per liter will limit the slide in profitability of the organized dairy sector to 50 basis points (bps) on-year this fiscal, despite a higher than anticipated rise in procurement prices, and transport and packaging costs, said CRISIL Ratings on Tuesday. Despite lower profitability, comfortable balance sheets and better working capital management will keep the credit profiles of players stable. A CRISIL Ratings analysis of 40 rated dairies that account for 60% of the organized segment revenue indicates as much. Anand Kulkarni, Director, CRISIL Ratings said “Milk procurement prices have shot up 8-10% in the past six months because of lower-than-expected milk collection — on account of cattle diseases in some of the major milk-producing states — and high prices of cattle feed. Additionally, the surge in crude price has translated into a significant increase in transport and packaging costs.

Original content

This necessitated a second price hike in the past six months. We don’t anticipate any more price hikes as an expected improvement in milk collection and softening input prices will support profitability in the second half of the fiscal.” Disruptions in artificial insemination, cattle breeding and vaccination schedules had affected supply last year. These issues are expected to be ironed out this year, resulting in better milk supply during the flush season (refers to the peak period of raw milk supply, which is generally from December to mid-March every year). The drivers of demand remain strong. While demand for liquid milk continues to be robust, that for value-added products (VAP; accounting for 28% of organized sector revenue1 ) such as ghee, butter, cheese, curd, ice cream has been growing at a healthy pace. As the VAP segment is comparatively priced inlastic, profitability is typically better, at 7-9%. Also, the HoReCa (hotel, restaurant and cafeé) segment has made strong ...

Source: Economic times