The rise in consumer demand will be complemented by improved raw milk supply, which according to CRISIL, is expected to increase by approximately 5 per cent this fiscal.

With strong consumer demand and also improved supply of raw milk, India’s dairy industry is expected to record a healthy revenue growth of 13-14 per cent this fiscal, said a report by CRISIL. The demand, it added, will be supported by rising consumption of value added products (VAP), and the ample supply will be driven by good monsoon prospects.

Further, the rise in raw milk supply will also lead to higher working capital requirements for dairy products. Along with this, the continued capital expenditure by organised dairies over the next two fiscal years will result in debt levels inching up, CRISIL said, while maintaining that the credit profiles will remain stable supported by strong balance sheets.

CRISIL Ratings analysed 38 dairies which account for around 60 per cent of the organised segment revenue to release the findings.

“Amidst modest growth of 2-4 per cent in realisation, the dairy industry’s revenues are seen rising on healthy 9-11 per cent growth in volumes. VAP segment – 40 per cent contributor to the industry revenues – will be the primary driver, fueled by rising income levels and consumer transition towards branded products. Rising sales of VAP and liquid milk in the hotels, restaurants and cafes (HORECA) segment will also support the revenue growth, said Mohit Makhija, Senior Director, CRISIL Ratings.

The rise in consumer demand will be complemented by improved raw milk supply, which according to CRISIL, is expected to increase by approximately 5 per cent this fiscal, due to better cattle fodder availability, given the favourable monsoon outlook this fiscal. The availability of milk will be further supported by normalisation of artificial insemination and vaccination processes after facing disruption in the past. Also, various measures including genetic improvement in indigenous breeds and increase in fertility rate of higher yield breeds will help enhance milk supply, it stated.

Steady milk procurement prices augur well for the profitability of dairies, and their operating profitability is expected to improve by around 40 basis points to 6 per cent this fiscal.

“While the revenue and profitability of dairies will improve this fiscal, debt levels are also expected to increase, mainly for two reasons. One, healthy milk supply during flush season will result in higher skimmed milk powder (SMP) inventory which will be consumed over the rest of the year. The SMP inventory typically accounts for ~75 per cent of the working capital debt of dairies. Two, continued milk demand will require increased debt-funded investments for new milk procurement, milk processing capacities and expanding distribution network,” said Rucha Narkar, Associate Director, CRISIL Ratings.

All said, the report maintained that the monsoon remains a critical variable for supply side improvements.

Earlier in June this year, two major retailers Amul and Mother Dairy had announced an increase of Rs 2/litre in milk prices. Retail inflation in milk was 2.97 per cent in April on-year. Price rise in milk rose to 9.65 per cent in February, 2023 on-year and since then it has moderated.

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