While a number of dairy companies recently increased the prices of milk, the dairy product could get even more costlier riding on the back of the high global prices of skimmed milk powder and cattle feed.
Many dairy companies recently underwent a 5 per cent to 8 per cent price hike but are likely to increase prices yet again in the first half of FY23, ICICI Securities’ analysts said in a note on Friday. “All the dairy companies under our coverage have taken some price hikes—5 per cent to 8 per cent. However, rising milk procurement prices remain a key concern. We expect all dairy companies to take further price hikes in H1FY23E,” analysts said in a note cited by Mint.
What’s fuelling the spike?
The analysts noted that high demand for milk led by increasing out-of-home consumption of such products and the opening up of channels such as hotels and restaurants has sent the milk procurement prices soaring.
On the other hand, milk procurement prices have been severely affected by the rise in cattle feed prices along with the heat wave conditions across the country. As a result, wholesale milk prices continue to increase sequentially as well as year-on-year (y-o-y).
It may be noted here that wholesale milk prices increased 5.8 per cent y-o-y pan-India in June. Milk prices in South India have gone up by 3.4 per cent y-o-y.
“We believe the dairy companies need to raise prices again in the coming quarters to pass on higher milk procurement prices. However, we continue to model Ebitda (earnings before interest, taxes, and amortization) margins of dairy companies to correct 50-100 basis points in FY23,” ICICI Securities’ analysts highlighted.
However, with higher inflation and likely better volumes (with higher sales to HoReCa), the revenue growth is likely to remain strong.
The report underscored that the prices of skimmed milk powder globally have steadily risen over the past 12 months, increasing 26.3 per cent y-o-y and 3 per cent month-on-month in June. “We believe the consequent attractive export opportunity may disturb the demand-supply equation in the Indian milk industry,” an analyst said.
