Will Dairy Firms in India Experience 11-13% Revenue Growth This Fiscal?

New Delhi, June 2 (NationPress) Dairy enterprises in India are projected to witness a revenue increase of 11-13% during this fiscal year, surpassing the 10% growth recorded last fiscal. This surge is attributed to robust demand trends, a growing share of value-added products (VAP), and escalating retail milk prices, as indicated in a report released on Monday.

Additionally, profitability is expected to rise by 20-30 basis points (bps), supported by improved realizations, a healthy milk supply that keeps procurement prices stable, and a favorable shift towards VAP, which yields higher margins, according to the Crisil Ratings report.

To leverage this positive growth trajectory, companies are set to increase their capital expenditure (capex) by 10% this fiscal year.

A significant portion of this capex will focus on expanding capacities for VAP, a segment that continues to outpace the conventional liquid milk category.

Despite the increased capex, credit profiles are expected to remain stable due to enhanced cash flows and robust balance sheets.

“The VAP segment is anticipated to achieve a remarkable 16-18% growth this fiscal, fueled by evolving consumer preferences, heightened nutritional awareness, and a growing inclination towards protein-rich diets,” stated Shounak Chakravarty, Director at Crisil Ratings.

As a result, its contribution to the product mix is likely to rise to 45%, up from 40% a few years ago. In contrast, the growth of liquid milk is projected to remain steady at 10%. Overall, an improved product mix, healthy volumes, and increasing retail prices are expected to be the principal drivers of growth,” he added.

Supporting the dairy sector will be a favorable monsoon forecast, stable fodder prices, and an uptick in the use of artificial insemination to boost productivity, ensuring a steady supply of raw milk. This will help keep procurement price increases modest at 2-3% this fiscal.

Profitability will benefit from enhanced realizations and a slight rise in procurement prices, leading to a 20-30 bps improvement in operating margins, reaching 5.3% and bolstering overall cash generation.

The promising outlook and healthy demand-supply dynamics are already motivating dairies to escalate their capex initiatives.

“Dairy companies are expected to boost their capital expenditure by 10% this fiscal to Rs 3,400 crore. The VAP segment will represent over 60% of the total capex — a trend observed over the past three fiscal years — due to its higher growth potential,” said Rucha Narkar, Associate Director at Crisil Ratings.