Dairy industry to witness 13-14% revenue growth this fiscal: Report

India's dairy industry is expected to witness healthy revenue growth of 13-14 per cent this financial year, as strong consumer demand continues along with improved supply of raw milk, a report said on Wednesday.

While demand will be supported by rising consumption of value added products (VAP), ample milk supply will be driven by good monsoon prospects, Crisil Ratings said in a report.

Rise in raw milk supply will also lead to higher working capital requirements for dairy players, the report noted.

Though continued capital expenditure (capex) by organised dairies over the next two fiscals will result in debt levels inching up, the credit profiles will be stable supported by strong balance sheets.

"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 revenue growth of 13-14 per cent in FY25," Crisil Ratings Mohit Makhija said.
The report further said, the strong consumer demand will be complemented by improved raw milk supply which is expected to increase 5 per cent in FY25, due to better cattle fodder availability following favourable monsoon outlook this fiscal.

Milk availability will be further supported by normalisation of artificial insemination and vaccination processes after facing disruption in the past, the report said.

Additionally, various measures such as genetic improvement in indigenous breeds and increase in fertility rate of higher yield breeds will help enhance milk supply, the Crisil Ratings report said.

It stated that steady milk procurement prices augur well for the profitability of dairies, and their operating profitability is expected to improve 40 basis points to 6 per cent this financial year.

"While the revenue and profitability of dairies will improve this fiscal year, 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," Crisil Ratings Associate Director Rucha Narkar said.

Despite additional debt contracted for working capital and capex, the credit profiles are expected to remain stable supported by low leverage, the report added.