In the upcoming fiscal year 2023-24, the organized dairy sector is set to experience a substantial boost in revenue, with expectations of a 14-16% increase, according to a recent report by CRISIL. The report highlights the factors driving this growth, including an improved supply of raw milk, which is anticipated to lead to fewer price fluctuations and a recovery in profitability by 20-50 basis points.
One of the driving forces behind this surge is the robust demand for value-added products (VAP) coupled with consistent consumption of liquid milk. CRISIL’s Senior Director, Mohit Makhija, predicts an 18-20% growth in the VAP segment this fiscal year, potentially elevating its contribution to overall revenue from 35% four fiscal years ago to a promising 40%. Makhija noted that this trend is expected to persist due to strong demand from both retail and institutional sectors.
The report sheds light on the challenges faced in the previous fiscal year, where disruptions in raw milk supply resulted in multiple retail milk price hikes. These hikes, although beneficial to the topline with a 19% increase, impacted the organized dairy sector’s profitability negatively. However, the sector’s healthy balance sheets are anticipated to uphold strong credit profiles.
The projected revenue growth of 14-16% for this fiscal year is projected to be fueled by a substantial 9-10% increase in volume and higher realizations. CRISIL’s Director, Anand Kulkarni, anticipates that milk price hikes will be milder this fiscal year, estimated at around Rs 2 per liter, in contrast to the cumulative Rs 5-7 per liter of the previous year. This reduction is attributed to improvements in raw milk supply owing to better availability of fodder and improved cattle health due to timely vaccination and artificial insemination.
Furthermore, the report highlights that the impact of past price hikes will augment the profitability of organized dairies by 20-50 basis points this fiscal year, pushing it up to 5.5%. In the preceding fiscal year, challenges on the supply side, such as elevated fodder costs, cattle diseases affecting yields, and disruptions in artificial insemination schedules, led to a 14% rise in milk procurement prices.
The report concludes that credit risk profiles are expected to remain steady, as prudent financial management involving a balanced mix of debt and equity is anticipated to fund necessary capital expenditures. The dairy industry’s journey through the upcoming fiscal year is poised to capitalize on strong demand and more stable operational conditions, setting the stage for a significant revenue surge.
