Dairy companies may not be compelled to take price hikes in the second half of the fiscal as an expected improvement in milk collection and softening input prices will support profitability, according to a report by Crisil Ratings.
Meanwhile, the recent hike in retail milk price by large cooperatives will help companies hold on their profitability to 50 basis points (bps) year-on-year this fiscal, it said.
“Milk procurement prices have shot up 8-10% in the past six months because of lower-than-expected milk collection—on account of cattle diseases in some of the major milk-producing states—and high prices of cattle feed. Additionally, the surge in crude price has translated into a significant increase in transport and packaging costs. This necessitated a second price hike in the past six months,” said Anand Kulkarni, director, Crisil Ratings.
Gujarat Cooperative Milk Marketing Federation (GCMMF), that markets milk and milk products under the Amul brand, had announced a price hike of ₹2 per litre on fresh milk earlier this month. Others followed suit.
Kulkarni said Crisil does not anticipate any more price hikes as an expected improvement in milk collection and softening input prices will support profitability in the second half of the fiscal.
Crisil Ratings’ analysed 40 rated dairies that account for 60% of the organised segment revenue indicates as much.
Meanwhile, milk supply is expected to improve in the upcoming flush season.
Crisil analysts said that disruptions in artificial insemination, cattle breeding and vaccination schedules affected supply of milk last year. “These issues are expected to be ironed out this year, resulting in better milk supply during the flush season (refers to the peak period of raw milk supply, which is generally from December to mid-March every year),” they said.
Overall demand for milk and milk products remains strong.
While demand for liquid milk continues to be robust, that for value-added products such as ghee, butter, cheese, curd, ice cream has been growing at a healthy pace. Also, the HoReCa (hotel, restaurant and café) segment has made strong recovery in a post-pandemic world, which will prop up revenue growth for the dairy industry, according to the report.
Volume growth, along with increase in average realisations by 6-6.5% this fiscal, following hikes in retail milk prices will translate to 13-14% higher revenue for organised dairy players, they added.
