Mumbai, 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 raw milk supply, according to a report on Wednesday.
While demand will be supported by growing consumption of value-added products (VAPs), ample milk supply will be boosted by good monsoon prospects, Crisil Ratings said in a report.
The increase in raw milk supply will also lead to higher working capital requirements for dairy sector players, the report notes.
Although continued capital expenditure (capex) by organized dairies over the next two fiscal years will result in a gradual increase in debt levels, credit profiles will be stable backed by strong balance sheets.
"Amid a modest 2-4 per cent growth in realization, dairy industry revenues are projected to rise with a healthy 9-11 per cent growth in volumes. The VAP segment - which contributes 40 per cent percent to industry revenues - will be the main driver, driven by rising income levels and consumers' transition towards branded products.
"Increased sales of VAP and liquid milk in the hotels, restaurants and cafes (HORECA) segment will also support 13-14 per cent revenue growth in FY25," Crisil Ratings Mohit Makhija said.
The report further said that strong consumer demand will be complemented by improved raw milk supply, which is expected to increase by 5 per cent in FY25, due to better availability of fodder for livestock following the outlook favorable monsoon weather in this fiscal year.
Milk availability will be further supported by the normalization of artificial insemination and vaccination processes after suffering disruptions in the past, the report said.
Also, various measures such as genetic improvement in indigenous breeds and increasing fertility rate of higher yielding breeds will help improve milk supply, according to the Crisil Ratings report.
He said stable milk procurement prices bode well for the profitability of dairies, with their operating profitability expected to improve by 40 basis points to 6 per cent this financial year.
"While dairy revenues and profitability will improve this fiscal year, debt levels are also expected to increase, primarily for two reasons. First, a healthy milk supply during the peak season will result in higher inventory of skimmed milk powder (SMP) that will be consumed during the rest of the year.
"SMP inventory typically represents 75 percent of dairies' working capital debt. Second, continued demand for milk will require increased debt-financed investments for the acquisition of new milk, milk processing capabilities and expansion of distribution network," said Rucha Narkar, associate director, Crisil Ratings. she said.
Despite additional debt incurred for working capital and capex, credit profiles are expected to remain stable supported by low leverage, the report added.
While demand will be supported by growing consumption of value-added products (VAPs), ample milk supply will be boosted by good monsoon prospects, Crisil Ratings said in a report.
The increase in raw milk supply will also lead to higher working capital requirements for dairy sector players, the report notes.
Although continued capital expenditure (capex) by organized dairies over the next two fiscal years will result in a gradual increase in debt levels, credit profiles will be stable backed by strong balance sheets.
"Amid a modest 2-4 per cent growth in realization, dairy industry revenues are projected to rise with a healthy 9-11 per cent growth in volumes. The VAP segment - which contributes 40 per cent percent to industry revenues - will be the main driver, driven by rising income levels and consumers' transition towards branded products.
"Increased sales of VAP and liquid milk in the hotels, restaurants and cafes (HORECA) segment will also support 13-14 per cent revenue growth in FY25," Crisil Ratings Mohit Makhija said.
The report further said that strong consumer demand will be complemented by improved raw milk supply, which is expected to increase by 5 per cent in FY25, due to better availability of fodder for livestock following the outlook favorable monsoon weather in this fiscal year.
Milk availability will be further supported by the normalization of artificial insemination and vaccination processes after suffering disruptions in the past, the report said.
Also, various measures such as genetic improvement in indigenous breeds and increasing fertility rate of higher yielding breeds will help improve milk supply, according to the Crisil Ratings report.
He said stable milk procurement prices bode well for the profitability of dairies, with their operating profitability expected to improve by 40 basis points to 6 per cent this financial year.
"While dairy revenues and profitability will improve this fiscal year, debt levels are also expected to increase, primarily for two reasons. First, a healthy milk supply during the peak season will result in higher inventory of skimmed milk powder (SMP) that will be consumed during the rest of the year.
"SMP inventory typically represents 75 percent of dairies' working capital debt. Second, continued demand for milk will require increased debt-financed investments for the acquisition of new milk, milk processing capabilities and expansion of distribution network," said Rucha Narkar, associate director, Crisil Ratings. she said.
Despite additional debt incurred for working capital and capex, credit profiles are expected to remain stable supported by low leverage, the report added.
