Organized dairies to achieve 12% revenue growth in current fiscal: Crisilo

Steady demand for both VAP (about one-third of organized sector sales) and liquid milk (about two-thirds) are expected to grow by 5-6% in the next fiscal, in line with the pre-pandemic trend. Is. Rating agency report on this sector said.

The report added that more potential retail price hikes provide further upside.

Operating profitability, however, will be set back to pre-pandemic levels of 5-5.5% over the next two fiscal years – from the peak of 6% seen in FY21 – due to higher raw milk prices as well as higher transportation and packaging CRISIL said cost, and despite a 3-4% hike in retail product prices for dairies this year, Crisil said.

To be sure, while the availability of milk has increased in the current flush season, it is still not enough to meet the healthy demand for WAP, leading to higher raw milk prices.

That being said, better revenue growth and near-steady operating profits, along with a well-managed balance sheet, will foster a ‘stable’ credit outlook for dairy players.

CRISIL rating analysis of 57 rated dairies, which account for nearly two-thirds of the revenue of the organized segment. 1 lakh crore, indicates as much.

Milk is consumed in two forms – liquid and VAP. When milk supply becomes low, dairies convert liquid milk to skimmed milk powder (SMP).

SMP can then be converted to liquid milk or VAP and has a shelf life of 12-18 months. The third quarter of the current financial year saw a strong recovery in demand for VAPs like ghee, butter, paneer, curd and SMP amid the festive and wedding season and reopening of commercial establishments on a pan-India basis.

Anuj Sethi, senior director, CRISIL Ratings, said, “VAP sales growth is expected to be 17-18 per cent this fiscal on a low basis from the previous fiscal. This, in turn, will be driven by strong volume growth of 13-14% as hotels, restaurants and cafes (the HORECA segment, accounting for 20% of organized sector sales) have opened, and celebrations and wedding celebrations, as well as With the increase in household consumption. The second and third Covid-19 waves have had no physical impact on most dairy sectors, with food-delivery services and eateries continuing to function despite local restrictions. ,

That said, the first and second Covid-19 waves coincided with the peak summer season (14% of total VAP sales) and partially impacted demand for ice cream.

On the other hand, the sales volume of liquid milk is expected to remain stable at 6% in the current fiscal. With the hike in retail prices already done, there will be a 10% increase in sales this fiscal.

Tanvi Shah, Associate Director, CRISIL Ratings, says, “Around 70-75% of the working capital requirement of dairies is towards SMP inventory, which is at a higher level than the pre-pandemic period due to stagnant milk procurement this flush season. is expected to be. However, a well-managed balance sheet and near-steady operating profit will lead to a stable credit outlook for the dairy players. We expect key debt metrics such as gearing and interest coverage ratio 2 to remain comfortable at 1.2x and 6.5x respectively in the near term.