Mumbai (Maharashtra): The recent hike in retail milk price by ₹ 2 per liter will limit the slide in the profitability of the organized dairy sector to 50 basis points (bps) on-year this fiscal, despite a higher than anticipated rise in procurement prices, and transport and packaging costs, CRISIL Ratings said in a report on Tuesday.
Despite lower profitability, comfortable balance sheets and better working capital management will keep the credit profiles of players stable, it said.
The report is based on a CRISIL Rating analysis of 40 rated dairies that account for 60 percent of the organized segment revenues.
Anand Kulkarni, Director, CRISIL Ratings, stated that “milk procurement prices have shot up 8-10% in the previous six months because of lower-than-expected milk collection — on account of cow ailments in several of the main milk-producing states — and high prices of cattle feed.”
“The cost of shipping and packaging have also increased significantly as a result of the jump in petroleum prices. This required a second price increase in the last six months as a result. As predicted improvements in milk collection and softening input prices would boost profitability in the second half of the fiscal year, we do not foresee any further price increases “said Kulkarni.
Last year’s supply was impacted by delays in artificial insemination, cow breeding, and vaccination schedules. This year, it’s anticipated that these problems will be resolved, leading to a stronger milk supply during the flush season (which refers to the peak period of raw milk supply, which is generally from December to mid-March every year).
The demand factors are still potent. While demand for liquid milk remains strong, it has been expanding steadily for value-added products (VAP; accounting for 28% of organized sector revenue), such as ghee, butter, cheese, curd, and ice cream. Profitability in the VAP market is often higher, at 7-9%, due to its relative lack of price elasticity.