India’s dairy industry revenue expected to rise 13-14 percent this Fiscal Year: CRISIL Ratings

CRISIL Ratings projects a healthy revenue growth of 13-14 percent for India’s dairy industry this fiscal year, supported by sustained consumer demand and enhanced raw milk supply. This growth is driven by a surge in value-added product (VAP) consumption and favorable monsoon conditions ensuring ample milk production.

According to a recent analysis by CRISIL Ratings, which assessed 38 dairies representing approximately 60 percent of the organized sector’s revenue, the sector is poised for a notable revenue increase. Mohit Makhija, Senior Director at CRISIL Ratings, highlights that while realisation growth will be modest at 2-4 percent, the industry’s revenue surge will be predominantly driven by a healthy 9-11 percent growth in milk volumes. The VAP segment, contributing 40 percent to industry revenues, is projected to be the main growth driver, fueled by rising consumer incomes and a shift towards branded dairy products. Additionally, the growth in the hotels, restaurants, and cafes (HORECA) segment is expected to further bolster revenue.

Increase in raw Milk Supply Expected

The anticipated increase in raw milk supply, estimated at around 5 percent this fiscal, is attributed to better availability of cattle fodder due to favorable monsoon conditions. The normalization of artificial insemination and vaccination processes, alongside genetic improvements in indigenous breeds and enhanced fertility rates in high-yield breeds, will further support milk production. Steady milk procurement prices augur well for the profitability of dairies, and their operating profitability is expected to improve 40 basis points to 6 percent this fiscal.

Debt Levels to Rise Amidst Revenue and Profitability Gains

Rucha Narkar, Associate Director at CRISIL Ratings, noted that while dairies are expected to see improvements in revenue and profitability this fiscal year, debt levels are likely to rise for two main reasons. First, the robust milk supply during the flush season will lead to increased inventories of skimmed milk powder (SMP), which typically constitutes about 75% of dairies' working capital debt. Second, sustained milk demand will necessitate greater debt-funded investments in new procurement, processing capacities, and distribution network expansion.

Stable Credit Profiles Expected Despite Higher Debt Levels

Despite the increased debt for working capital and capital expenditures, credit profiles are expected to stay stable due to low leverage. The gearing ratio for industry players is projected to remain at 1.8 times by March 31, 2025, up from 1.7 times the previous year. Additionally, debt protection metrics are anticipated to remain strong, with the interest coverage ratio expected to be between 10 and 11 times this fiscal year.