Value-Added Products Will Help the Dairy Sector Gain 11-12 Percent in Sales in FY23, says Report

According to research, India's organized dairy sector is expected to rise 11-12 percent in revenue this fiscal year, marking the second consecutive year of double-digit growth, owing to strong demand for value-added products (VAP).

Even if sales of milk remain stable and the full-year benefit of retail price hikes introduced last fiscal is recognized, this revenue gain will be driven by solid demand for VAP (28 percent of overall sales), it stated.

The demand for ice cream, curd, and flavored milk is likely to rebound strongly within VAP, according to the report.

Dairies' expenditure plans will be revived as a result of improved operating performance as well as properly managed balance sheets and enhanced control over working capital while their credit outlooks remain stable.

Due to the unusually hot weather, we anticipate demand for ice cream, curd, and flavored milk to peak this summer.

According to Aditya Jhaver, Director of Crisil Ratings, this, combined with stable market growth for household consumption-driven products like ghee and paneer, a strong recovery in the HoReCa (hotels, restaurants, and cafe) segment, and price hikes from the previous fiscal, will drive VAP revenue growth of 13-14 percent this fiscal.

According to the report, milk sales, on the other hand, should climb by 9-10% this fiscal year, thanks to the full-year effect of two price hikes last year, even as volumes stay stable.

Dairies raised milk prices by Rs 2 per liter between June 2021 and February 2022, resulting in a 4-5 percent increase in average realization year over year this fiscal.

Inflationary pressures on transportation and packaging costs will also reduce operating profitability to 5% this fiscal year, down from 5.3 percent last year. According to the analysis, incremental increases in retail prices will help to cushion operating profitability.