Organised dairy to grow 5-6%, cross Rs 1.5 trillion in FY22: Crisil

Sector seen shrugging off pandemic impact of last fiscal with improved supply chain

After hitting a nadir in 2020-21, the country’s organised dairy sector is set to bounce back in the current fiscal. In 2021-22, organised businesses are projected to grow by 5-6 per cent, to cross Rs 1.5 trillion in sectoral revenue for the first time, ratings firm Crisil estimated.

While in the past decade, growth of organised dairy in India has been steady, last fiscal the pandemic induced lockdowns hit it badly. In 2020-21, the sector grew by a meagre one per cent–lowest in a decade. However, with supply chain and delivery mechanisms better streamlined this year, it is set to grow.

According to Crisil, a subsidiary of S&P Global, healthy demand revival for value-added products (VAP) since last year’s lockdowns were lifted has the potential to drive growth this fiscal. Crisil said, “Steady demand for liquid milk will help support overall growth.” Currently, the liquid milk segment contributes 65-70 per cent towards overall  sectoral revenue, while the share of value-added products is 30-35 per cent.

“Milk procurement prices are expected to increase with increasing demand, but the higher sale of VAP will buttress material impact on profitability. Besides, skimmed milk powder inventory will also decline by the end of this fiscal, from last year's peak, easing working capital borrowings. Almost stable profitability, controlled working capital and prudent capital spend will keep credit profiles of dairies ‘stable’”, Crisil noted. Its analysis is based on 65 Crisil-related dairies that contribute over 67 per cent of the total revenue for the organised sector.

While in the last fiscal, the size of the VAP market had shrunk by three per cent, this year it is expected to grow by seven per cent as demand for most VAP products such as ghee, butter, cheese and milk powder is expected to be healthy.

“VAP revenue de-grew last fiscal year because of the complete shutdown in the first quarter, which impacted the hotels, restaurants and café segment (contributing nearly 20 per cent of organised sector revenue). This fiscal, we expect it to rebound on the back of increased home consumption and continuing food-delivery services even in regions seeing lockdowns”, said Anuj Sethi, Senior Director, Crisil Ratings.

However, local restrictions may delay demand recovery in certain VAP categories such as flavoured milk, buttermilk, lassi and ice cream, where sales had rebounded to 70-80 per cent of pre-pandemic levels in March. Sales of these products, which typically peak in summer, are likely to be affected if restrictions are prolonged like in the last fiscal. Though its impact is unlikely to be significant on overall growth, as these comprise only 14 per cent of overall VAP sales.

Sales of liquid milk are expected to grow five percent year-on-year in 2021-22 compared with three percent last fiscal, backed by increased consumption by households and non-households, supporting overall growth. As a result, milk procurement prices are expected to be 5-7 percent higher this year. Subdued demand had impacted the prices last year.