The share of value added dairy products (VADP) in the milk and milk derivatives segment is expected to grow by around 25 per cent till 2019-20, Care Ratings said.
The profitability in liquid milk space ranges from 4-5 per cent, whereas the profitability in VADPs ranges from 12 to 18 per cent, attracting private participation in the industry.
The share of VADP in the milk and milk derivatives segment is growing currently at around 25 per cent every year and is expected to grow at the same rate until 2019-20, the agency said in its report on dairy industry.
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The Indian dairy industry is witnessing growth backed by the rising consumption and higher margins in the VADPs.
As per National Dairy Development Board, the Indian dairy industry is all set to experience high growth rates in the next eight years with demand likely to reach 200 million tonnes by 2022 from 132 million tonnes in 2013, report said.
Increasing share of the VADPs in the overall dairy industry augurs well for the participants as the same is likely to drive sales and improvement in the operating profitability resulting into better cash flow generation. Subsequently, there is a high possibility of improvement in the credit profiles of the dairy players, the report said.
Rising consumption coupled with better margins in VADPs are driving the dairy players to get into the growth and higher profitable trajectory, it said.
Product innovations are likely to accelerate India's dairy market which is anticipated to improve industry margins by attaining greater scale, higher capacity use and an increasing contribution from new milk variants. Further, the development of processing and packaging technology along with improvement in retail and cold storage infrastructure has increased the shelf life of dairy products.
Traditionally, dairy industry was more focused towards liquid milk alone. However, factors such as rising disposable income, structural changes in food habits coupled with better margins in the VADP segment lead the existing players think beyond the liquid milk, the report observed.
Consequently, investors' have shown keen interest in the dairy space and have invested into slew of dairy companies in this part of the world.
Recently, Groupe Lactalis SA, France, one of the largest dairy players in the world, acquired 100 per cent of Tirumala Milk Products Pvt Ltd.
