Indian dairy firms to see 11–13% revenue growth this fiscal: CRISIL
CHENNAI: India's dairy industry is poised for robust growth in FY 2025, driven by sustained demand, an increasing share of value-added products (VAP), and favourable input conditions. According to CRISIL Ratings, dairy companies are expected to witness revenue growth of 11–13% this fiscal, outpacing the ~10% growth recorded in the previous year. This expansion is supported by improved product mix, rising consumer demand for protein-rich and nutritious products, and higher retail prices.
Key Drivers:
Strong consumption patterns, increasing retail milk prices, and accelerated growth in the VAP segment, including cheese, yogurt, paneer, and flavored milk are considered to be the key factors that will drive the growth for the industry.
Continued expansion in organised dairy retail and cold-chain infrastructure could also push the growth for the key players.
Profitability Trends
Operating margin for the companies expected to improve by 20–30 basis points (bps), reaching approximately 5.3%. This is mainly supported by improved product realisations, limited increase in procurement prices (2–3%), thanks to healthy milk supply, and rising share of high-margin VAP in the product portfolio.
Stable fodder prices and productivity gains from widespread adoption of artificial insemination will also boost the profitability.
Value-Added Products (VAP) Outlook
Crisil expect the growth in the value added product segment at 16–18% in FY 2025. The share in product mix is expected to rise to about 45%, up from 40% two years ago.
"The VAP segment is expected to clock a strong 16–18% growth this fiscal and an improved product mix, healthy volumes and rising retail prices will be the key growth drivers in this segment, ' says Shounak Chakravarty, Director, Crisil Ratings
The other important growth drivers for the Indian diary sector include shifting consumer preferences, rising nutritional awareness, and increasing demand for protein-rich diets.
Capital Expenditure (Capex)
According to Rucha Narkar, Associate Director, Crisil Ratings, the sector's capex growth is projected to increase by about 10%, reaching approximately Rs 3,400 crore this fiscal. Over 60% of this will be allocated towards expanding VAP capacity and the remainder for enhancing liquid milk processing and supply-chain infrastructure.
Despite the capex increase, credit profiles remain stable due to strong cash flows and balance sheets.
' The VAP segment will account for more than 60% of the overall capex — a trend seen over the past three fiscals,' says Narkar.
Credit Profile & Financial Metrics
Interest coverage ratio in the dairy sector is expected to remain strong at more than 8 times, estimates Crisil.
While, the net cash accruals to repayment obligation is estimated at about 2.6 times (vs. 2.8 times last fiscal).
These figures reflect a healthy balance sheet condition, with sufficient headroom to absorb higher capex without straining liquidity, expects Crisil.
Risks and Watch Factors
However the industry is not free from risk. A normal and timely monsoon remains critical to maintain fodder availability and milk productivity, and timely commissioning of planned expansions is essential to meet rising demand and sustain profitability margins, warns Crisil.
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