New Delhi, June 2 (IANS) Dairy companies in India will see revenue grow 11-13 per cent this fiscal, compared with 10 per cent last fiscal, on strong demand dynamics, increasing share of value-added products (VAP) and higher milk prices at the retail level, a report showed on Monday.

Profitability, too, will improve 20-30 basis points (bps), aided by better realisations, healthy milk supply keeping procurement prices in check and a favourable shift towards VAP, which fetch higher margins, according to the Crisil Ratings report.

To capitalise on the healthy growth momentum, companies will ramp up capital expenditure (capex) by 10 per cent this fiscal.

A sizeable portion of this capex will be to enhance capacities for VAP, a segment that continues to outpace the traditional liquid milk category.

Despite higher capex, credit profiles will remain stable because of improving cash flows and strong balance sheets.

“The VAP segment is expected to clock a strong 16-18 per cent growth this fiscal, driven by changing consumer tastes, rising nutritional awareness and preference for protein-rich diets,” said Shounak Chakravarty, Director, Crisil Ratings.

Consequently, its share in the product mix will increase to 45 per cent from 40 per cent a couple of years back. In contrast, growth for liquid milk should be stable at 10 per cent. Overall, improved product mix, healthy volumes and rising retail prices will be the key growth drivers,” he mentioned.

What will also support dairies is a favourable monsoon forecast, stable fodder prices and increased adoption of artificial insemination to boost productivity, which will ensure steady availability of raw milk, thereby limiting the increase in procurement prices to a modest 2-3 per cent this fiscal.

Profitability will benefit from improving realisations and a modest increase in procurement prices resulting in a 20-30 bps improvement in operating margin to 5.3 per cent, supporting overall cash generation.

The prospects and healthy demand supply dynamics are already encouraging dairies to ramp up capex.

“Capital expenditure of dairy companies is expected to rise 10 per cent this fiscal to Rs 3,400 crore. The VAP segment will account for more than 60 per cent of the overall capex — a trend seen over the past three fiscals — given its higher growth potential,” said Rucha Narkar, Associate Director, Crisil Ratings.

–IANS

na/