The Indian dairy industry is set for a revenue growth of 13-14 per cent this fiscal, as strong consumer demand continues along with improved supply of raw milk. While the demand will be supported by rising consumption of value added products, the ample milk supply will be driven by good monsoon prospects, Crisil Ratings said in a statement.

The rise in raw milk supply will also lead to higher working capital requirements for dairy players. That, along with continued capital expenditure (capex) by organised dairies over the next two fiscals will result in debt levels inching up. Nevertheless, credit profiles will be stable, supported by strong balance sheets. A Crisil Ratings analysis of 38 dairies accounting for about 60 per cent of the organised segment revenue indicates as much.

Mohit Makhija, Senior Director, Crisil Ratings said, “Amidst modest growth of 2-4 per cent in realisation, the dairy industry’s revenues are seen rising on healthy 9-11 per cent growth in volumes. The value added product segment — contributing 40 per cent of the industry revenues — will be the primary driver, fuelled by rising income levels and consumer transition towards branded products. Rising sales of value-added products and liquid milk in the hotels, restaurants and cafes (HORECA) segment will also support the revenue growth.”

Milk supply

The strong consumer demand will be complemented by improved raw milk supply which is expected to increase by about 5 per cent this fiscal, due to better cattle fodder availability, given the favourable monsoon outlook this fiscal. Milk availability will be further supported by normalisation of artificial insemination and vaccination processes after facing disruption in the past. Additionally, various measures such as genetic improvement in indigenous breeds and increase in fertility rate of higher yield breeds will help enhance milk supply.

Steady milk procurement prices augur well for the profitability of dairies, and their operating profitability is expected to improve by about 40 basis points to around 6 per cent this fiscal.

Rucha Narkar, Associate Director, Crisil Ratings said, “While the revenue and profitability of dairies will improve this fiscal, debt levels are also expected to increase, mainly for two reasons. One, healthy milk supply during flush season will result in higher skimmed milk powder (SMP) inventory which will be consumed over rest of the year. The SMP inventory typically accounts for about 75 per cent of the working capital debt of dairies. Two, continued milk demand will require increased debt-funded investments for new milk procurement, milk processing capacities and expanding distribution network.”

Despite additional debt contracted for working capital and capex, the credit profiles are expected to remain stable supported by low leverage. The gearing of the players is expected to remain at 1.8 times as on March 31, 2025, compared with 1.7 times a year earlier. Debt protection metrics are likely to remain comfortable, too, with interest coverage ratio seen at 10-11 times this fiscal, Crisil said.

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