Rising price of milk procurement and higher operating costs keep dairy industry under pressure even as companies attempt to hike retail prices to combat margin pressures.
While the revenue of the top six diary companies is expected to grow 12-14 per cent this fiscal, backed by strong demand revival and increase in retail prices, operating profit margins are expected to contract by 1.2-1.6 per cent.
The hike in retail price is expected to only partially ease input cost pressures.
Milk output in the first half of this fiscal was hit by the outbreak of Lumpy Skin Disease (LSD), especially in the northern states, rating agency ICRA said.
It expects milk production growth of 4-5 per cent this fiscal.
Sheetal Sharad, Vice-President, ICRA, said raw milk procurement prices increased last fiscal, led by healthy demand and constricted availability owing to the disruption in cattle insemination programmes during the pandemic. Raw milk prices have continued to rise in the current fiscal too, owing to rising cattle feed and fodder prices.
While erratic monsoons impacted fodder availability, the rising prices of grains like maize, wheat and soyabean led to soaring prices of cattle feed concentrate.
The outbreak of LSD briefly limited milk availability. Furthermore, companies faced rising logistics, processing and packaging expenses, she said.
The industry has liquidated skimmed milk powder inventory last fiscal, in line with expectations, aided by good demand recovery and rise in domestic prices.