Revenue of India’s organised dairy industry will rebound a solid 12% on-year this fiscal to Rs 1.6 lakh crore, compared with a decadal low growth of ~1% last fiscal, riding on strong demand recovery in most value-added dairy products (VAP), steady liquid milk sales, and retail price hikes during the fiscal.

Steady demand for both VAP (around one-third share of organised sector sales) and liquid milk (around two-thirds share) is likely to lead to 5-6% growth next fiscal, too, in line with the pre-pandemic trend. More potential retail price hikes provide further upside.

Operating profitability, however, will be set back to the pre-pandemic level of 5-5.5% in the next two fiscals — from the peak of 6% seen in fiscal 2021 — because of high raw milk prices, along with higher transportation and packaging costs, and despite dairies increasing retail product prices by 3-4% across categories this year. To be sure, while milk availability has increased in the ongoing flush season¹, it is still not sufficient to meet the healthy demand for VAP, leading to high raw milk prices.

That being said, better revenue growth and near-stable operating profits, along with well-managed balance sheets, will lead to a ‘stable’ credit outlook for dairy players.

A CRISIL Ratings analysis of 57 rated dairies, which account for nearly two-thirds of the organised segment revenue of ~Rs 1 lakh crore, indicates as much.

Milk is consumed in two forms – liquid and VAPs. Dairies convert liquid milk into skimmed milk powder (SMP) for use in the lean season, when milk supplies decline. SMP can be reconverted into liquid milk or VAP and has a shelf life of 12-18 months. Demand for VAPs such as ghee, butter, cheese, curd, and SMP saw strong recovery amid the festive and wedding season in third quarter of this fiscal, and reopening of commercial establishments on a pan-India basis.

Says Anuj Sethi, Senior Director, CRISIL Ratings, “VAP sales growth is expected to be 17-18% this fiscal on a lower base of last fiscal. This, in turn, will be driven by strong volume growth of 13-14% as hotels, restaurants and café (HORECA segment, accounting for ~20% of organised sector sales) have opened up, and festive and wedding celebrations, as well as home consumption have increased. The second and third Covid-19 waves have had no material impact on most dairy segments, with food-delivery services and eateries continuing to function despite local restrictions.”

That said, the first and second Covid-19 waves had coincided with peak summer season for ice-creams (14% of overall VAP sales) and partially impacted demand.

On the other hand, liquid milk sales volume is expected to remain steady at 6% this fiscal. That, coupled with retail price hikes already taken, would lead to sales growth of 10% this fiscal.

Says Tanvi Shah, Associate Director, CRISIL Ratings, “About 70-75% of the working capital requirement of dairies is towards SMP inventory, which is expected at higher levels compared with the pre-pandemic period due to steady milk procurement this flush season. However, well managed balance sheets and near-steady operating profits would lead to stable credit outlook for dairy players. We expect key debt metrics such as gearing and interest coverage ratio² to remain comfortable at 1.2 times and 6.5 times, respectively, in the near term.”

¹Flush season refers to the peak period of raw milk supply, which is generally from December to mid-March every year.
²Interest coverage continues to be supported by interest subvention of up to 4% on working capital loans to dairy cooperatives. This scheme has been extended till March 31, 2026.