Dodla , Heritage , Parag : Why is Investec bullish on dairy sector?
The Indian dairy sector, which has experienced several obstacles in the last three years, such as demand disruptions due to the COVID-19 pandemic and milk shortages that led to a sharp increase in prices, is finally moving past the tough stretch and offers an opportunity for investors to tap into the rising discretionary consumption in the country.
As consumer preferences evolve towards value-added dairy products, private players should gain. In the medium term, the anticipated decrease in inflationary pressures should drive earnings growth, the brokerage firm Investec said in its report issued on April 13.
The brokerage has initiated coverage of India’s dairy sector with a positive outlook. Its pecking order is DODLA > HERITAGE > PARAG > HATSUN.
The brokerage notes that private dairy companies are poised for significant growth with key structural demand drivers in place, especially as the industry shifts towards a more organised sector. "As consumer demand expands beyond traditional liquid milk to value-added dairy products, private players stand to benefit. Additionally, industry consolidation is expected to support further the growth of private dairy companies, positioning them as viable alternatives to larger cooperatives," it said.
Further, the brokerage notes that the tide is turning in favour of the sector after three years of tough times. There has been some respite lately with a consistent supply of raw milk causing a drop in prices, leading to better operating margins. "As a result, we predict that a mix of lower inflation and healthy demand will boost earnings for the dairy industry, with private companies reaping the most benefits," it notes.
Source: Investec report