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Godrej Agrovet engages EY to boost margins of its dairy business

Godrej Agrovet Ltd has engaged the services of consultant, EY, to advise its subsidiary, Creamline Dairy Products, on how best to boost margins by streamlining its supply chain through direct procurement of milk, among other things.

Bhupendra Suri, CEO, Creamline Dairy Products, told businessline that EY will be working with the management to suggest ways to bring more efficiency into milk procurement, preferably directly so that farmers also gain and get the best possible price.

The price of milk has shot through the roof and now is well over ₹60 a litre. This has been affecting the margins of dairy product makers, especially since for many of them, like Godrej Agrovet, there has been a higher increase in milk procurement costs compared to the selling price.

Only 20 percent of Creamline’s milk requirements are procured directly from farmers, and the bulk of it is sourced through agents. The rise in prices has affected the company’s profitability and its gross profit margins are below industry levels. One of the main reasons for this is the lower share of direct procurement in the supply chain and this is where EY is stepping in. Suri said that the consultant will also be suggesting ways to bring more efficiency in the supply chain for a faster turnaround since milk is extremely perishable with a short shelf life. The fortunes of the dairy business depend a lot on operating leverage (by increasing revenue) and direct procurement of milk.

Creamline Dairy reported a loss at the operating level in the nine months to December 31, while parent, Godrej Agrovet, reported an operating profit margin of 7.5 per cent in that period. The dairy businesses’ contribution margins on liquid milk are at 5-9 per cent, on curd and buttermilk 12-16 per cent, and on other products at 9-12 per cent.

Creamline Dairy makes a range of dairy products under its flagship, Jersey brand, including milk, curd, cottage cheese, ghee, milkshakes, and milk-based sweets.

In FY23 year to date, Godrej Agrovet has seen an 11 per cent rise in milk sales volumes, while that of value-added products has risen nearly 40 per cent. It expects Creamline Dairy’s topline to rise beyond ₹1500 crore this year with benefits from operating leverage.

In the first nine months of FY23, the dairy business contributed slightly over 14 per cent to Godrej Agrovet’s total revenue of ₹7,279 crore. The segment’s contribution to profit before interest, tax was 7-8 percent.

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