Indian Dairy Industry Set for Robust Revenue Growth

The Indian dairy industry is poised for a revenue growth of 13-14% this fiscal year, driven by strong consumer demand and an improved supply of raw milk, according to Crisil Ratings. Rising consumption of value-added products will support demand, while a good monsoon is expected to boost milk supply.

The increased supply of raw milk will lead to higher working capital requirements for dairy companies. Along with ongoing capital expenditure (capex) by organized dairies over the next two fiscal years, this will result in a slight increase in debt levels. However, the credit profiles of these companies are expected to remain stable due to strong balance sheets. Crisil Ratings analyzed 38 dairies, representing about 60% of the organized segment revenue, to reach these conclusions.

Mohit Makhija, Senior Director at Crisil Ratings, noted, “Despite modest growth of 2-4% in realization, the dairy industry’s revenues are projected to rise due to a healthy 9-11% growth in volumes. The value-added product segment, which contributes 40% of the industry’s revenues, will be the primary driver, supported by rising income levels and a shift towards branded products. Additionally, increased sales of value-added products and liquid milk in the hotels, restaurants, and cafes (HORECA) segment will also support revenue growth.”

Milk Supply

The strong consumer demand will be matched by an improved supply of raw milk, which is expected to increase by about 5% this fiscal year due to better cattle fodder availability and favorable monsoon conditions. Milk availability will also benefit from the normalization of artificial insemination and vaccination processes, which had faced disruptions in the past. Furthermore, initiatives such as genetic improvements in indigenous breeds and increased fertility rates of higher-yield breeds will help enhance milk supply.

Steady milk procurement prices are expected to boost the profitability of dairies, with operating profitability projected to improve by about 40 basis points to around 6% this fiscal year.

Rucha Narkar, Associate Director at Crisil Ratings, stated, “While dairy revenues and profitability will improve this fiscal year, debt levels are also expected to rise, mainly for two reasons. First, healthy milk supply during the flush season will result in higher skimmed milk powder (SMP) inventory, which will be used throughout the year. SMP inventory typically accounts for about 75% of the working capital debt of dairies. Second, continued milk demand will necessitate increased debt-funded investments for new milk procurement, processing capacities, and distribution network expansion.”

Debt and Credit Profiles

Despite the additional debt for working capital and capex, credit profiles are expected to remain stable due to low leverage. The gearing ratio of dairy companies is projected to remain at 1.8 times as of March 31, 2025, compared to 1.7 times a year earlier. Debt protection metrics are also likely to remain comfortable, with the interest coverage ratio expected to be 10-11 times this fiscal year, according to Crisil.

In summary, the Indian dairy industry is on track for significant revenue growth, supported by robust consumer demand and improved milk supply. While this will lead to higher working capital needs and increased debt levels, the strong balance sheets and stable credit profiles of dairy companies will ensure financial stability.