Profitability of dairy industry to reduce by 0.50-0.75% : Crisil report

Crisil reserach published their report on dairy sector. Sales of Value added products like ice cream, cheese, flavoured milk, curd and yoghurt to degrow 2-3% this fiscal.Value added products are more profitable than liquid milk .

VAP account for 30% of the organised dairy sector’s revenue, This would reduce operating profitability by as much as 50-75 basis points (bps).

Working capital needs of dairies with revenues below Rs 500 Crores will increase due to stocks of dairy commodities.

The analysis in report is based on analysis of 65 CRISIL-rated dairies . These dairies account for slightly more than two-thirds of the Rs 1.5 lakh crore revenue of the organised dairy segment.

Steady liquid milk sales, comprising two-thirds of total industry sales, will prevent a bigger fall in revenue. The lockdown has not affected the supply of milk since it is an essential product. Overall, therefore, milk sales should rise 3-4% this fiscal.

An extension of the flush season by a couple of months led to oversupply of milk in the lean.

Consequently, dairies from the cooperative sector are better off in terms of liquidity and working capital. They have converted such excess milk into SMP. The upshot will be that year-end inventory could rise 14% after dropping sharply in March 2020. It may result in higher working capital needs.