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Recent milk price hike to limit drop in profitability for organised dairies

The recent round of milk price hike will restrict the slide in profitability of the organised dairy players, who were facing margin pressure due to higher costs and increased procurement prices.

A latest Crisil Ratings report showed that the recent hike in retail milk price by ₹2 per litre will limit the slide in profitability of the organised dairy sector to 50 basis points (bps) on-year this fiscal. This is “despite a higher than anticipated rise in procurement prices, and transport and packaging costs.”

“Despite lower profitability, comfortable balance sheets and better working capital management will keep the credit profiles of players stable,” the Crisil analysis said.

India’s largest cooperative dairy player Gujarat Cooperative Milk Marketing Federation Limited (GCMMF), which markets Amul milk and Delhi-based Mother Dairy, had announced ₹2 per litre of price hike for retail pouch milk across markets in the country, effective August 17.

Surge in prices

Anand Kulkarni, Director, CRISIL Ratings, said, “Milk procurement prices have shot up 8-10 per cent in the past six months because of lower-than-expected milk collection — on account of cattle diseases in some of the major milk-producing States — and high prices of cattle feed.” “Additionally, the surge in crude price has translated into a significant increase in transport and packaging costs. This necessitated a second price hike in the past six months.”

However, Kulkarni further stated, “We don’t anticipate any more price hikes as an expected improvement in milk collection and softening input prices will support profitability in the second half of the fiscal.”

Disruptions in artificial insemination, cattle breeding and vaccination schedules had affected the supplies last year. But these issues are expected to be ironed out this year. This will result into better milk supply during the flush season generally from December to mid-March.

The CRISIL analysis also noted that the demand drivers remained strong.

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