Business Standard

Profit margins of dairy companies set to improve this year, says CRISIL

The report estimates revenue growth at 12-13 per cent for FY20 and 13-14 per cent for FY21, as compared to 12 per cent for FY19

Dilip Kumar Jha I Mumbai February 14, 2020 Last Updated at 00 :42 1ST

Profit margms of dairy

companies are set to improve in the current financial year (ending March 31) due to stabilising of milk procurement prices in the current flush season, after a sharp increase in the past nine months.

A report from ratings agency CRISIL says operating earnings margins of dairy companies for 2019-20 are projected at four to five per cent, as compared to six per cent for the previous year.

F or the coming year, 2020-21 , it is forecast at six to seven per cent.

The report estimates revenue growth at 12-13 per cent for FY20 and 13-14 per cent for FY21 , as compared to 12 per cent for FYI9.

Milk prices hikes made it dearer by Rs 4-5 a litre between April and December.

In May 2019, the Gujarat Cooperative Milk Marketing Federation (better known as Amul) and Mother Dairy raised the maximum retail price of their full-cream milk pouches by Rs 2 a litre.

CASH (OW Financial performance ( 0/0 )

Year

FY15

FY16

FY17

FY18

FY19

FY20P

FY21F

Revenue growth

13.0

12.1

5.4

11.0

12.0

12-13

13-14· P: Projected I F: Forecast Source: CRISll Research

They followed with a further hike of Rs 2 and Rs 3 a litre, respectively, in December, taking it to around Rs 55 a litre.

Other large dairy processors did likewise, spurred by shortfall in milk production and thereby supply.

Production has been falling since April. It was initially due to high summer temperatures and less availability of water, made worse by delay in monsoon rain.

Then there were floods in parts of the country, which led to poor animal health. Also, waterlogging in pastures kept animals from grazing and damaged crops such as maize and sugarcane, used for fodder. All this led to a decrease in milk yield.

The rating agency forecasts India's milk production to be lower by five to six per cent this year at around 176 million tonnes.

The flush season usually begins in November-December and is estimated to have shifted by one or two months because of a delayed monsoon.

Milk procurement prices are estimated to have risen 19 per cent between April and December 2019.

Retail prices have risen by three to four per cent in the period and should be five per cent higher in FY20.

Dairy companies indicate that prices of value-added products such as butter, ghee and skimmed milk powder are also expected to have risen by close to five per cent by the end of the financial year.