Gross Margins For Dairy Companies To Improve Sequentially In FY2024: Report

Raw milk procurement prices are expected to witness correction due to improvement in milk availability with the onset of the flush season in H2 FY2024. Consequently, industry profit margins are expected to start improving sequentially, the rating agency Icra said in a report.

Domestic milk supply was impacted in FY2023 due to the incidence of lumpy skin disease (LSD) in cattle and its impact on the milk yields during the flush season, thus resulting in a demand-supply gap as demand remained steady. Icra expects a healthy improvement in milk supply by H2 FY2024 as these factors are likely to ease.

Raw milk demand remained buoyant in FY2023 with both liquid milk and value-added dairy product (VADP) segments witnessing a healthy volume growth of eight to ten per cent and 18 to 22 per cent, respectively, for Icra's sample set. This was despite industry-wide raw milk price hikes. 

The rating agency expects the raw milk demand to remain healthy in FY2024 from both the retail and the Horeca segments.  

Fodder and cattle feed prices increased in FY2023 due to erratic weather conditions. With the delayed onset of monsoons, inadequate and uneven rainfall through June 2023 and consequent year-on-year (YoY) lag in kharif sowing across most crops, fodder and feed prices remained firm. 

However, pick-up in monsoon over the last few weeks is likely to accelerate kharif sowing pace, which would determine price corrections. Nevertheless, Icra estimates green fodder availability to be adequate for the season.

Notably, the rating agency's sample set witnessed a YoY increase of 17 to 19 per cent in raw milk procurement prices during FY2023. Although the dairy companies took around 11 to 13 per cent retail price hikes over the last few quarters, the increased costs were not passed on completely. 

With the normal flush season in the South in early FY2024, milk procurement prices are witnessing a correction. Prices in North India are expected to moderate during the flush season in H2 FY2024 amid better milk availability. 

"The gross margins for dairy companies are thus expected to improve on a sequential basis," it mentioned.