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In its latest report on the dairy industry, ratings agency ICRA Research has estimated Skimmed Milk Powder (SMP) prices to remain under pressure owing to glut situation with ample availability and lower institutional demand.
ICRA noted that owing to higher milk procurement and lower sales during the Covid-19 lockdown, the organised sector produced more SMP products during the first half of fiscal 2021 due to its high shelf-life.
“Excess SMP inventory implies higher market surplus and forces producers to revise the procurement prices of milk from farmers. The current domestic SMP prices (October 2020) are approximately ₹170 per kg and are expected to remain in the range of ₹150-170 in second half of this fiscal on account of ample availability and lower demand,” ICRA said.
The ratings agency has maintained ‘negative’ outlook for the players purely into ice-cream business as Covid-19 pandemic will continue to weigh on even in the second half of the current fiscal.
Gaurav Jain, Vice-President, ICRA, stated that liquid milk sales is expected to grow at 4-5 per cent in fiscal 2020-21, while value-added dairy products sales will also sustain owing to higher home consumption during the lockdown period. Jain also stated that institutional sales for certain products such as cheese, which got impacted due to lockdown period in the first half, may recovery during second half of the fiscal as restaurants are being allowed.
“The only exception is ice-creams category which severely suffered a contraction in Q1 FY2021 owing to lockdown as it coincided with the peak summer sales season. There was also general averseness to consuming cold products during the pandemic,” Jain added.
Ice-cream segment (3-4 per cent of organised segment revenues) witnessed a much higher decline as peak summer season was washed off, the summer period generates 45-50 per cent of the turnover and 70-80 per cent of the yearly EBIDTA for these players.
ICRA maintained ‘Stable’ outlook for liquid milk & integrated milk products makers. But it flagged a possible stretched liquidity position for lower-rated dairy players and cooperatives mainly due to excess Skimmed Milk Powder (SMP) inventory.
Notwithstanding Covid-19, the demand for milk (constituting ~55-60% of organised segment revenues) has been inelastic and is expected to grow by 3-5% volume-wise current fiscal.
Value-added products
Traditional value-added products like ghee (13-14 per cent of organised sector) will see muted volume growth due to lower institutional sales, also products like cheese (3-4 per cent of organised sector) will see a 10-15 per cent Y-o-Y decline, led by lower hotels, restaurants and cafes (HoReCa) sales during first half of this fiscal.
India is the largest producer and consumer of milk & milk products, accounting for 22 per cent of the total global output. Production in fiscal 2019-20 is estimated to be 192 million tonnes (mt) out of which 188 MT was consumed. ICRA expects the milk production to rise to 200-202 mt in fiscal 2020-21. The the growth through 2020-23 is likely to be CAGR of 5 per cent.
Given good monsoon conditions with no major instances of flooding that affects cattle feed availability and leads to disease outbreak, the volumes are expected to grow at 4-5 per cent in fiscal 2020-21.
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