Dairy sector upbeat on revenue growth in FY14

Expects margins to improve by 10-12%

The Gujarat Cooperative Milk Marketing Federation (GCMMF) is eyeing a 30 per cent rise in revenues in the current financial year, at Rs 18,000 crore, in FY14. Down south, Hatsun Agro Product Ltd, a major private dairy in Chennai, expects revenues to grow 17-18 per cent in FY14 from Rs 2,500 crore last year, while Maharashtra-based Parag Milk Foods estimates its revenues would grow 25 per cent from last year’s Rs 1,100 crore. In the north, Punjab-based Verka Dairy, too, feels that with competitive rates, profitability is likely to improve by 10-12 per cent.

R S Sodhi, managing director of GCMMF, which sells milk and milk products under the Amul brand, said: “For the last five years, the compounded annual growth (in revenues) rate has been in the range of 20 per cent. The incremental growth this year will come from the price increase.” He added that for GCMMF, the profits are passed on to the producers or farmers, and on an average, farmers get 10-12 per cent more procurement price this year. GCMMF is paying an average procurement price Rs 500 a kg fat of milk to the farmers, which is up by about Rs 40 a kg fat compared to last year.

According to dairy industry insiders, while milk production has been up by around five per cent during the financial year (around 340 million litres a day), the demand has also risen commensurately, thereby avoiding building up of any surplus in the market. Add to this the export of skimmed milk powder (SMP) and India is expected to export in excess of 100,000 tonnes of SMP this year.

Players such as Parag Milk Foods expect to more than double their turnover from exports to Rs 300 crore this financial year (from Rs 120 crore in FY13) mainly on the back of SMP and cheese exports. Sodhi, too, informed that GCMMF is exporting close to 8,000-10,000 tonnes of SMP in a month. Nandkishor Attal, chairman and managing director of Maharashtra-based Vaishno Devi Dairy Products claimed SMP prices have firmed up in the international markets. “Prices at present are Rs 4,200-4,300 a tonne compared to Rs 3,000-3,100 a tonne around a year ago.”

Also, the demand for value-added products is on the rise, and margins are much higher in this segment. For example, while margins in liquid milk are around four per cent, in items such as curd, margins are way higher, around 20 per cent.

Dairies such as Parag Milk Foods and Verka are expecting margins to improve by 10-12 per cent. While R G Chandramogan, chairman and managing director of Hatsun Agro, did not wish to comment on the exact margins, he, nonetheless confirmed that margins are definitely going to increase this year. “With volumes increasing, together with optimisation of capacity utilisation, profitability will improve,” he said. Buoyed by the increased demand, Parag has raised production by 30 per cent. “We are now handling 1.4-1.6 million litres a day, which is around 30 per cent more than last year,” said Devendra Shah, chairman and managing director of Parag Milk Foods.

However, Chandramogan is of the view that production growth would moderate to 3.5 per cent in the next financial year.