The organized dairy industry is likely to witness 12 percent revenue growth this financial year to reach Rs 1.6 lakh crore, mainly due to the recovery in demand for value-added products (VAPs), steady liquid milk sales, and a hike in the retail price, a report said on Friday.

Revenue of India's organized dairy industry will rebound a solid 12 percent year-on-year this fiscal to Rs 1.6 lakh crore, compared with a decade-low growth of one percent last fiscal, riding on strong demand recovery in most VAP, steady liquid milk sales, and retail price hikes during the fiscal, according to a report by Crisil Ratings.

Steady demand for both VAP (around one-third share of organized sector sales) and liquid milk (around two-thirds share) is likely to lead to 5-6 percent growth next fiscal as well in line with the pre-pandemic trend, the report estimated.

Operating profitability, however, will be set back to the pre-pandemic level of 5-5.5 per cent in the next two fiscals from the peak of 6 per cent seen in fiscal 2021. This is due to high raw milk prices along with higher transportation and packaging costs even as dairies increasing retail product prices by 3-4 per cent across categories this year.ADVERTISING

Apart from this, better revenue growth and near-stable operating profits, along with well-managed balance sheets, will lead to a 'stable' credit outlook for dairy players, Crisil Ratings added.

The report is based on a Crisil rating analysis of 57 rated dairies, which account for nearly two-thirds of the organised segment revenue of Rs 1 lakh crore.

Demand for VAPs such as ghee, butter, cheese, curd, and SMP saw a strong recovery amid the festive and wedding season in the third quarter of this fiscal and the reopening of commercial establishments on a pan-India basis.

"VAP sales growth is expected to be 17-18 percent this fiscal on a lower base of last fiscal.

"This, in turn, will be driven by strong volume growth of 13-14 percent as hotels, restaurants, and cafes (accounting for 20 percent of organized sector sales) have opened up, and festive and wedding celebrations, as well as home consumption, has increased," Crisil Ratings Senior Director Anuj Sethi said.

The second and third Covid-19 waves have had no material impact on most dairy segments, with food-delivery services and eateries continuing to function despite local restrictions, he added.