Dairy industry projected to grow 13-14% this fiscal

India’s dairy industry is projected to experience a healthy revenue growth driven by strong consumer demand and increased raw milk supply, this fiscal year. While demand will be supported by rising consumption of value added products (VAP), adequate milk supply will be driven by good monsoon prospects.  

According to a report by Crisil Ratings, India’s dairy industry is projected to experience a robust revenue growth of 13-14% this fiscal year, driven by strong consumer demand and an improved supply of raw milk. This growth is supported by increasing consumption of value-added products (VAP) and favorable monsoon conditions, which are expected to enhance milk supply by approximately 5%. 

Better cattle fodder availability and the normalization of artificial insemination and vaccination processes, which were previously disrupted, will further support this increase. Additionally, efforts to improve milk production through genetic enhancements and increased fertility rates in high-yield breeds will contribute to a higher milk supply.

However, the rise in raw milk supply will result in increased working capital requirements for dairy companies. Continued capital expenditure (capex) by organized dairies over the next two fiscal years will also lead to a modest increase in debt levels. Despite these factors, credit profiles are expected to remain stable, supported by strong balance sheets. According to CRISIL Ratings, which analyzed 38 dairies accounting for about 60% of organized sector revenue, the industry’s credit stability is evident.

As per the report, profitability is projected to improve, with operating margins likely rising by around 40 basis points to approximately 6% this fiscal year, thanks to steady milk procurement prices. 

Although additional debt for working capital and capex is anticipated, credit profiles should remain stable due to low leverage, with the gearing ratio expected to be 1.8 times as of March 31, 2025, compared to 1.7 times the previous year. Debt protection metrics, such as the interest coverage ratio, are expected to remain robust at 10-11 times. However, the monsoon will be a critical factor for ongoing supply improvements.

Rucha Narkar, Associate Director, CRISIL Ratings noted, “While the revenue and profitability of dairies will improve this fiscal, debt levels are also expected to increase, mainly for two reasons. One, healthy milk supply during flush season will result in higher skimmed milk powder (SMP) inventory which will be consumed over the rest of the year. The SMP inventory typically accounts for ~75% of the working capital debt of dairies. Two, continued milk demand will require increased debt-funded investments for new milk procurement, milk processing capacities and expanding distribution network.”