Milk prices could remain high in the current financial year on account of the high global prices of skimmed milk powder and cattle feed. This could prompt dairy companies to hike prices further in the first half of the financial year, analysts at ICICI Securities said in a note on Friday.

“All the dairy companies under our coverage have taken some price hikes—5% to 8%. However, rising milk procurement prices remain a key concern. We expect all dairy companies to take further price hikes in H1FY23E,” analysts said in a note on the dairy sector. High demand for milk led by increasing out-of-home consumption of such products and the opening up of channels such as hotels and restaurants has pushed milk procurement prices upward, the analysts said. Increase in cattle feed prices and the heat wave have also adversely impacted milk procurement prices, they said.

As a result, wholesale milk prices continue to increase sequentially as well as year-on-year (y-o-y). Wholesale milk prices increased 5.8% y-o-y pan-India in June. Milk prices in South India are up 3.4% y-o-y.

“We believe the dairy companies need to raise prices again in the coming quarters to pass on higher milk procurement prices. However, we continue to model Ebitda (earnings before interest, taxes, and amortization) margins of dairy companies to correct 50-100 basis points in FY23. However, with higher inflation and likely better volumes (with higher sales to HoReCa), the revenue growth is likely to remain strong,” said an analyst. One basis pointis 0.01%.

Households are facing the pinch because of the higher prices of everyday goods. Companies, too, continue to face raw material inflation.

Global skimmed milk powder prices have steadily increased over the past 12 months, increasing 26.3% y-o-y and 3% month-on-month in June.

“We believe the consequent attractive export opportunity may disturb the demand-supply equation in the Indian milk industry,” said.

Rise in prices of key raw materials has resulted in higher cost of food for bovines, according to the report. This will prompt farmers to pass on price increases to dairy companies.

Source : Livemint : June 10th 2022