Prompted by rising milk procurement prices, private dairy companies as well as co-operatives have been making moderate price hikes, according to a report by brokerage ICICI Securities.

“While the co-operatives had raised prices in Q3FY22, the dairy companies had deferred the price hikes. We note the private dairy companies have also raised selling prices by ₹2 per litre in January 2022. We believe price hikes will help to reduce the impact on margins,” analysts at the brokerage said in a report on the sector released Monday.

Milk procurement prices have started inching upwards on the back of culmination of the flush season and a steady increase in animal feed prices.

Meanwhile, global skimmed milk powder prices have increased 34% year-on-year and 8% month-on-month. The brokerage experts a “steady” increase in global skimmed milk powder prices to result in higher prices in India too. It may also lead to higher milk procurement prices in coming months, it said.

Meanwhile, as the impact of the ongoing wave of covid-19 ebbs, demand is likely to go up.

“We note reopening of schools will lead to higher demand for milk. While it may lead to higher revenues of dairy companies, it may also lead to lower margins,” it said.

As a result, companies have already initiated pricing actions. “We expect all dairy companies to be impacted YoY due to higher milk procurement prices. While favourable base of Q4FY21 provides some support, we believe higher milk procurement may impact EBITDA margins in FY23,” the report said.

Source : The Mint Feb 21st 2022