Milk prices are likely to remain high in the current financial year due to increase in global prices of skimmed milk powder and cattle feed. Analysts at ICICI Securities said in a note on Friday that this could lead to further hike in prices by dairy companies in the first half of the financial year.
“All the dairy companies under our coverage have taken some price hike – 5% to 8%. However, rising milk procurement prices remain a major concern. We expect all dairy companies to increase prices further in the first half of the financial year.” Analysts said restaurants pushed milk procurement prices upwards. Lehar has also adversely affected milk procurement prices.
As a result, wholesale milk prices continue to rise sequentially as well as year-on-year (year-on-year). Wholesale milk prices increased by 5.8% across India in June. Milk prices in South India have risen 3.4 per cent year-on-year.
“We believe that dairy companies need to raise prices again in the coming quarters to pass on the higher procurement prices of milk,” he said. However, we continue to model dairy companies’ Ebitda (earnings before interest, taxes and amortization) margins to correct 50-100 basis points in FY23. However, with higher inflation and potentially better volumes (with higher sales to Horeka), revenue growth is likely to remain strong,” said an analyst. One basis point is 0.01%.
Families are facing problems due to high prices of everyday items. Companies are also facing raw material inflation.
Global skimmed milk powder prices have risen steadily over the past 12 months, rising 26.3% month-on-month in June and 3%-month-on-month.
“We believe that the resultant lucrative export opportunity may upset the demand-supply equation in the Indian milk industry,” it said.
According to the report, the increase in the prices of key raw materials has resulted in higher cost of food for the cows. This will encourage farmers to pass on the burden of price rise to dairy companies.