Dairy Sector Check - Strong Potential For Margin Expansion To Continue In H1 FY25E: ICICI Securities

ICICI Securities Report

Trends in milk prices:

1. Wholesale milk prices have remained elevated YoY in March 2024.

2. Milk prices in south India have inflated 5.9% YoY in March-24, after remaining in a deflationary trend in CY23 and

3. skimmed milk powder prices have increased 4.2% YoY in March-24 but corrected month-on-month.

We note milk supply has remained strong even in March-24, indicating lower/ stable milk procurement prices. We also note dairy companies are accumulating SMP inventory at lower levels.

It can help in maintaining profitability even if there is a rise in milk procurement prices. Hence, we believe there is strong potential to expand margins YoY even in H1 FY25E.

We remain constructive on the sector led by its strong return ratios (more than cost of capital) across cycles and likely higher margins in H1 FY25E.

We have Buy rating on Heritage Foods Ltd., Add on Dodla Dairy Ltd. and Hold on Hatsun Agro Products Ltd.

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