Dairy Sector Outlook - Milk Procurement Prices Likely To Remain Stable/Lower In Near-Term: ICICI Securities

ICICI Securities Report

Key observations for milk prices based on our discussions with dairy companies and channel checks are:

• Wholesale milk prices have risen YoY in August 2023;

• there is a steady deceleration in milk price inflation in south India; inflation has declined from 12.8% in December 2022 to 9.6% in Aug-23 (but inflated on month-on-month basis);

• milk procurement prices are likely to remain stable/ slightly lower till end of CY23.

The onset of a healthy flush season, normal monsoon, reducing impact of lumpy skin diseases, and stabilising global supplies are likely to act as key triggers for stable milk procurement prices.

We maintain the thesis of a cyclical recovery in the dairy sector in H2 FY24E-FY25E.

We remain constructive on the sector due to its strong return ratios (more than cost of capital) across cycles and likely recovery in margins in H2 FY24. We have a 'Buy' rating on Heritage Foods Ltd., 'Add' on Dodla Dairy Ltd. and 'Hold' on Hatsun Agro Products Ltd.

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