Dairy sector to milk Rs 10k-cr investments in 5 years
As the Rs 4 lakh-crore Indian dairy industry catches the fancy of corporate giants, the sector is estimated to see investments worth Rs 9,000-10,000 crore over the next five years.
Analysts feel the major share of investments would be for creating infrastructure at farm for collection and storage of milk.
Ashok Sharma, president and chief executive, agri and allied services, Mahindra and Mahindra, which has recently forayed into dairying with its Saboro brand, explained, “The value of dairy industry at the retail level is Rs 4 lakh crore.
The share of the organised industry is approximately 30 per cent and is growing at a robust rate of 15 per cent per annum. The value added segment is the major driver of this growth with around 18-20 per cent growth. Curd, lassi and buttermilk are growing at around 18 per cent while the smaller categories like flavoured milk, yoghurt and cheese are growing upwards of 20 per cent per annum.”
This high rate of growth and increasing preference for branded products is what is drawing players like Mahindra and Mahindra. A Crisil ratings report said the share of value-added products in fiscal 2015 is estimated at 43 per cent, up from 35 per cent in fiscal 2010. Rising purchasing power and increasing health consciousness have spurred lifestyle changes in recent years because of which consumers have gravitated towards value-added products, Crisil felt.
Shiva Mudgil, vice-president, senior dairy analyst, food and agribusiness research and advisory at Rabobank, explained, “Increasing organised activity in Indian dairy and direct processor-farmer engagement will entail significant investments in creating capacities for milk procurement, milk handling and product manufacturing. Investments in the dairy business will broadly range between Rs 9,000 crore and Rs 10,000 crore in the next five years.” The major share of the investment will be for creating infrastructure at farm for collection and storage of milk.
Mudgil further added that a bulk of the investments would be made by private dairy companies, but sourcing quality milk could be a challenge.
“This segment will comprise domestic dairy, food-FMCG companies and international dairy companies. For them, sourcing quality milk will be the most critical challenge and this will force them to invest in milk procurement to increase direct farm engagement,” he said.
Analysts thus feel that these companies will also look to expand beyond their regional base. Innovation and technology focus will be important for them to cater to emerging consumer trends, either by developing new products or creating a unique positioning in existing product categories. “This will help them differentiate from the competition in the market with positive impact on the margins,” Mudgil added.
Sharma said, “We have forayed with liquid poly-pouch milk. We did a lot of market research and understood that the consumer in Indore demands fresh, thick milk.”
The company has thus taken care to differentiate its products from what is already available in the market. The milk is fortified with Vitamin A and D. In Sharma’s words, “One of our variants, cream rich, is the thickest milk available in the market with 44 per cent higher cream content than standardised milk. Also, our protein-rich variant is specially fortified with extra protein. Thus, our products stand out in terms of quality and nutritional value.”
Mahindra’s poly-pack milk will be followed by value-added products like ghee, curd, lassi and butter milk.
FMCG major ITC, on the other hand, has forayed into dairy with Aashirvaad Svasti pure cow ghee. “The ghee was launched in select southern markets and we will look at expanding our footprint across the country. We are taking a regional approach and the ghee is customised to cater to local preferences,” explained Sanjiv Puri, executive director, ITC Limited.
ITC has set up a dairy plant in Munger. “As we expand our portfolio and footprint, we will explore the possibility of setting up such facilities,” Puri added.
According to the National Dairy Development Board and Crisil research estimates, India produces around 3.80 million litres per day (LPD) of milk, accounting for a fifth of global output. About 40 per cent of this is retained by producers (farmers) for household consumption. Another 41 per cent share is with the unorganised segment. The remaining 19 per cent is procured, processed and sold through organised dairies.
Given the rising demand for branded products and investments being made by organised sector players, Crisil believes the share of organised segment will increase to about 25 percent by fiscal 2018. In volume terms, the dairy industry grew four per cent annually in the five years ended fiscal 2015, while the organised sector grew twice as fast. The volume of milk processed from the organised sector is expected to grow 13 per cent annually by FY 2018, way ahead of a five per cent annual growth for the industry at large.
Cooperatives, however, have a strong presence and hold over the Indian dairy market, and can pose a challenge for the growing corporate dairies when it comes to milk procurement.
While the Gujarat Cooperative Milk Marketing Federation (GCMMF), which markets the Amul brand of dairy products, took its turnover of Rs 8,000-23,000 crore (provisional figure of FY16) just about six years, its procurement too grew by 91 per cent in the last six years. GCMMF would invest Rs 5,000 crore to set up 10 processing plants that would take its processing capacity to 3.2 million LPD from 2.3 million LPD.
(Private equity investments in dairy sector)
2015: TVS capital funds in Prabhat Dairy
2014: Growth Partners in Milk Mantra Dairy Pvt Ltd
2013: IFC in Parag Milk Foods Pvt Ltd
IAF (Rabo PE) and Proparco in Prabhat Dairy
Aavishkar India in Milk Manra Dairy Pvt Ltd
2012: Ambit Pragma in Neo Anurena Tristar
IDFC and Motilal Oswal in Parag Milk Food Pvt Ltd
Blackriver Investment (part of Cargil ventures) in Dolda Dairy Ltd
2010: Carlyle group in Tirumala Milk Products
Source: CRISIL research, industry, published sources