ICICI Securities has analyzed the dairy industry, expecting milk inflation to continue at a high level in fiscal year 23. The brokerage firm emphasized that in June 2222, wholesale milk prices had increased by 5.8% compared to the previous year. same period last year in India. Milk prices in South India are up 3.4% year-on-year, while global SMP prices have increased significantly year-on-year, they are up 26.3% year-on-year and 3% month-on-month. ICICI Securities has assigned a BUY rating to Heritage Foods, Dodla Dairy and a HOLD rating to Hatsun Agro and Parag Milk Foods due to increasing inflation and high dairy costs.
“Wholesale milk prices continue to increase both month-on-month and year-on-year,” the brokerage said in a note. We note that heat waves, higher global SMP prices as well as feed price inflation are the main reasons for the increase in dairy prices. We believe that milk prices will continue to increase in the coming quarters when the economy reopens. Dairy companies have increased the selling price of milk by 5-8% in the past five months. “
“We believe that dairy companies need to raise prices again in the coming quarters to pass on higher milk purchasing prices. However, we continue to model the EBITDA margins of dairy companies to adjust 50-100 percentage points in FY23. However, with higher inflation and potentially good output, (with higher sales to HoReCa), revenue growth is likely to remain strong. From checking our channel, we also note that most dairy companies have high ice cream sales in the first 6 months of year 23. We have a BUY rating on Heritage Foods, Dodla Dairy and a BUY rating. HOLD rating for Hatsun Agro, Parag Milk Foods,” the broker added.
The increase in the price of the main raw material causes the price of cow feed to be higher. We note that corn, wheat and soybean prices are rising, which will lead to higher feed prices at the dairy farmer end. As a result, we expect farmers to continue to inflate in key raw materials, ICICI Securities said in a note.
Considering the high profitability and growth potential, we remain positive for the dairy industry. We also expect the move from the unorganized to the organized sector to consistently create value. ICICI Securities says Heritage Foods and Dodla Dairy are our top picks from an industry perspective.
The views and recommendations expressed above are those of individual analysts or brokerage firms, not those of Mint.
