Dairy firms plan Rs 14,000cr capex

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New Delhi,July 07, 2018:  Dairy product manufacturers will be spending around Rs 14,000 crore capex for the next three years. The increased capex will help them increasingly tap milk-based value-added products market, which would overtake liquid milk market in next couple of years.

Private players have been catching up with dairy cooperatives in terms of capital expenditure. Between 2016 and 2018, around 65 dairy firms spent around Rs 14,000 crore capex against Rs 8000 crore between 2013 and 2015. They will continue to spend around Rs 14,000 crore for the three years starting 2019, finds rating agency Crisil.

As for private players, the funding will be largely through private equity and partly through public offers. PE funding in the sector has been doubling in the past few years. Dairy Classic Ice cream, Dodla dairy, Parag Milk and Prabhat Dairy are among the companies that have either raised PE money or tapped the primary market in the recent years. Large players like GCMMF and Mother Dairy and international brands including Danone and Nestle have been pumping in money into the market.

“Increasing consumer and industry appetite has been driving the capex spend. Capex is both towards enhancing processing capacities and strengthening procurement infrastructure and the focus will be on untapped and high milk producing states,” finds Crisil.

According to private equity players, encouraging growth rate of value added products (VAP) in dairy makes the sector a safe bet as demand for milk is estimated to grow with rising aspirations and population growth according to mydigitalfc.com.

While the liquid milk market is expected to grow at 6.5 per cent, value-added products are growing by 14 per cent annually. This will help value-added products account for 53 per cent of the Rs 7.5 lakh crore market by 2021, overtaking liquid milk market at 47 per cent share. Currently, VAP accounts for 49 per cent of the Rs 5.67 lakh crore dairy market. VAP has been growing its share fast from 36 per cent of Rs 2.7 lakh crore market in 2012.

“At around 16 per cent, the margins are much better in value-added products than seven per cent in liquid milk. Further, the value-added products market is growing faster,’ said Brahmani Nara, executive director, Heritage Foods, which had sold off its supermarket chain to focus on the dairy business.

VAP consumption almost doubled over last three years. Increasing urbanisation, rising income, vast vegetarian population and growing health consciousness have been driving growth  of milk-based products.

Among VAP, traditional products like ghee, curd, buttermilk, lassi, butter, ice-cream have high level of penetration, while customers are increasing their consumption of newer products like flavoured yogurt/ milk, UHT milk, probiotic food products and low-fat cheese.

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