Dairy companies’ profits see a jump in June quarter

Net profits of dairy companies soared during the April-June quarter, due to lower cost of production — led by lower input prices.

Bulk milk producer Prabhat Dairy, for example, reported a 90 per cent increase to ~111 million from the same quarter last year, even as revenue grew only 7.3 per cent to ~3.86 billion. It had raised milk procurement by 16 per cent to an average of 1.08 million litres a day, with a 24 per cent decline in the price it paid sellers, at ~20.6 a litre.

Hyderabad-based Heritage Foods recorded a 14 per cent jump in consolidated net profit at ~213 million. Revenue from operations rose only four per cent, to ~6.4 billion.

This sharp rise in profit for the quarter came as milk farmers suffered. The prices they got averaged ~17-18 a litre across the southern and western states. These have risen, since the government of Maharashtra announced a minimum selling price last month of ~25 a litre. This increase might squeeze the margins of dairy companies.

“The improved profitability of dairy companies for AprilJune can be attributed only to low milk prices. Being a farmers' co-operative, we pay ~8-10 a litre higher than corporate dairies,” said R S Sodhi, managing director of the Gujarat Co-operative Milk Marketing Federation, which sells the Amul brand of products.

The state governments of Andhra Pradesh and Tamil Nadu offer a subsidy of up to ~5 a litre for milk farmers. Maharashtra announced a similar subsidy in July but only for milk procured and used in value-added segments.

Dairy companies, therefore, would not be able to realise the benefit of this subsidy for the portion of milk used for retailing.

“Prabhat Dairy derives around 25 per cent of revenue from fresh milk, which doesn't qualify for a subsidy. However, the company does not see any margin pressure, as trade discounts on fresh milk are huge and the impact can be offset by decreasing this. The company management estimates around ~100 million increase in working capital due to the lag in receiving subsidy from the government,” said Shradha Sheth, an analyst with Edelweiss Securities.

Parag Milk Foods reported a 169 per cent jump in its net profit to ~283 million for the June quarter over the comparable period last year. Consolidated revenue at ~5.5 billion rose 33 per cent.