There are many reasons behind the increase in milk prices. For example, heat web, increase in animal feed prices, higher SMP prices globally.
Best Dairy Stocks to Buy: Inflation has become a big concern at the global level and it is being seen in almost every sector. The wholesale prices of products like milk and curd are also increasing continuously. Animal feed has become costly, while heat web has also affected production. At present, companies are now passing the increased cost on to the customers. Brokerage house ICICI Securities says that as the demand for milk is high and companies are also increasing the selling price, the outlook of the sector is better. Growth potential looks strong. In such a situation, the shares of fundamentally strong companies working in the sector can rise further.
Procurement prices also increased
According to brokerage house ICICI Securities, the wholesale prices of milk are increasing continuously. It has grown on a monthly and yearly basis. There are many reasons behind this. For example, heat web, increase in animal feed prices, higher SMP prices globally. In such a situation, the prices of milk procurement are also expected to remain high in the coming quarters. Due to increase in the wholesale prices of milk, milk companies are also having to increase the selling price.
Selling price increased by 5-8%
During the last 5 months, milk companies have increased the selling price by 5-8 percent. On the other hand, due to higher procurement prices, milk companies will pass on the increased cost to the customers, which will further increase the prices. The EBITDA margin of dairy companies is expected to decrease by 50-100bps in FY2023. However, with higher inflation and better volumes, the revenue growth of the companies is expected to remain strong. It has been seen that most of the dairy companies had good sales of ice cream in H1FY23.
Brokerage’s Top Picks
As far as investments are concerned, Heritage Foods and Dodla Dairy have BUY ratings, while Hatsun Agro and Parag Milk Foods have HOLD ratings. The brokerage house says that the outlook for the dairy sector looks better due to strong return ratio and strong growth potential. The focus is now on the organized sector instead of the unorganized sector, which will benefit the listed companies. As far as the risk is concerned, there are higher than anticipated increase in milk prices, delay in selling price hikes by companies and irrational competition.
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)
