Dairy firms plagued with margin woes; pick value-added players: Analysts

Analysts are wary of companies majorly focused in the low-margin milk segment as they believe firms with a strong market share in value-added products (VAPs) are more likely to sustain in the industry

The emergence of the economy from Covid-19 lockdowns has lent comfort to dairy companies' revenues due to a pick-up in demand and out-of-home consumption. However, pressure on the sector's profit margins remains unabated amid steeply elevated prices of skim milk powder (SMP), cattle feed, and other operational costs. 

For instance, in the April-June quarter, Hatsun Agro and Heritage Foods reported yearly revenue growth of 31 per cent and 27 per cent, respectively. But their respective Ebitda margins sank 300 and 532 basis points due to a rise in raw material, packing material, and logistics costs. Net profits also declined 11