Dairy Business Overview The Indian dairy industry currently represents one of the largest in the world and contributes to the economic growth of the country by providing livelihood and nutritional protection to the masses. It is a crucial component of the rapid and self-sustained development of the rural economy, as the Indian dairy industry provides a lucrative source of income to small farmers, marginal cattle farmers, and landless labourers. As per the research report by IMARC Group, the dairy industry in India size reached INR 16,792.1 Billion in 2023. The market is projected to reach INR 49,953.5 billion by 2032, exhibiting a growth rate (CAGR) of 13% during 2024-2032, propelled by technological innovation, enhanced retail and e-commerce platforms, and improved cold chain infrastructure, meeting rising consumer demand with a diversified and quality-focused product range. The Indian dairy sector offers an opportunity for investors to tap into the rising discretionary consumption in the country. Private dairy companies are well-positioned for substantial growth, supported by key demand drivers and the ongoing shift towards a more organized industry. As consumer preferences evolve towards value-added dairy products, private players should gain. In the medium term, the anticipated decrease in inflationary pressures should drive earnings growth. Long-term structural growth: India ranks as the top producer and consumer of dairy products globally, contributing to over 25% of the total global dairy production. In the food landscape of India, dairy products are indispensable and are consumed in various forms, including direct consumption, in restaurants and as packaged foods. Indian households allocate nearly 45% of their food budget to dairy and packaged foods and this trend has been steadily increasing. The growing population, changing lifestyle patterns, increasing disposable incomes, and rising health awareness are the primary factors driving the growth of dairy consumption in India. Even though India is the largest consumer of dairy products, its per capita consumption is still low when compared to developed countries, indicating enormous potential for further growth. Thus, we believe Indian dairy industry presents an attractive opportunity for investors looking to capitalize on the country’s growing discretionary consumption trend. Structural industry shifts favouring private players: The Indian dairy industry is currently witnessing significant structural changes, driven by key demand drivers, which should particularly benefit private players. One major trend is the formalization of the market, as the organized sector gains prominence over the unorganized sector, driven by consumerism, urbanization, and the preference for branded products. Another important trend is the increasing demand for value-added dairy products due to shifting dietary habits and evolving consumer lifestyles. This transformation presents opportunities for private companies offering a diverse range of products and adapting quickly to changing consumer preferences. Lastly, industry consolidation is projected to strengthen the growth of private dairy player, placing them as competitive alternatives to larger cooperatives. Industry coming out of a tough stretch: The Indian dairy industry has faced numerous challenges over the past three years. Initially, the sector encountered disruptions in demand due to the pandemic, which led to crashing of raw milk prices, making it unviable for the farmer producer. This resulted in shortages in milk supply in the years following the pandemic, that caused a significant rise in procurement prices of raw milk. This had a negative impact on the profitability of dairy players. However, the industry has come out of this crisis in the last few quarters, as the raw milk prices stabilised encouraging the dairy farmers to invest again in increasing their herd sizes. And dairy players, both private and cooperative have invested in improving breeds, farm and feed practices, which together have helped improve the yield and farm level production. It is expected that this period of stability will continue for some time to come. Consequently, your Company anticipate that the combination of reduced inflationary pressures and strong demand will drive earnings growth in the dairy sector. The attractiveness of Dairy industry The Indian dairy industry is a promising avenue to capitalize on this growth trend. Following are the essential structural trends that underpin the optimistic stance on the dairy industry. • Growing demographic dividend. India’s population is projected to steadily increase in the coming years. This shift in population dynamics is significant, as India’s working-age population is on the rise for the next two decades. India’s expanding demographic dividend offers immense market potential and ensures long-term growth prospects. • Rising income levels. India has seen a significant increase in per capita income, rising by over 80% in the last ten years to reach US$2.6K in 2023. The International Monetary Fund (IMF) predicts this number will reach around US$4K by 2028, a growth of over 50%. This rise in income levels is expected to result in the addition of around 140 million middle-income households and 21 million high-income households by 2030. Furthermore, the share of middle-income households is set to rise from 54% in 2018 to 78% in 2030. This growth in income levels will lead to higher disposable incomes and drive a rising consumer preference for premium and nutritious food products like milk and milk products. • Discretionary spends. India’s promising income growth and favourable demographics should drive consumer spending in the future. The World Board's Report STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 57 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
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