Milk forms high part of expenses for Virat Crane as it’s the main raw material (~ 80% of expenses). So, a sense of how milk prices would pan out in near future is important to evaluate the company’s bottomline growth.
Milk price in India:
When compared to last year, milk prices are low and are expected to be low in 2015 and 2016 as per media reports (sources below).
Global milk price
The global milk prices play a key role on the Indian milk prices because -> Already we are priced at least 30% above global prices and If there is any further price increase in India, this will lead to import of milk and/or usage of milk powder. So, organised milk prices will remain low in India for the foreseeable future. USDA predicts increasing global milk output for 2015 and 2016.
Milk forms about 8% of Indian monthly per-capita expenditure and so has a high impact on inflation figures, second only to cereals. So, I think for food security, a sustainable low milk prices should augur well and as per RBI’s projection overall inflation should be under 5%. However, I also think that high demand for milk might keep prices in a range as the domestic consumption increases as the per capita income for Indians go up.
Now, as milk prices fall, I think the milk product companies may also have to reduce their price of curd, ghee etc. I do no think the companies pass on the full benefit and thus better margins and bottomline.
Sources:
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