Hatsun Agro

Management believes that the period of rapid milk price increases has concluded. They anticipate a gradual moderation of 3% to 4% in prices by June or July 2023, driven by the stabilization of domestic supply. However, they cautioned that while prices will soften, they are unlikely to return to pre-inflationary levels.

A significant driver of the recent domestic milk shortage was the export of 20,000 tons of extra butter last year, incentivized by high international prices reaching $7,100 per ton. This volume, typically reserved for the domestic lean season, was depleted, leading to the current supply-demand mismatch. Management expects the upcoming flush season in South India and Maharashtra, starting in May, to restore balance.

The company experienced severe margin compression through the end of the 2022-23 fiscal year as procurement costs rose faster than consumer price adjustments. Management stated they were under 'tremendous pressure' until March but have seen a return to 'normal' margin levels as of April 2023. They expect the current year to be more stable, barring further unforeseen volatility.

Hatsun Agro highlighted a critical tax issue where milk fat is taxed at 12% GST, while competing edible oils are taxed at 5%. This disparity adds approximately 8% to the cost of producing full cream milk through reconstitution. Management has petitioned the government to align these rates, which they claim could immediately reduce consumer inflation by 2% to 2.5%.

Despite the economic strain on consumers, management views the recent inflation as a necessary 'pepper' for farmers who had suffered through two years of COVID-related demand destruction. The higher prices have incentivized farmers to return to dairy farming and maintain their animals better, which management believes will secure long-term supply stability for the industry.