India’s Dairy Sector: From Margin Squeeze to Recovery in 2025

Every Indian household knows milk as the key ingredient for chai or that bedtime glass of doodh. In 2025, the action in the stock market isn’t about loose milk packets. It’s all about cheese cubes, premium probiotic yoghurts, and the refrigerated trucks that transport them.

After several quarters of tight margins, India’s organized dairy sector is starting to regain its strength. The Q2 FY26 results show improving conditions: steady revenue growth, rising procurement volumes, and a consistent move toward higher-margin, value-added products. The key question now isn’t if the premiumization trend is intact. It’s about how quickly the shift toward value-added products can accelerate and whether cold-chain infrastructure can keep up.

India’s Dairy Sector Might: Volume Leader, Productivity Laggard

India is the largest dairy producer in the world, producing around 239.3 million tonnes of milk in 2023-24. This accounts for about a quarter of the global output. Over 80 million rural households rely on dairy income, primarily through cooperatives like Amul. Supply seems sufficient, with 62 million cows in milk expected in 2025.

However, there is a productivity gap. Indian cows yield only 1.6 tonnes of milk per year compared to 4.6 tonnes in New Zealand, 7.3 tonnes in the EU, and 11 tonnes in the US. India increases milk production by adding more animals instead of boosting the yield per cow. This keeps farmgate prices competitive at ₹34–36 per litre, but the cost advantage relies on inexpensive family labor and a fragmented smallholder system. As rural wages increase and available land for fodder shrinks, this model appears more vulnerable.

The herd is gradually moving toward higher-yield crossbred cattle, and domestic milk production is growing at approximately 4.2% annually. This supports both liquid milk and processed dairy demand, but it’s the processed, branded segment where margins and investor returns are found.

The Premiumisation Play: VAPs Drive the Future

This productivity squeeze is pushing dairies up the value chain. Instead of depending on low-margin liquid milk, they are focusing on branded products that consumers are willing to pay more for.

According to CRISIL, value-added products (VAPs) such as cheese, yoghurt, paneer, ghee, and flavored milk grew at 16–18% in FY25, significantly outpacing commodity milk. Their share of the overall product mix has increased to around 45%, up from about 40% two years ago. 

“Better product mix, strong volumes, and growing retail prices will be the main growth factors,” says Shounak Chakravarty, Director, CRISIL Ratings. 

For public processors, this shift is game-changing. VAPs often yield margins 2–3 times higher than plain milk. A shift of just one percentage point from unorganized to branded dairy directly enhances operating margins—this is the underlying advantage driving the sector.

India’s Cooperative Edge: Efficient but Fragile

India’s dairy system is distinctive. Cooperatives like Amul return 55–75% of retail prices to farmers, compared to about 35% in the US. This efficiency keeps Indian milk globally competitive despite low per-cow yields.

However, the model heavily relies on unpaid family labor, low mechanization, and millions of scattered suppliers. These strengths are also weaknesses. Sudden raw milk inflation can occur, and only companies with robust procurement networks and pricing power can protect margins when costs rise.

Amul: The Unlisted Giant That Changes Everything

Every morning in Gujarat’s villages, something remarkable takes place. Farmers pour milk into cooperative collection centers, receive immediate payment based on quantity and quality, and leave knowing that the final settlement—determined after the federation covers its costs—will be credited to their accounts in a few months. 

This is Amul’s two-step pricing system. It’s like a financial shock absorber. When raw milk prices rise or demand decreases, listed dairy companies face margin pressure and investor anxiety. Amul adjusts the provisional payment, manages working capital, and reconciles at year-end. There are no emergency analyst calls or stock price fluctuations. Just a system that has been effective since 1973.

The figures are impressive. Revenue was ₹65,911 crore in FY25, with procurement from 36 lakh farmers across 18,600 villages. They distribute through 20,000 distributors reaching 10 lakh retail locations. They offer fifty products covering 1,200 SKUs.

Yet, they have an operating margin of only 0.54%—because profitability isn’t the main goal. The focus is on maximizing payments to farmers.

That 0.54% margin would ruin a listed company. Analysts would demand restructuring, cost cuts, and price increases. But for Amul, that slim margin proves the system works. It means nearly every rupee goes back to farmers after covering operations. It ensures their procurement network remains loyal, even when private dairies propose spot premiums. It means they’ve established a distribution advantage that even much more profitable competitors can’t match in rural areas.

What this means for listed companies: They’re competing on an uneven playing field. Amul has structural benefits like patient capital, no pressure for quarterly earnings, and farmer loyalty built over generations. Therefore, listed dairies need to succeed through differentiation: premium products, superior cold-chain logistics, export capabilities, or catering to market segments where Amul’s cooperative structure moves too slowly.

The companies outlined below are building those advantages. However, Amul’s dominance ensures fierce competition for procurement, expensive battles for distribution, and any player claiming easy market share gains requires careful scrutiny.

Cold-Chain: The Infrastructure Multiplier

Milk and processed dairy products spoil quickly, making cold-chain infrastructure crucial for premiumization.

As of 2024-25, India’s cold chain market was worth about ₹2.2 lakh crore. It is expected to grow at a CAGR of 10.8–12.7% through 2033, potentially reaching ₹6.0–6.3 lakh crore.

This growth includes refrigerated transport, multi-temperature warehouses, cold storage facilities, and technology enablers like IoT monitoring and AI-driven inventory management. Key players in this market include Snowman Logistics, ColdEx, Coldman, TCI Express, Mahindra Logistics, Gubba Cold Storage, Rinac India, and Celcius.

Government initiatives such as the Pradhan Mantri Kisan SAMPADA Yojana provide subsidies to enhance infrastructure, supporting private investment. The cold chain is essential for dairy companies to deliver premium products to tier-2 and tier-3 towns without losing quality. Without this infrastructure, the premiumization trend cannot continue.

Export Potential: Early Days, Long Runway

India is becoming a dairy exporter, especially in skimmed milk powder, cheese, and VAPs. Exports are increasing to Bangladesh, Southeast Asia, and the Middle East, although challenges remain in meeting international quality and safety standards. The government is backing export infrastructure and compliance, but this opportunity is more long-term than a quick revenue boost for most listed companies.

Q2 FY26: Recovery Taking Hold

After several quarters of margin pressure from high procurement costs and extended monsoons, Q2 FY26 indicates stability.

Dodla Dairy: Volume Growth, Margin Transition

Dodla Dairy reported steady performance. Its consolidated net profit rose 3.6% year-on-year to ₹65.7 crore, while revenue grew 2.1% to ₹1,018.8 crore.

Operationally, volume growth was strong: milk procurement jumped 13.4% year-on-year to 19.5 lakh litres per day (LLPD), and milk sales increased 12.6% year-on-year to 13.1 LLPD. EBITDA fell 3.6% to ₹92.8 crore, partly due to two months of contributions from the recently acquired OSAM Dairy, which operates at lower margins.

The product mix improved, driven by higher-margin VAPs like curd, ghee, lassi, flavored milk, and ice cream, while bulk sales declined. Over the past two years, Dodla has maintained revenue and EBITDA growth above 15% CAGR, with PAT growth exceeding 22% CAGR. The company operates approximately 150 chilling centers and 14 processing plants, with exports primarily going to Africa.

Takeaway: Short-term margin compression hides steady operational momentum and disciplined capacity growth. Dodla’s strong procurement and footprint in Africa provide diversification, but keep an eye on margin recovery in acquired assets.

Hatsun Agro: Aiming for Double-Digit Growth

India’s largest private dairy, with 20 plants and exports to 42 countries, expects revenue to increase by around 15% in FY26 due to rising demand and recent GST cuts on dairy products.

The company plans to launch protein-based products by March, tapping into India’s growing health and nutrition trend. In FY25, Hatsun reported a 9% year-on-year revenue increase to ₹8,700 crore.

Hatsun is expanding its HAP Daily retail network by 10% annually over the next three years, adding to its existing base of over 4,000 stores. It also aims to double exports annually, targeting ₹200 crore in export revenue within four years, focusing on Seychelles, Oman, and other international markets.

Takeaway: Hatsun’s blend of high-protein innovation, retail growth, and export goals positions it well for ongoing success. The 15% revenue guidance shows confidence, and the retail network provides direct consumer connections that bypass traditional distribution challenges.

Heritage Foods: Margin Relief in Sight

Heritage Foods reported a 5% year-on-year increase in consolidated net profit to ₹51 crore in Q2 FY26. Revenue grew 9% to ₹1,112.5 crore, surpassing ₹1,100 crore for the second straight quarter.

The company achieved this despite high milk procurement costs and an extended monsoon by implementing measured price increases to offset inflation. With milk availability improving and GST-related cost benefits aiding margins, Heritage is optimistic about continued growth in H2 FY26, driven by its VAP portfolio across curd, paneer, and other emerging categories.

Takeaway: Heritage is managing cost pressures with thoughtful pricing. The improving supply landscape and tax benefits should support margin growth in the second half—monitor execution on the shift in the VAP mix.

Parag Milk Foods: Cheese Leader with Stable Margins

Parag Milk Foods leads the branded cheese market under the “Go” label and is steadily growing its VAP portfolio.

Q1 FY26 results (Q2 not yet released) indicated a 1% year-on-year increase in net profit to ₹28 crore, with revenue climbing 12% to ₹852 crore—the company’s highest-ever first quarter revenue. EBITDA rose by 6% to ₹66 crore, and gross profit margin remained stable at 27.4%.

The company achieved 5% year-on-year volume growth, backed by strong performance across core dairy categories. It managed an average of 16.5 lakh litres of milk per day, up 10% sequentially.

Takeaway: Parag’s cheese leadership offers pricing strength, and its stable margins in a challenging cost environment show resilience. The expansion of its VAP portfolio (ghee, traditional sweets) diversifies revenue, but keep an eye on Q2 results to confirm momentum.

TCI Express: Logistics Enabler

While not strictly a dairy company, TCI Express is an important cold-chain logistics provider that supports the premiumization of the sector.

TCI reported net sales of ₹308.53 crore and net profit of ₹25.15 crore in Q2 FY26. The company announced strategic expansions, including the purchase of TCI Global (Singapore) Pte. Ltd. for up to SGD 18,000 and a corporate guarantee of up to SGD 5 million for banking facilities.

Takeaway: TCI’s global expansion aligns with the increasing cross-border dairy trade. As a key player in the cold-chain development, it offers insights into organized dairy growth but its diversification across sectors means dairy exposure is only partial.

Risks That Can Derail the Story

Despite improving fundamentals, several risks remain:

• Raw milk inflation: Rising cost of fodder and wages can suddenly squeeze processor profits. Few players hedge effectively, leaving them vulnerable to fluctuating input prices.
• Trade liberalization with the US: The push to open dairy markets could force Indian producers to compete with heavily subsidized U.S. imports. SBI predicts Indian milk prices could drop around 15%, potentially leading to a ₹1.03 lakh crore annual income loss for dairy farmers. This warning was issued around July 2025, during ongoing India-US trade negotiations. If a trade agreement opens the sector, listed processors might face pricing pressure and volume decline.
• Cold-chain gaps: Despite growth, refrigeration infrastructure is still inconsistent in tier-2 and tier-3 towns, leading to waste and variable product quality. Until the last-mile challenge is addressed, premiumization will remain limited geographically.
• Supplier fragmentation: Millions of smallholders contribute to the system. Sudden shifts to cooperatives or competing processors can lead to procurement challenges for individual companies.
• Regulatory uncertainties: Frequent government interventions in pricing and exports introduce unpredictability, complicating long-term planning.

Bottom Line: Dairy Sector Recovery Underway

India’s dairy premiumization narrative is evolving as anticipated. Q2 FY26 results indicate steady revenue growth and stronger value-added portfolios, with GST cuts and improving milk availability providing support for H2.

The structural transition to organised, branded dairy remains strong, supported by expanding cold-chain infrastructure and an increasing consumer willingness to pay for quality. However, risks from raw milk inflation, potential trade liberalization with the US, and procurement fragmentation could disrupt margins and farmer incomes.

For investors, focus on companies with strong pricing abilities, diverse product ranges, and strong procurement networks. The long-term outlook favors organized players, but it’s essential to be selective and avoid chasing valuations recklessly in this margin-sensitive, execution-driven sector.

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