ITC to enter the dairy market in 14 months

Brands such as Amul, Nestle and Britannia that dominate the Indian dairy market will soon have competition.

Diversified conglomerate ITC is gearing to launch a slew of products over the next 14 months.

ITC’s first set of dairy products will be shelf-stable, said Chitranjar Dar, divisional CEO of ITC’s foods division.

The product portfolio includes milk powder, long-life packaged milk, fortified milk, etc.

ITC started the dairy business as part of its integrated animal husbandry programme, the firm’s corporate social responsibility initiative.

It is now in the process of taking it to the next level.

“We will not be constrained by CSR. We are also open to third-party options,” said Dar.

ITC’s sustainability report for 2012 states that starting with 102 litres from 31 farmers in July 2011, the average monthly collection increased to 9,400 litres a day in March 2012, with about 1,300 farmers pouring milk on a regular basis.

The total milk handled during the year was nearly 1.2 million litres.

A Rs 150-crore (Rs 1.5-billion) processing plant is already under construction at Munger in Bihar.

With big plans on the radar, the company is exploring options to scale up the size in a short span of time.

According to Dar, there was a need to set up a processing plant to assure that the good things being done be capitalised.

“We realised it is just not good enough to only manufacture.

“We have to find a profitable outlet for it and that is how we planned to get into dairy.

"So, from a strategic point of view, we will enter some parts of dairy in the next 14 months,” he said.

While shelf-stable dairy is ITC’s current focus, Dar is clear it would have a presence in the entire value chain.

As it launches shelf-stable dairy products, simultaneously, cold chains and cool chains would be set up.

The idea is to create differentiated products that have higher margins and to that extent is inflation-proof.

According to an analyst at Sharekhan, ITC's entry will enhance the market, though the company will have to battle with existing players like Amul and Britannia.

“The kind of products on ITC’s radar are very urban-centric and growing significantly. This will have a positive rub on the company's top line and bottom line in the long run,” said the analyst.

The dairy market is estimated to be around Rs 55,000 crore (Rs 550 billion), of which Rs 35,000 crore (Rs 350 billion) is the regular milk consumption market, while the rest caters to the premium products segment.

Amul has the lion’s share.

Last year, ITC’s foods division clocked a turnover of Rs 3,700 crore (Rs 37 billion) and it is likely to close the year with about 29-30 per cent growth.

The decade-old division broke even about 10 quarters earlier.

Procurement is key to the division’s success, and that’s where ITC’s e-choupal network, that links directly with farmers, comes into play.

The current portfolio include biscuits, staples, snacks, noodles and confectionery.

Biscuits accounts for 40 per cent of the food business’s topline, staples are at 30 per cent and snack at 15 per cent.

Noodles have a share of five per cent.

In terms of average return on capital employed, confectionery is most profitable.