GST cuts to boost dairy products usage, help organised players eat into share of informal players 

For organised players in the Indian dairy industry, the reduction in the Goods and Services Tax (GST) apart from enhancing consumption and improving affordability for customers will provide an opportunity to eat into the market of the unorganised players, according to Srideep N.Kesavan, CEO of Hertiage Foods, a well known dairy brand with a strong presence in south India.

“There cannot be any better time for business, especially FMCG and within FMCG, dairy,” he said, welcoming the government’s decision to rationalise GST. Stating that the impact of the comparatively lower levy on a number of dairy products will be enormous since it was a broad-based category with the frequency of purchases being higher compared with many other products,” he said, adding the plus for “our investors and the business will be an expansion in business because we are going to eat into the informal or unorganised sector. For the government, it will mean expansion of the GST base.”

Ghee, butter, cheese and ice-creams are categories that contribute about ₹65,000 crore in revenue for the organised players in the dairy sector. Ghee alone accounts for about ₹32,000 crore for the companies with the rest of the ₹1,20,000 crore (total estimated market for ghee) with the unorganised players, he said, pointing out to the potential for growth for the formal sector with the reduction in GST, especially by enhancing supplies to the traditional sweet makers or hotels, most of whom now source from the informal sector.

The reduction in the price, consequent to the GST drop, is also expected to increase consumption by the existing customers of the organised players. Similarly, the slashing of the levy is expected to drive demand for paneer. “We are just scratching the surface of the ₹2,00,000 crore industry. Let’s see, even if we are able to move another ₹10,000 crore or ₹20,000 crore, then the growth potential of the organised industry is enormous. GST is the best thing that could have happened.”

In an interaction with The Hindu here recently, Mr. Kesavan, to queries around Hertiage Foods, which was founded in 1992, said the company even while aspiring to grow in its existing markets as well as new territories, remains rooted to its cause of helping the farmers and delighting the customers.

“Every day, we remember our humble beginnings, so it keeps us grounded. We know there is a long way to go. But in markets where we are serving, we have a growing presence…” Besides Andhra Pradesh, Telangana, Tamil Nadu and Karnataka, where we are a dominant player, Heritage has presence which is growing in Maharashtra, Odisha, Punjab, Chandigarh and Delhi markets. “Roughly 10% of our revenue today comes from outside of South India,” he said, adding Heritage Foods continues to look at footprint expansion, whether it is through organic or inorganic route.

One of the major expansion projects the company is pursuing is a more than ₹200 crore ice- cream factory near Hyderabad. The facility is poised to emerge as “one of our mega factories. We are already processing milk, curd, paneer and buttermilk… expanding some capacities of curd and buttermilk as well. The ice-cream plant is greenfield and we expect the construction to be complete by December this year. We are expecting the inauguration sometime in January, well in time for summer. “

The new factory should help Heritage scale the ice-cream business 5-6 times in the next six to seven years, Mr. Kesavan added.