India's organised dairy segment, which has been growing at a pacy 22% annually in the last five fiscals (2011-15) compared with 17% for the entire industry, will do even better over the next three years as rising disposable income and increasing quality consciousness lead to greater consumer preference for branded milk and milk products, said CRISIL ratings and research.

As the consumer shift accelerates, the revenue share from organised segment could rise to 25% by fiscal 2018 from 19% in fiscal 2015. The organised segment racks up revenues of Rs 750 billion at present.

The organised dairies have been sharpening focus on value-added products, investing in brand-building and scaling up operations, particularly in processing and milk-collection infrastructure. Management of logistics costs and secured procurement is crucial to profitability and cash flows in the business.

CRISIL expects the organised channel to incur a capital expenditure (capex) of ~Rs 150 billion by fiscal 2018 to shore up milk processing capacity to 1,050 lakh litre per day - or a significant 40% jump over fiscal 2015. These expansions will be strategically planned to ensure there is geographical diversification that strengthens milk procurement.

Anuj Sethi, director, CRISIL Ratings, said, "CRISIL's analysis that northern India, especially Uttar Pradesh, Punjab and Haryana - which are big on milk production but have low organised dairy penetration - will witness the highest capacity addition. Also, nearly a third of the overall capex is expected to be undertaken by the largest domestic dairy player, Gujarat Co-operative Milk Marketing Federation (which sells under the 'Amul' brand), through its member co-operatives."

Increasing revenue diversity with healthy demand across segments has resulted in improvement of business profile and hence, credit quality for dairy players, in the past three fiscals, which is also reflected in higher number of rating upgrades compared with downgrades.