Heritage Foods Ltd
NSE:HERITGFOOD
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
234.45
695.05
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Heritage Foods Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Heritage Foods Q1 FY 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Dr. Sambasiva Rao. Thank you, and over to you, sir.
Thank you very much. Good evening, all. I welcome all the participants to Heritage Foods quarter 1 earnings call. And especially, thank you all to joining on your holiday and during this restrictions period. I now take you through the stand-alone results of Heritage Foods. That's one. Our turnover is INR 620 crores, down by 13% compared to previous year same quarter of INR 711 crores. As you are all aware, there is a significant fall in the demand post lockdown, which has resulted in lower turnover. We have achieved INR 53 crores EBITDA compared to INR 50 crores of Q1 last year, a 5% growth. Core business profit before tax is INR 36 crores compared to INR 33.27 crores for last year in Q1. Tax for core business is INR 27 crores versus INR 21.7 crores during the quarter 1 last year.Now I'll compare quarter 1 performance with quarter 4 on a stand-alone basis. Turnover, same, INR 620 crores versus INR 643 crores of quarter 4, with a fall of 4%. EBITDA INR 53 crores versus INR 26 crores of quarter 4. Core business PBT is INR 36 crores versus INR 9.72 crores of quarter 4. PAT is INR 27 crores versus INR 6.79 crores of quarter 4.Moving on to consolidated results for quarter 1. The turnover is INR 639 crores versus INR 721 crores, with a 11% de-growth. EBITDA, INR 57 crores versus INR 48 crores of last year's quarter 1. Core business profit before tax is INR 36 crores versus INR 33.27 crores. PAT for core business, INR 29.23 crores versus INR 18.85 crores in Q1 last year.Again, consolidated level, I'll compare now Q1 performance with quarter 4 of FY '20. Net turnover INR 639 crores versus INR 653 crores, with a 2% de-growth. EBITDA, INR 57 crores versus INR 28 crores of Q4. Profit before tax core business INR 36 crores versus INR 9.72 crores of Q4. And PAT core business INR 29.28 crores versus INR 7.20 crores.Now I'll highlight certain features of dairy business on its own. Quarter 1, there is a small increase in profit before tax around 10%, INR 32.4 crores to INR 36 crores compared to last year. This is essentially attributed to better realization in sales price through sale prices of milk and value-added products. Volumetric data, milk procurement volume during the current Q1, 14.5 lakh liters compared to 15 lakh liters of Q1 last year. Milk sales volumes, 9.19 lakh liters during the current quarter compared to 11.6 lakh liters of last year's quarter 1. Curd, 253 tonnes per day versus 462 tonnes of last year's quarter 1. The contribution of value-added products to the total revenue has come down to 25% compared to 33% of last year's quarter 1. Again, essentially, the fall in the sale of value-added products, which are essentially impulse products and consumed outside home, there's an impact on the wrap sale.During the current year's quarter 1, our expenditure under CapEx is lower at INR 8 crores compared to INR 107 crores of the full financial year during FY '20. So it's a lower expense because most of the projects got stalled, no construction happened. Those projects are at very final stages of completion, but most of the work could not be completed and projects were not commissioned and no capitalization happened, though we have incurred certain expenses on the final stage of the projects. So now these works revived in this month. Slowly, we will recoup the speed and complete the projects, which are ongoing.The debt position, if I explain, this is at HF level, Heritage Foods level. Long-term debt is INR 185 crores and short-term is INR 38 crores as of June 2020. We have a 100% wholly owned subsidiary. Long-term loan is INR 14 crores and short-term working capital is INR 4 crores. These are broadly the details of the quarter 1 performance.Situation is still -- situation continues to be the same. In spite of unlock down, demand is yet to pick up outside the home demand. We are looking forward to rebuild our sales volumes in the coming month as situation improves.Thank you very much for the patient hearing. I now open it for discussion, suggestions, feedback, clarifications from any of the participants. Thank you.
[Operator Instructions] The first question is from the line of Percy Panthaki from IIFL.
I basically wanted to understand the liquid milk sales, which is down 7%. So I just wanted to understand the out-of-home component of your liquid milk portfolio because my understanding is that the in-home liquid milk sale demand has actually gone up. And despite that, if we have a 7%, 8% kind of decline, is it because our out-of-home portfolio was large and there was a significant decline in that?
Yes. Mainly, the liquid milk growth out-of-home reduced because of the reverse migration of the people in most of the cities where we operate, like Bangalore, Chennai, Hyderabad. A lot of employees have vacated the city and left home because of the lockdown. And the consumption has fallen because they would have consumed at home only, but they are not here anymore. A lot of them have migrated, one.Two, the office-based consumption, daily, of 4 to 5 cups of coffee, tea consumption also has fallen for every working person in the office. So offices and the factories and wherever, shops. So this consumption has to come back once the activities move forward and people also come back to global areas again.
Sir, it was a demand problem, right? There was no supply issue that you could not supply the extent of demand?
Absolutely. It's only a demand issue. Demand has fallen post lockdown, and even after unlock down, has not come back, mainly because of migration of people and change of work habits, working place, et cetera, and the shops are not yet open. The consumption -- outside home consumption is yet to come back.
Okay. So even in July, we have not seen a normalization of that?
July, we are not -- of course, June, July has another set of issues of monsoon and severe restrictions in Bangalore and Chennai. Though it was unlock down at national level, these 2 cities have been facing the lockdown restrictions more than April, May. Hence, the impact.
Right. Understood. Secondly, on margins, you had very handsome margins this quarter, I think, because the milk procurement prices were very low because, again, the milk demand being low so -- affected the prices. But now as the demand comes back, I'm sure the milk prices will also go up. And therefore, your margins may not sustain at these levels. So would you give us some flavor on both how you see the milk procurement prices trending for the next few months? And also at the EBITDA level, what is the kind of comfort you have on margin delivery?
Of course, the situation is quite unclear as of now. There is a very uncertain, unpredictable kind of scenario we are going through. 2, 3 aspects: one, when the economic activity revives, when the workforce will come back to urban areas, where our demand depends on the return of the people to urban markets because our sales are mostly in urban areas, very small quantities are in the Tier-2, Tier-3. So the return of people, return of normalcy in economic activities is one. It is connected to that.And the second is the monsoon. Right now, monsoon is quite active and good this year in the month June, July. Rainfall is normally higher in most of the parts of the country. So the expectation in milk production, like last year, lactation cycle got delayed, which normally should have come in October, it came in January. So this year, we are expecting lactation cycles to be normal. So we are only left with 2 months, August and September, before the lactation cycle begins, the flush season begins. So if flush season start in a normal mode, the milk availability will be higher.And the third aspect is inventory. Entire financial year last year from July to March, we were crying for nonavailability and milk scarcity, high price of procurement, very high price of SMP, nonavailability of SMP. We all -- most of the industries have asked government of India to import duty-free or with reduced duty and distribute powders in the country.That situation suddenly changed after lockdown. The milk availability improved and inventory increases. Most of us have some fall in the demand, so that the balance will be converted into milk powder and butter. Every company, every corporate is holding these stocks. So in view of the increased inventory of commodities and onset of flush season in 2 months away, we don't expect a significant change in the procurement prices, unless demand overshoots, which is not looking so as of now. So we have to watch every month, every quarter, And see how the margin structure will change, how prices will move, how the demand will come back. It's a kind of premature for me to comment on the situation. Maybe we have to wait and see and navigate the business carefully through this crisis period.
Right. And the other thing that happened this quarter, apart from input cost deflation, your margins were also helped by control on your overhead costs. So can you give us some idea on what part of these costs, which have been controlled, is sustainable? And what part is sort of only temporary or exceptional because of the lockdown and those costs will come back again very quickly?
And the sales -- variable costs would be -- costs were down because volumes are less and the number of vehicles deployed reduced. So the hire charges have come down because we have all outsourced vehicles. Of course, there's a significant fall in the travel, almost no travel. Everything is run through Zoom calls and audio calls. So travels and stay allowances, all that movement costs every employee gets travel allowance, movement allowance, stay allowance. Entire workforce is not able to move. So these are 2 things which will come back. The volume -- these are all reduced because of the volume issue.
Understood. Understood, sir. But generally, you sort of give some idea. And typically, we have not guided more than 7% EBITDA margins. But this quarter, we have done 9% in spite of such adverse circumstances. So can we basically consider that this 7% benchmark is broken? And for the rest of the 9 months, we will at least give more than that 7% benchmark?
Yes. That is what I tried to attempt, but it is very unpredictable, uncertain situation. It is unfair and even premature to commit anything at this stage. We have to run the show.
Understood. And my last question is given that procurement price is down so much and there is some amount of farmer distress, do you see any kind of government intervention in terms of subsidies, et cetera? And if so, is that something that can be negative for a company like you?
Yes. Governments are being approached by farmers associations, industry associations for export incentives like last time, they have given 1 year, 1.5 years ago, INR 50 a kg kind of subsidy for evacuating the stocks from country and reducing this glut scenario, which might happen. That would help in liquidating and disposing the accumulated inventories. And it may have some impact on the procurement prices also.
Okay. But you are expecting more of a subsidy on SMP and other products rather than a subsidy on liquid milk?
Yes, definitely, because they have never given subsidy on liquid milk, except for Maharashtra for a limited period that, too, for the milk that is used for converting as powder.
But sir, Telangana and Karnataka is giving subsidy to milk poured into cooperatives, right?
That is going on for years.
Okay. But you don't expect that quantum could increase or maybe some other states could follow suit or something like that?
All their money is going to corona management now.
[Operator Instructions] Next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
Yes. Congratulations for the good set of numbers. Sir, my first question is on inventory. Is it possible to know what is the inventory as on 30th June?
Can you repeat? I'm not able to get it. Your voice is a bit blurring.
Sir, can you hear me now?
Yes, better.
I was referring to what is the inventory outstanding as on 30th June on the balance sheet?
INR 140 crores.
So it was about INR 145 crores in March '20. So there is no increase in inventory. Is that correct?
No. Give me 1 minute. INR 140 crores as on 30th June on a stand-alone basis. As on 31st March, it is INR 136 crores.
So there is no change as such in inventory, right?
There is a change individually. If you see actually, then the butter we have disposed off, but similarly [Technical Difficulty]. So these are 2 changes. As of 31st March, butter, we used to have actually 1,049 tonnes. And now the butter has come down to 381 tonnes, we have disposed off in this quarter.
See, typically, we store butter during the quarter 4 for consumption during the quarter 1, that's the normal year, where the quarter 1, we find milk scarcity, and we use the butter for the business and also for ghee. So that butter could not be consumed this year because of the change in circumstances, and we felt it is better to dispose off, and we sold off the butter. That is how the target inventory has come down.
Similarly, SMP, on 31st March, we used to have actually 1,868 tonnes. Now it has gone up to 3,822 tonnes.
So it has -- okay. So it has almost doubled.
Inventory values have changed. See, the SMP price in March was very high. Now it is low. So even the quantitative increase is there, you won't see that in the value because the per kg price has come down.
Okay. So essentially, in the earlier call -- in the earlier question, you were referring to that, given that the SMP prices have fallen, there could be a probability that the government might give an export subsidy or something like that, right?
Yes.
And given this significant decline in milk procurement, is there any chance of any price cuts being done? Or as of now, there is no chance because the last 1.5 years to 2 years, there was a big decline in profitability?
As of now, there is no proposal for that.
And my last question is on the subsidiary, sorry to repeat it, but there are some news flows which suggest that Andhra Pradesh government is thinking of increasing the milk subsidiaries. Is any truth in these rumors or nothing much to sort of worry on that part?
I've been hearing since last 1 year -- more than 1 year, and maybe we should get some more time.
The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.
Three questions. But firstly, one clarification. Sir, the milk procurement prices in the month of July would have also been similar to what the June average would have been?
We'll discuss July next month.
Okay. Sure. Okay. Another clarification was with regard to the liquid milk realization. So this would be the full price which is reflecting in the first quarter, right? I mean, usually, when institution and all of them come up, you would be having some discounts or when the modern trade is fully active, you have some discounts. So will this liquid realization typically kind of come out as the demand keeps increasing?
Realizations will be the same even in the other channels when they come back.
Okay. So this is pretty much the number as far as liquid milk realization is. Sir, the second question is basically on the -- you said that the demand was impacted because you spoke about that the offices were missing and the out-of-home was missing. What could be the out-of-home demand, sir, as far as our overall dairy business is concerned and specifically for liquid milk? And similarly, what would be the retail proportion?
What is that?
No. I'm saying, what is the out-of-home consumption in milk as well as the value-added products?
Yes. It is definitely different for different companies and different cities.
Yes. How much would it be on a consolidated basis for us?
Milk could be around 15% to 20% for us, which is going towards the office-level consumption or the canteens and restaurants end of consumption. And value-added products, it could be 30%. And there is something, impulse that happened all over the places where people move, railway stations, bus stations and shopping areas. They are not institutional, but they are impulse purchases like lassi, buttermilk, flavored milk, milkshake, ice cream, frozen dessert, these are all the items which are consumed particularly in the summer season, and we had the summer gone by because of those demands. But it is different for different companies.
Okay. Okay. Got it. Got it. Got it. And sir, the third and the last question is basically, if you look at our overall performance in the product spread, [ they tended ] pretty sharply high in this particular quarter. While you're saying that the milk procurement might not change given that the flush season is coming up, and also that the liquid prices might remain the same. So suffice to say, sir, even if the demand is -- how it is in the -- how it was in the first quarter, I believe that spreads should largely sustain. Is that a right assumption to make?
Yes. I tried to clarify earlier that it's a bit uncertain, unpredictable scenario. So we have to watch out every month, every quarter. We'll keep updating you, though situation looks the same.
Okay. And just one last bit, sir. On a month-on-month basis, have your consumption been improving by any chance? Like, was June better than May or was July trending better than June? Is there any type of comparison?
So the most typical impact is the monsoon. So the value-added products also, consumption also fluctuates with the monsoon activity, if there is a continuous rainfall in these markets, which is not coming up. So once the rain subsides, then demand will come back.Secondly, this is a normal festive season. Festival celebrations and the marriage collaborations, both are not happening the way it used to happen. So the expected demand because of weddings and festivals is also not coming, which used to offset the monsoon impact. Now monsoon impact is there and the celebrations are not there, so we are not seeing the spike, which should have come normally.
But monsoon would have been there last year. So on a Y-o-Y basis, sir, it should not be...
The monsoon impact would have been set off by the celebrations. Celebrations also are not there. Now it's a double disadvantage scenario.
The next question is from the line of Vivek Ganguly from Nine Rivers Capital.
One quick question. Hello, can you hear me?
Yes. We are able to hear you sound and clear.
Can you hear me now?
Yes, please.
Yes. One very quick question. On the -- your -- the price that you will pay per liter of acquisition of milk, what was the average for the whole last year? And what was it for this quarter?
Milk procurement price?
Yes.
Milk procurement price, last year, it was INR 33.40. This year, it is INR 35.
Sir, whole last year was INR 33. And now it is -- for the first quarter, it's...
Last quarter 1. Last year, quarter 1, INR 33.40. This year, quarter 1, INR 35. There's an increase of INR 1.60. That is quarter 1 to quarter 1. For quarter 4, there is a major drop.
Okay. So -- sir, on the demand side, you are not getting enough traction there where -- and the price can fluctuate, but from the acquisition perspective, while the -- so you all are not able to pass that on. It's not that seamless in process. Is that what we should understand?
No. I am unable to comprehend what you said.
So what I mean to say is that on the demand side, you're not facing some pressure. But on the procurement side, you said that it is actually -- for this particular quarter, it is actually up by about INR 1.5 over similar quarter last year.
Yes.
So that means that on the supply side, you all are not -- you all did not get any benefit of a lower demand and...
Compared to quarter 1 of last year, there is no advantage, but compared to the rest of the quarters of the year, there is a drop in the prices. The last financial year, I explained in the beginning, we went through scarcity of milk. Milk prices went up every month in the last year from July to March, and milk powder prices moved from INR 230 a kg to INR 330 a kg in 7 months' time. So that peak price scenario aggravated by scarcity continued up to lockdown dates. And post-lockdown, there is a significant change in the milk availability, milk powder availability and prices were lower. But Q1 to Q1, I do not see much advantage.
Right. And for the full year FY '20, what was average procurement price?
FY '20. Just a second, please.
Yes.
INR 35.55, full year.
We'll move on to the next question, that is from the line of SivaKumar from Unifi Capital.
Am I audible, sir?
Yes. Now we can hear you.
Sir, congrats for a good set of numbers. Sir, can you revisit the procurement price for Q1? I didn't get that number. You said INR 35, right, you said?
INR 35.55.
That is for full year.
That's for the full year. What will be for Q1 FY '21, the latest quarter?
INR 35.
INR 35.
INR 35. And the selling price, sir, for the latest quarter?
INR 46.39.
All right. Sir, this is an increase from the INR 44.26 that we got to see in Q4. So were price hikes done across geographies, sir?
No. No. No price hikes. It was done in end of the month, let's say. Price hikes were done in March and February also. Full value of the quarter has come in this quarter, not in the previous quarter. Any price increase that was taken in the month of March would not be reflected in the quarter 4 fully.
So now you got to see the full benefit, right?
Correct. Correct.
All right. Sir, on the milk volumes which were sold, 9.19%, you got to this number in spite of April being a full lockdown month. Will you be able to hold on to this volume in the subsequent quarters? What is your own sense of it?
We will be able to.
Okay. Great. Sir, and one last question on the margins. You said you were -- you had disposed off butter inventory during the quarter. And typically, the butter inventories margins are a little lower than the other products. So should we say that the margin would have been better, if not for that disposal of butter?
Margins of butter were not better.
Margins for the -- yes, go ahead, sir.
Yes. Because the significant part of this butter was made during the quarter 4 when the milk prices were high, and this in normal course of business in any year, we would have consumed in summer during the lean season when milk availability was low. And we would have used it for various requirements. Because of the change in circumstances, that butter, which was carried at a higher cost, got sold in this quarter when the prices were low. So the margins were certainly not better. It is lower only.So we have taken a sales decision because this summer is going to be having surplus milk than required. And there will be surplus availability of milk powder and butter in this year, prices were expected to go southwards. So having taken that conscious call, we quickly liquidated because butter has to be stored at minus 18 degrees temperature, cold stores, the cost -- carrying costs were high. Instead, we preferred to hold the milk powder, which is in the dry form and stored in ambient temperature. So we significantly decreased our butter stocks and increased our milk powder stocks. That was a move we made in the lockdown period.
Fair enough, sir. So basically, I'm trying to say that if not for that, your margins would have been higher than what you reported. Is there a current assumption?
Yes. Yes.
The next question is from the line of [ Rupen Masalia ] from [ RN Associates ].
Yes. Congrats on a good set of numbers. Sir, I have a couple of questions. One is, I just want to know the breakup of revenue geography-wise, and competitive intensity, that is #1 for Q1 FY '21 as well as FY '20 full year? That is first question.And second is due to ongoing COVID pandemic, is there any delay in our yogurt launch program through joint venture companies? That's it.
The first question, we stopped sharing the territory-wise sales data because it is getting into the hands of our competitors, and there are certain business disadvantages we were facing. So it's not for transparency reasons, but it is for the business competition reasons we started -- we stopped sharing that in the public domain. But in case you wish to -- if it is beneficial for you for taking any decisions, we can give you offline, for anyone, probably, with an understanding that you will use it for our benefit.
Yes. That's perfect, sir. That's perfect.
Rupen, I know you are our well-wisher and you will use it for our benefit. I'll share with you later. I request Brahmani to respond to you.
Yes. With respect to the second question on an update on the JV project, which is Heritage Novandie Foods Private Limited, the project is progressing smoothly at this point in time. Although in between, given the fact that the plant is coming up in Maharashtra, which was the initial epicenter of COVID, there were some delays. And in addition to that, we had rains. So that also delayed the project.However, now the project is moving in full swing. Our teams are more or less ready, most with the highest demand. Our marketing plan is underway right now. And given the fact that the plant side, everything is moving smoothly, we expect to be launching the product end of October, beginning of November.
Okay. Okay. That's great, ma'am. And on the competition -- competitive intensity in AP, Telangana and other geographies, if you can throw some light -- intensity in AP, Telangana and other geographies?
It is intense everywhere. There's nowhere market is open exclusively for us. It's intense everywhere. And everybody is trying to grow, and everybody is getting these investments also. There are no issues about it.
So while we can't speak too much about competitors, I think, we can speak about our own operations during this COVID time. So one of the good things was that all our operations, especially logistics, were normal during this time, both on the procurement time -- side as well as on the distribution side. All our processing facilities were operational during these tough times. We were able to work with our farmers, support our farmers and did not reject any milk from them, and protect their livelihood. In fact, we went about doing a lot of empowerment and input activities also including subsidized cattle feed, providing them with loans. In fact, we've got high loans to our farmers, all of that.Our R&D activities are in full swing. In fact, we've launched new products in the market during the last 4 months, including the A2 milk, which is good for immunity, better for digestion and good when it comes to its functional benefits. We also launched milkshakes during this time, hoping to get the benefit of the summer season. And we have a basket of more products we will be launching in the coming couple of weeks. And we were also able to actually effectively use technology during this time, given our integrated ERP system. We were able to transact smoothly. The digital payments were very smooth during this time.We were able to use IoT to be able to monitor our operations, including GPS and vehicle-tracking system. We have applications for indents, and that's how we were not able to miss out on any market-related opportunities that we had. In fact, we've also been thinking about our go-to-market strategy, and we've significantly focused on newer channels, which have picked up during COVID such as e-commerce. We have doubled our throughput through e-commerce. We have improved our sales through MRF, where we were underserving through certain chains.And most importantly, I guess, our employee safety became very paramount. And at every level, we ensure that our employees are safe, and everyone has been thoroughly covered under insurance programs, et cetera. So on our side, I think, on logistics, we're very efficient. We were able to launch new products. We were able to use technology and be available through innovative channels.
The next question is from the line of Anirudh Joshi from ICICI Securities.
Sir, one, now that some of the cost is probably structurally going to reduce even if the lockdown is over or COVID impact reduces, still probably, people will so much -- or there will be reduction in general the other costs also, probably some [ maintenance ] spends also may have to reduce. So do you see some structural change coming -- considering the -- this disruption?Point number two, what is the CapEx that you're looking at? Because probably, this year, there may not be -- rather, there will be volume decline most likely. So is there any need to go aggressively for CapEx? Or do you see some savings on that front also?
On the first one, in terms of costs, there is no significant change in the cost structure, except that our volumes -- the sales volumes have come down. Thereby, the logistics costs have come down in absolute value. When 2 lakh liters of milk is less, to that extent, my transport costs will come down because we run outsourced vehicles, and we reduced the number of vehicles [indiscernible]. And power consumption also comes down because quantity packed is lesser. So these are related to variable costs that have come down. So I don't see a big difference in the cost structure. Some of the costs may come back like travel costs, et cetera. Instead of cost structure, we are looking at efficiency and regaining the volumes so that we can come back to pre-lockdown levels.And the second question of CapEx. Yes, you're right. We have enough capacities to meet the requirements. We don't have to create new facilities at the moment. But we have initiated certain projects earlier. They are all in different stages of completion. They require funding. So far, we have incurred INR 8 crores in this quarter 1. But we -- going forward, we have to spend those monies and complete the projects, which will be commissioned towards the end of the financial year for the next summer requirements. But relatively speaking, it will be lower than the previous 2 financial years' spending by 20%, 30% at least.
Okay. So can we roughly assume CapEx to be around INR 80-odd crores in -- INR 85 crores in FY '21?
Yes.
Okay. Sir, last question. What was the average procurement -- milk procurement price you said in Q1? I missed that number.
Q1, INR 35.
Sorry? INR 35?
INR 35. Yes, INR 35.
INR 35 average milk procurement price in Q1?
Yes.
The next question is from the line of Sagarika Mukherjee from Elara Capital.
Sir, just wanted to know what was your curd sales in value terms? And your -- yes, that's first.
Yes, 253 tonnes per day.
In value terms, sir?
Value terms, it should be -- we'll get the actual -- INR 125 crores.
Okay. And sir, fat and SMP sales during the quarter, if you could give them?
SMP, we haven't sold. We have accumulated inventory. Fat, we have sold INR 59.8 crores -- INR 59.88 crores. INR 60 crores roughly.
Okay. And sir, any chances procurement milk prices in July are lower than the INR 35 that you procured at in the first quarter?
Can you repeat that please?
Sir, your procurement prices, milk procurement prices in July, are they lower compared to first quarter average price of INR 35?
Maybe it's fair we'll discuss it in the next call.
Okay. Fine. But sir, in this glut situation, when production is expected to be high and also demand is low, chances are, it can be trending downward, unless the subsidy, et cetera, comes up, right?
Yes. We are also entering a bit of lean season in buffalo milk area. Typically, July, August are the lean season months for buffalo milk area. The production comes down. So there won't be such a change in the production or sales. It's almost stabilized now, the last 2 months. Whatever surplus is there, it has been converted into milk powder and reserved for the future use. So it's not that there is a change in this month or next month either way. It may be stable for the time being, particularly because we are entering the low production season for buffaloes.
Yes. And sir, could you please share your selling price for curd for the quarter?
INR 54.46 per kg.
That is our realization?
Realization.
Yes. Realization.
Yes. Okay. Okay. And sir, in terms of milk prices, in terms of MRP, et cetera, for liquid milk and curd, are there any pressures in terms of anybody, like the market leader, wanting to take price cuts now and passing it on? Any such talks?
Not as of now.
We'll move on to the next question. That is from the line of Shradha Sheth from Edelweiss.
Sir, most of my questions are answered, just one question. I wanted to understand our CapEx requirement annually? And what is the kind of capacities we have currently to cater to the kind of volume growth that we are seeing because this year clearly seems a washout year. Even if it reduced our CapEx by 20% to 30%, if you could just explain the breakdown of the CapEx. I think you had explained 2 quarters back in terms of the poor -- the chilling center costs and all. But if you could just break down annually, what is the kind of CapEx requirement in the current scenario we need?
We currently have capacities, installed capacities of 20.28 lakh liters of chilling, we have distributed in milk procurement areas. And we have 23.7 lakh liters of processing capacity, which are curd factories where the milk comes for separation, pasteurization, et cetera. Then we have 15.35 lakh liters of milk packing capacity. And we also have 6 lakh kgs of curd packing capacities. These are the major installed capacities. These are enough for meeting the current business requirements. But what we do is every year, we add certain facilities for meeting the next year's production requirements.Then another aspect, in certain markets where our capacity is available but sale is not there to the full capacity level. But in certain markets, our capacities are limited and the sales are growing. There is, again, a mismatch in terms of installed capacity versus current sales growth. But that happens in the planning. You expect certain things to grow, but it doesn't grow there, it grows somewhere else. So we -- though we have overall 15 lakh liters of milk packing capacity, we still add 1 lakh liter in a market where our growth is faster than capacity or we aspire to grow in that area. That is how sales volumes and the packing capacities do not match.Procurement capacities in the slow seasons, like summer months, our procurement go down in popular areas by 60%, 50%. So I may have 1 lakh liter capacity, but I will be getting only 50,000 liters in summer. In the same locations, in winter, I will get 90,000 liters. So the capacity utilization of chilling, I have 20 lakh liters, though we handle only 15 lakh liters today. It looks like I have 5 lakh liter idle capacity.In winter months, I will be going closer to capacities. In summer months, I will be going lower. And in certain markets, I have almost reached my chilling capacities to winter months in certain procurement areas. Therefore, it will not be very clearly straightforward business requirement versus installed capacities. There is already some gap, but it's about the need for further investments.And the next, when we invest typically INR 100 crores in a year, about INR 15 crores go for non-project issues like infrastructure development, for IT, either towers or licenses or SAP or new development, et cetera. Similarly, some amount goes for front-end infrastructure like milk freezers, chillers, ice cream freezers, then the crates to be deployed in the market, et cetera. So there is a front-end investment in the market and the IT back-end investments. They are also part of this INR 100 crore investment we made.And then core dairy investments are there, 4 types of investments are in the core dairy: one, village-level milk collection centers. When villagers come to give milk, we have to put an analyzer in the village. We have to give weighing scale, cans, et cetera, that will cost approximately INR 1 lakh per village. And chilling centers have bulk coolers to bring this milk to a place and chill them. That is, again, an investment of INR 15 crores, INR 20 crores going to the chilling capacity creation. Then we have packing stations for processing and packing milk and milk products. Another INR 30 crores, INR 40 crores will go into that new capacities.There is every year renewal of the outdated machinery, old machinery, et cetera. So there is a replacement cost of INR 10 crores to INR 15 crores for the replacement. Then there are certain energy conservation programs we'll take up and the replacement of the inefficient motors and conducting lines. So that will be another INR 5 crores, INR 6 crores of energy management.Then there are safety requirements where certain boilers or chimneys or condensers, compressors, these are all prone for certain hazards. So safety activities we do. It's not that absolutely go for only capacity creation in the plants and chilling center. We have to create village-level infrastructure, chilling center level infrastructure, packing stations and the existing packing stations, upgrading them or replacing such equipment, then the front-end market investment and the back-end IT investments. All these put together is the annual capital budget. That is a typical INR 100 crore model we have taken in the past few years.This year, we definitely do not require immediate capacities because our volumes are down. But we have some -- committed certain projects, already buildings are constructed and the equipment have arrived. So those projects have to be completed. For that purpose, we will be utilizing certain CapEx in the current year and the additional IT back-end market infrastructure [ will be ] handled.So this year, maybe INR 75 crores, INR 80 crores kind of CapEx we need to invest as in preparations for the next year. Current year business, plant capacities are available. There is no problem at all. Hope, I have answered, Shradha, your question because you have been raising me a couple of times earlier, and Anand also told me that you are seeking more details. I thought I'll give you full view of what is CapEx for us.And in addition to this, whenever we want to create a new project for next year, then we acquire some land, keep them as a land ready for the next year or following year plant expansions or new locations. The land acquisition cost also comes into picture in this CapEx.
That's very helpful. Sir, this entire CapEx that you spoke about, this leads to additional capacity of about 1 lakh to 2 lakh liter per year? Is it a fair assumption?
So not only additional capacity, this is also for back-end IT infrastructure, front-end market infrastructure. In the market, we require new freezers and chillers in the selling point. And we have to supply the milk and products to crate, plastic crate. They get damaged every 2 years. They have a life of 1.5 years, 2 years only in crate for transit -- movement of this material. So market infrastructure is there. Back-end infrastructure is there. Yes, the land acquisitions are there.Then the village-level milk procurement. I may have a chilling center, but I have not provided the village-level electronic milk analyzer, so we have to keep on adding this at the village level. So it's an annual exercise. Every year, we put even -- we put 1,000 villages in the analyzer, it is [ INR 10 crores ]. That's the kind of CapEx requirements spread over related to packing station to market and the back-end.
The next question is from the line of Rajesh Ranganathan from Doric Capital Corporation.
A couple of questions. So you had mentioned in your presentation that your strategy now is going to focus on expanding to rural areas in Tier 2, Tier 3 towns. And Brahmani, you also mentioned earlier that you're doing a lot on the new channels, such as e-commerce, et cetera. Could you help us understand a little more in detail on what exactly are you doing? And what are your targets in terms of where you are and where you want to be with respect to your Tier 2 or Tier 3 locations? And what do you need to do differently for that?And for e-commerce, how do you benchmark your own performance, which would tell what the competition may be doing? And what new opportunities that will open up for you in terms of products. You mentioned that you're improving your product slate. Could you please talk about that as well?
Brahmani, would you like to respond?
Yes, sure. So basically, just one small correction here. Tier 2, Tier 3 cities is not something that we are currently looking at and selling our products because we believe in urban markets where we are present already. There is a big opportunity, especially when it comes to value-added products. Today, if you look at majority of our value-added product sales, it comes from curd, right? There are other products also, where we'd like to penetrate our channel much better, which is beverages and ice creams and the new introductions in terms of slightly more functional value-added products, which contextually come -- we feel come at the right time because of COVID, immunity, et cetera.And so that's our focus when it comes to market. We will stick with that existing market. And opportunistically, look at those markets which are in and around our existing markets, which work out well in terms of logistics and which are developing. A city like Hyderabad, for instance, has been growing in terms of size and certain rural parts of the district are becoming more and more a part of the city itself. So in such cases, we will be looking at expanding our market size within our existing regions. So that's where we are. And of course, when it comes to the vision of the company, by 2024, we want to double our contribution of value-added products with our revenues to about 45% to 50%. And that will come from both existing products, that itself is a huge opportunity, and some these new products that we are talking about. So that's where we are.Of course, when it comes to e-commerce, that's another huge opportunity. And dairy products become a very important part of the market, even for consumers. And that's where we're looking at penetrating and increasing our volumes through the major channels. Simultaneously, we're looking at the direct-to-consumer go-to-market strategy, too, with -- like I mentioned before, we've just introduced our own app in Hyderabad as a pilot. It's called Heritage TUCH, through which we're already servicing close to 600 consumers and the back-end being the same. So it's very cost efficient for us. Our existing channel partners or agents distribute these products to the consumer directly, whereas the orders are taken through the Heritage platform. We're also just starting to introduce value-added products and not just milk and curd through that particular platform. So yes, there is a higher focus on technology-driven channels and through modern retail format stores, especially for value-added products going forward.
But then you mentioned in the presentation that you want to focus on rural areas in Tier 2 and Tier 3 locations. What does that mean exactly then?
So I will -- what -- like I said, what it exactly means is in and around our existing markets. We will look at logistically improving our efficiencies by looking at those areas which were underserved in the past and can be opportunities for us. We are absolutely not looking at going into a newer state, newer parts of the existing states where we service.
And from the point of view of -- Mr. Rao, you already answered regarding the subsidy risk hasn't yet fructified in Andhra Pradesh in the past 1 year. But 2 days ago, Andhra CM signed a MoU with Amul, is that important?
No. We have our own farmer base. We have our own consumer base. Amul has come to Telangana also with a similar model. And they will go everywhere. They have been going to Odisha, they've been going to West Bengal, they are going to Bihar. So Amul will be there everywhere in the country. So we will continue to do our business and they will do their business. So I don't see any issues for us.
Okay. Ultimately, as you correctly pointed out, we have to come back to volume growth and margins are fantastic. We love it, but it has to be a combination of both. And from your decision to launch new products, new channels, all of that is obviously helpful. But is there anything else in terms of M&A that has opened up because of the current environment?
We are actually trying to breathe [indiscernible].
All right. And in the future, if you can share any thoughts as to how you want to execute this year?
Yes. That's in the public domain last few weeks. Some transactions are being discussed about the company. So we are also eagerly waiting to see the outcome. As far as Heritage is concerned, the lock-in period is over. And this has now right to take its own decision on their share. But we'll watch and respond to the situation as it improves.
The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.
Just a couple of things from my end. One is with regard to the -- on the cost side, sir, anything that we can do on the employee front, which we can -- probably can do because we've actually seen a sequential jump in our employee costs. And also, if you try to compare it with any other, let's say, another player in the South, it seems to be higher. So anything in this period, which we can try to reduce the employee cost as such?
No. We haven't cut any jobs. We haven't cut any pays. Rather we paid incentives for those who have come to work during the trying times, particularly the casual workers, contract workers, security people, drivers, and we have to provide them food because there was no food available. Imagine a truck going from one place to other place, en route all dhabas were closed down, restaurants, hotels, nothing was there. We had to pack food for every one of them in our canteens. Luckily, all our -- most of our factories have good canteens, where we make food. They were provided for drivers, loaders, cleaners, workers. So food costs have gone up.In addition to that, the sanitization, disinfecting, we have purchased even 70,000 face masks so that everybody is getting the mask and gloves -- hand gloves, tonnes of sanitizers. And additional incentives, we paid 20% to 25% extra for the workforce in the initial period when people were reluctant to come out post lockdown. Then we have to give them additional support of transport because no transport was available. Buses were stopped, autos were stopped. We had to hire some vehicles and transport them to their home and pick them up.So significant costs were incurred for the workers' safety and motivation purpose. So as long as this continues, our cost on employees side will not be reduced. So we will have to continue and sustain the workforce attention. 100% people are working for us. And not a single employee has faced risks. They were all safe-guarded by our actions. So I don't see employee side, we should cut any costs and save money. And they are very important elements for sustaining the business in these difficult times.
Okay. Sure, certainly. And sir, just one more point, if I actually missed out, you spoke about the institutional milk, like you said, is about 15%, 20%, which is out-of-home and valuation...
No. Institutional line -- institutional is different.
Sorry, not institutional. You said out-of-home, sorry. My apologies. Yes, out-of-home is about 15%, 20% and you said for milk, and for value-added products, it's about 30%. What was the decline in the quarter for this particular 15% and the value-added product of 30%?
It is one and the same.
I'm sorry, I think, I didn't get it.
They're different for different companies. These are numbers for our company. And they are also different in different markets. It's not same in every market. So some markets are 10%, some markets are 20%. So it varies with dense urban areas like Hyderabad City. 1 lakh employees have stopped coming to office since they started working from home. All these 1 lakh employees from various IT companies would have consumed at least 5 lakh tonnes of beverages, tea or coffee. That's the fall, and that milk would have gone from us.
Ladies and gentlemen, that was the last question. I now hand the conference over to Dr. Sambasiva Rao for his closing comments.
Thank you very much for your sustained interest in Heritage Foods. We are very glad to share these details with you. And we had also an opportunity to highlight to our investors and potential investors the activities we have taken to safeguard our employees and safely deliver our products to our consumers without any disruptions. And we take this as a responsibility today, not just as a job. Our business is nutrition in times of necessity and income to the farmers when all sources of income dried up. The milk was the only source of income for sustaining their families, and we were able to procure all the milk and we were able to pay on time punctually, without any delay through our digital payment systems.So we were very glad in the difficult times in the country, we, as a sector and as a company, supported farmers for their income and consumers for their nutrition, safeguarded our own team of employees and presented some reasonable numbers for investors. And thank you for associating with us. I'm looking forward to interact with you again during October month. Thank you. I wish you all a safe stay, and take all precautions. Thanks, again.
Thank you. Ladies and gentlemen, on behalf of Heritage Foods, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.