Heritage Foods Ltd
NSE:HERITGFOOD
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Heritage Foods Ltd
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Ladies and gentlemen, good day, and welcome to the Heritage Foods Q1 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the floor over to Mr. Hiral Keniya. Thank you, and over to you, sir.
Thank you, Tanvi. Good evening, everyone. I welcome you all to the earnings call of Heritage Foods Limited for Q1 FY '22. Today, we have with us the management represented by Mrs. N. Brahmani, Executive Director; Dr. M. Sambasiva Rao, President; Mr. A. Prabhakara Naidu, Chief Financial Officer; Mr. J. Samba Murthy, Chief Operating Officer; Mr. Umakanta Barik, Company Secretary and Compliance Officer; and Mr. [ Vinay Vertel ], CEO, Heritage Nutrivet. Before we get started, I would like to remind you that the remarks today might include forward-looking statements, and actual results may differ materially from those contemplated by forward-looking statements. Any statements we make on this call today is based on our assumptions as on date, and we have no obligation to update these statements as a result of new information or future events. I would now like to invite Dr. M. Sambasiva Rao from Heritage Foods to make his opening remarks. Thank you. Over to you, sir.
Thank you, Hiral. A very good evening to all the participants today on this call. We are happy to welcome you all to this earnings call of Heritage Foods to discuss the financial and operating performance for the Q1 of FY '22. I hope all of you are safe and healthy during these pandemic times. A detailed presentation has been uploaded on the exchanges and on our website. I do hope everyone had an opportunity to look at it. Now let me take you through the highlights on the financial and operational aspects of quarter 1 of FY '22. Consolidated revenue for Q1 was at INR 6,481 million as compared to INR 6,388 million in previous year's Q1. EBITDA was at INR 588 million as compared to INR 520 million in Q1 FY '21. EBITDA margin stood at 8% now as against 8.7% in the previous year same quarter. Adjusted PAT grew by 3.7% year-on-year to INR 303 million. Overall, the profitability of dairy has improved during Q1. At least if you take stand-alone performance, net turnover was INR 638 crores versus INR 606 crores, registering 5% growth. EBITDA of stand-alone is INR 53 crores versus INR 46 crores registered 15% -- 15.6% growth. PBT of stand-alone is [ 40.41 ] versus [ 33 ] of last year. Now I take up Heritage Nutrivet, our wholly-owned subsidiary. Sales stood at INR 241 million in Q1 as against INR 345 million in the last year Q1. EBITDA stood at INR 23 million against -- as against INR 52 million in the last year. PBT stood at INR 14.9 million versus INR 42.7 million. On the balance sheet front, the long-term debt stood at INR 36.4 crores, that is INR 364 million at consolidated level as of 30th of June 2021. The company has a strong balance sheet with debt-to-equity ratio at 0.04:1 and cash and bank balance of INR 700 million as of 30th of June 2021. Moving on to the volume performance. The average milk procurement during this quarter was at 1.2 million liters per day as compared to 1.4 million liters in the last year same quarter. Average milk sales, the liquid milk sales during current year's Q1, was at 0.95 million liters per day compared to 0.92 million liters during last year. While current sales during quarter 1 was at 292 metric tons per day, compared to 253 metric tons per day during the last year, registering 15% growth year-on-year. During this quarter, value-added products revenue surged by 11% year-on-year to INR 1,746 million. The contribution of value-added product revenue also increased to 27.4% versus 25.3% during the last year same quarter. There are a few other developments, which I would like to share with you all, which is already in the public domain. Our senior management team is now strengthened with onboarding of Mr. Srideep Nair Kesavan as the company's CEO. Prior to joining Heritage Foods, Mr. Kesavan held over 2 decades of leadership positions at Coca-Cola and Olam International as an innovative marketer and enterprising business leader with deep domain expertise across sales and distribution, marketing, category management and P&L. The company continued with its efforts of enhancing value-added product portfolio, and I'm happy to inform you that the company during this Q1 forayed into new ready-to-eat segment, that is heat-and-eat tikka paneer. Additionally, we also launched Spiced Butter and Cup Curd in Mumbai market during this quarter. Heritage Novandie is delighted to bring Mamie Yova-branded Deliciously French Yogurt along with our unique offering, the Yo Pop, a drinkable yogurt in Hyderabad market through Heritage Foods distribution network. The company expects to grow its value-added product share in the coming years by consistently launching new healthy value-added products. The company's growth mantra is to empower farmers and build strong product portfolio through its consumer-centric approach. Heritage aspires to be a nationally recognized brand for healthy and fresh products with a focus on efficient capital management and maximizing shareholders' value. Now the floor is open for question answers. If any of you have any queries or feedback post this call, you may please connect to Dickenson World, our new Investor Relations agency. Thank you for the time and patience. Now let's go for discussion.
[Operator Instructions] The first question is from the line of Sameer Gupta from IIFL.
First question is regarding this new development of Mr. Srideep joining. So any color you can give, sir, on the broad strategy of getting a new CEO on board, any revised targets for the company, what exactly is the thought process, broadening portfolio, going aggressive on marketing, changing or modifying organizational structure, revenue growth, anything related to broad strategy behind this appointment. That's my first question.
Yes, this is Brahmani here. So basically, the targets for the company remain more or less the same that we want to grow at over 20% when it comes to revenue to be able to reach our target of increasing value-added products from the current 29% contribution of revenue to 45% to 50%. Now in order to be doing that, I think there are several things that we realize we need to be focusing on as an organization. One, importantly, the consumer-centric focus to bring about the transformation and to bring about high growth as we move from being just a dairy company to an FMCG sort of approach. So with that said, we believe with Srideep's experience cross-functionally would be helpful, be it in the domain of marketing that he has a rich experience and operations. And as a result of handling several other functions, such as HR and being responsible for P&L, et cetera, he will bring in value. He is just joining the organization this month. I think we'll be able to co-create more specific strategy post his formal joining within the organization and give you more light on the same during our next call.
I look forward to that, Brahmani. Second question is more on the quarter. So last year, we saw the lockdown affecting the HoReCa channels and the milk procurement prices saw a dip. This quarter, again, the restrictions were imposed, but we don't see any gross margin advantage. So what differently happened this time?
Compared to the previous year's same quarter, this year, procurement prices were higher than the last financial year. That's a major difference. And to some extent, the logistics costs also were higher with the increased fuel prices.
And so sequentially, there was a drop in milk procurement prices?
No, I'm talking about comparative data of last year's same quarter. Compared to last year's same quarter, this year, milk prices were higher. As you know, the markets were almost restored in the Q4 of last year. All markets were open and milk prices went up with the increased demand. That has not come down to as low as last financial year's quarter 1 this year. That is a significant difference from last year Q1 to this year Q1 in terms of farm gate prices.
Got it, sir. Sir, one request. You used to share the liquid milk prices and milk procurement prices every quarter. Just a request if you could give it for this quarter.
Last year quarter 1 to this year quarter 1, there was an increase of 3% in terms of milk price per liter.
This is procurement?
Yes. Last year, procurement. The average procurement price of record whole milk, it was at INR 34 per [indiscernible] shares of competitor. And this year, the same average price of cow milk development. It is a category [indiscernible] per liter, so there is an increase of 3%.
Got it, sir. And the selling price, sir?
Selling prices remain more or less same. Except for the variant mix and market mix, there was no price increase in terms of sales prices of milk last year quarter 1 to this year quarter 1.
The next question is from the line of [ Rajah Jain, A&S World ].
Sir, my first question is, it seems that more or less, our cattle feed business has kind of attained scale. So if you could guide us as to what kind of sustainable EBITDA margins we can expect from this business once we expand our footprint in all other locations?
Sure. I request Mr. [ Vinay ], the CEO of HNL Heritage Nutrivet to respond to you.
Good evening. The margins are subdued in quarter 1, yes, because the raw material prices have been high. As you must be aware, the soya prices are competing with diesel prices now. And in some way, they have overtaken diesel prices. So given that, the margins are subdued. But we expect that going forward, specifically as we approach H2, which is traditionally when the new crop arrives, the margins would come back to the expected and the last year levels.
Last year levels, right? Okay. Okay. And for my second question, actually pertains to a follow-up on the earlier participant question. So if you could quantify the current milk procurement price, what are they now in July? And what were they in Q1 FY '20? To when also, if you could throw some light on the current skim milk prices because I believe they've softened a bit. So would it impact our margins?
Yes, we are constrained not to talk about current quarter prices. We will explain to you later.
Okay. Okay. But how about the skim milk prices, do you think they would impact our margins?
Skim milk prices, we don't deal with normally skim milk for our day-to-day requirements. We buy the whole milk from the farmers.
Okay. Okay. Perfect. So I have a few more questions. I'll rejoin the queue.
[Operator Instructions] The next question is from the line of [ Isha Shakshay ] from Annual Shares & Stock Broking.
So I wanted to ask the difference between milk procured and milk sell, the quantity, what is the used stock or what is the wastage?
Sorry, can you elaborate? I couldn't understand.
No. So we procure around 1.2 million in this quarter and we sold 0.95 million. The difference between procurement and sold milk, what is the difference? Why is there difference?
Okay. The difference is the rest of the milk is used for other products like curd, paneer, buttermilk, flavored milk, all other value-added products. The [ INR 9.5 million ] is the sale of liquid milk. The rest of the milk is used for other products. That's where the revenue of value-added products is getting reported.
Okay. And sir, I wanted to check, you mentioned that procurement price is INR 34.49 in this quarter, right?
Yes.
And selling price was similar to last quarter?
Correct.
And sir, I wanted to ask that last year, when we adjust -- do the simple maths of selling price minus procurement price, then in FY '21, it was INR 11 per liter. But in FY '18, it was INR 5 per liter. So is that we have some minimum profit -- a minimum profit in our mind to keep between procurement and selling price?
It's not that simple, straightforward difference to be arrived at. There is a mix of value-added products. There's a mix of milk powder surplus fat generated and sold us butter and feed. It's a function of multiple activities. I don't think we'll be able to explain as a straight-line difference between buy price and sell price because it's just not milk sold like that. There's a cream separated from the full cream milk and reduced and sold as double toned milk, toned milk. Multiple complexities are there. You need to perhaps understand the costing and the selling prices separately. It may not be feasible on this call.
Sure. Sure. And sir, I wanted to say this is a focus area in value-added products. Which product is a major contribution? Curd is major. But going forward, it could be?
Yes. Curd continues to be the lead products, keeping the consumer habits in mind. It will be a kind of flagship lead product. The rest will follow because curd has lion's share. No other product can beat that kind of numbers. And that's essentially a function of consumer habit.
And sir, say 45% of our sales were value-added products of the overall sales. And right now, it is at 29%. So that requires a compounded growth of around 30%, 35% in value-added products. Is it possible? I mean what we need to increase in this? What are the strategies to achieve that 45% to 50% of sales? Because the growth rate would itself become 35%, growing value-added products at 35%. If you can elaborate, please.
Brahmani, would you like to respond?
Yes, certainly, sir. Definitely, I think the growth rate will have to be higher in value-added products versus liquid milk itself, which is the trend we've been seeing in the past couple of years. And in fact, despite certain headwinds in Q1 also, we see that the growth rate of VAP was higher than that of milk. And now given the current situation that seem to be getting better, economies are opening up, states are opening up, we believe that consumer demand should come back for value-added products, and we should grow in the positive detection. Added to that, I think bringing in more focus into marketing and bringing in this consumer-centric approach is something that will further reiterate and penetrate the brand and value-added products much better going forward.
And just the last question, salaries of MD and Executive Director have increased. Is it in proportion to the profit because the increase is more than the other company? So I just wanted to -- or is it only for this year?
Basically, the remuneration is structured in our company as a fixed pay and variable pay. There's a fixed pay approved for the period of 5 years by the Board and AGM. That remains about the same for 5 years without any annual increase. It's fixed for 5 years. Every month, every year, the pay is same for 5 years. There's a second element of remuneration called variable pay based on the performance. There are basically performance factors in the profitability. When the profit is low, the variable pay take home will be low. When it is high, it will be higher. That is how it is structured to encourage -- incentivize the high-performing year. That moves down with the performance. The significant part of the pay is performance pay.
The next question is from line of Bhargav Buddhadev from Kotak Mutual Fund.
We've seen about a double-digit decline in milk; procurement in this particular quarter. So anything to read through this because 17-or-odd percent decline, I think, has happened after many, many quarters.
Mr. Murthy, our COO, will respond to this.
Actually, there is no drop in our own milk procurement. Last year, we purchased skim milk and converted into SMP. So that because of the skim milk prices are low and convert above -- more skim milk converted into SMP. And certainly now, we are using it in this year. So that is the difference. Otherwise, there is no decline.
So is there a lot of SMP inventory still lying with that?
Because we need that, there is inventory available, but which is a very similar consumption only, which will come either...
[indiscernible]
3,500 tons of milk available and which is meant for internal consumption only in the coming months.
Secondly, sir, when we are looking at significant growth in our value-added product portfolio, you mentioned that you still have 50% of the revenue. Are you looking at upgrading your advertising and marketing budget because without that, it's difficult to sort of see such higher targets? So with the new team coming in place like we hired a professional CEO for Nutrivet and also [ food ] as well, is there a sort of a DNA change where we will be aggressive in terms of marketing spend also and sort of look at achieving with 50% maybe in the next 3 years' time, the sort of value-added?
Yes. Yes, we are going to increase our expense in future, and we are going to focus more on value-added products. And this spread is also mainly through this online marketing activity, social and the digital media and also on growth visibility activity.
Any budgets which you can share? What percentage of revenue will be spent on advertising?
So currently, in term of what type of milk are actually like -- if you take last few years, it was at about 5% per quarter -- and [ 5% per quarter and 5% to 2% ] previous years, then it is good and actually more in the final year.
Okay. So will we be doubling it or more than that?
Yes. Based on the need, actually, it will be going to be more.
The next question is from the line of Nitesh Jain from Birla Mutual Fund.
So my question is on the earnings in an answer to one of the earlier participant's question regarding the 20% type of revenue growth and more consumer-centric approach and becoming a FMCG type of company. Question here is to achieve that and such a decent revenue growth target, what approach are you going to follow this time? Because in the past, you have done some sort of some acquisitions which were not successful. So is it going to be organic this time? This is one question. And number two, instead of doing acquisition and chasing the revenue, will the company be investing more in Heritage brand and using the same distribution, I mean, network, which is quite strong, in my view? How do you think that, I mean, for next 5 years? This is the question.
Yes. So this is Brahmani here again. Of course, this is a strategy, which is ongoing. But to your question on acquisition, I think that's something we look at opportunistically. As we speak today, there is no strong compelling candidates that we are looking at right now, especially because we are so focused on the quality of our raw material, and we want to have control over it. This is something that help us with the brand significantly. On the next question on distribution. Yes, the dynamic of distribution today is quite strong for us. And in fact, what made us grow to the level we are today over the last 2 to 3 decades is the strength of our distribution network. So that will continue for a certain set of products, especially fresh products. But as we look at existing sort of ambient products, the longer shelf life products and any other future products, it will sort of have to be a combination of what we have today and FMCG type of distribution network, including focusing more on modern retail format stores as well as e-comm. We've seen a growth in e-comm sales within our company itself, as mentioned during our last con call. So distribution channels and distribution mix will have to change.
Sure. And my second question is on this JV with Novandie's French yogurt business, not for any particular year, but what is the potential revenue possible from this JV in 3 years' time? Any estimate, any internal numbers you are working with?
I think I will come back with more clarity going forward. But product has just been launched in the market. We launched the product on -- to be more specific, on the 16th of February in the Maharashtra market. Quite recently, we launched a product also in the Hyderabad market, and the feedback and the response to the product is very encouraging for us. Secondly, we have a partner, which is a private company. So I can't share too much information at this point in time. And offline, I can share more information about the same. But to just give an example, I think among the Western products, which are generally doing well in the Indian market, yogurt is one space, which is really attractive. And it is a logical sort of extension to curd over that Indian market. So we're really excited about the growth potential this has.
Fantastic. And lastly, to achieve this 45%, 50% value-added proportion in line with the recent launches, be it yogurt or the ready-to-eat curries, can we expect more such launches in the coming months? Any new products?
Any different products? Yes, several different products in the past 1 year. And for instance, we launched our line of cheeses, [ beta ], slices, cubes, blocks, spreads, mozzarella. We've also launched probiotic curd. We launched immunity milks. We launched cold coffee, which has taken up quite interestingly. And we also very recently introduced the tikka paneer, which is ready-to-eat, ready-to-cook set of products. I'm Thinking about convenience because we believe in the future of paneer. Similarly, in the current quarter, we will be launching shirkhand and amarkhand in relevant markets, Maharashtra, et cetera. Going forward, yes, there are products in the pipeline. However, we believe our plate is quite full and penetration within existing products itself is a huge opportunity for us. So we don't want to spread ourselves too thin either. So again, taking the consumer-centric marketing approach going forward, we will penetrate more in existing products, be it curd where we are the clear leader, be it paneer, be it in drinkables, be it ice creams, et cetera.
[Operator Instructions] The next question is from the line of SivaKumar K. from Unifi Capital.
I had one question on the increase in revenue that you're targeting around the 20%. So what will be the key geographies that you'll be targeting when you want to grow the revenue at 20%? Is there more scope to grow in our current core markets? Or do you need to expand into new regions?
We will be operating in the same markets. For example, if you take AP, Telangana, Karnataka, Tamil Nadu, these are the markets where we go down into tier 2, tier 3 suburbs, et cetera. When we go to recently entered markets like Delhi or Mumbai, we'll be focusing on the urban areas, those 2 states, those 2 markets. Beyond this, we are not looking at any new territories as such.
Right, sir. Sir, and I just wanted to pick your brain on the milk cycle per se. Because currently sitting in Q1, how do you see the milk prices behaving in the flush season, which is closer to Q3? Because in FY '19, we have seen the prices being at a very low level because there's plenty of milk. And then in FY '20, we saw very high prices because of scarcity situation. How do you see FY '20 even panning out during the period?
These are very peculiar scenario of dairy. We used to have 2 cycles in the earlier years, October to March called flush season, where production of milk is very high. Prices are the lowest in December, January period. And the second season, April to September, called the lean season, where the prices -- milk production is lower. Prices will be highest during July, August kind of months. That used to be a very standard kind of production cycle connected to price trend. But of late, let's say, a 10-year cycle, if you take, there were certain years where this rhythm is not regular. It's getting irregular, uncertain, unpredictable, and it was more so after 2015. There was no such flush. There was no such lean in some year. Full year was on lean only. There was no price drop. So it has become very unpredictable, erratic, attributed to multiple factors, mainly climate change, the rainfall and drought and floods have disturbed the cycle. Secondly, global price trends and global economies. One year, the Chinese economy went into recession. They didn't buy much of the stocks in the global market. One year, there was a tension between Europe and Russia. There was a diplomatic tension and there was embargo on the trade between Europe and Russia. So the stocks moved from different continents. And 1 year, there was a problem in New Zealand with drought. There was a production fall and it impacted. So global factors, diplomatic relations, the climate changes, coupled with certain export/import policy decisions of our central government and the incentives related to state governments, they're all not letting the cycle to be on its natural course of flush, lean, high-price summer, low-price winter. The cycle got disturbed. And this got further aggravated with the pandemic last year. So once the national lockdown was imposed, there was so much a fall in the demand. Out-of-home consumption collapsed. Markets got closed. So the milk supply continued from the farmers. Every company has picked up milk to protect the livelihoods of farmers and the relationship with farmers. And we also picked up and converted into powder and butter sold are consuming internally. So the prices have fallen in the first quarter. And slowly, it picked up by end of the financial year in Q4. Again, the wave 2 hit in March, end of March and April, May, the prices have gone down but not as low as last year. And now we are going through a lean season. The lowest production happens in August in the year, normally, in buffalo milk area. Now we are going through that lower production and higher prices. And if everything goes well and there is no wave 3 hitting India, the prices may again get impacted one way. If wave 3 comes and again, markets get impacted, then the prices will fluctuate. So we are going through a very challenging and difficult phase in the dairy system. No one can tell you what exactly is going to happen in the next 6 months, one, from the cycle of the pandemic, the vaccination and its impact, wave 3 and its impact, others from the climate, where it is raining, when it is raining, why it is raining and what its impact on the dairy, and the lockdowns and the regulations also impacted artificial insemination cycle. Normally, artificial insemination happens during certain months leading to conceiving and the deliveries, lactation and milk availability. The veterinarians were unable to travel through the villages during this last 1.5 years. Everyone has their own issues of public health, personal health and difficulties. So the artificial insemination also didn't happen as expected. So that will also impact on the rate of deliveries and the lactation. So it's very difficult to predict and clearly say. But if the natural trend comes, come October, production should improve, prices should soften.
Thank you for such a detail in the first question. I know how challenging it is.
I know you wanted it before you asked the question. So bear with me.
100%. I appreciate the detailed answer. So just one last question. Qualitatively -- of course, you can't give the numbers. Just qualitatively, from July, can you say that the core South Indian markets where you're operating are now closer to normalcy? When I say normalcy, the HoReCa segment should also be doing much better than what we saw last year, right?
Yes, markets are open and the demand is rising. One more factor, just to keep in mind, is the work-from-home option given to a large number of IT companies and schools being closed. Those who have migrated out of urban areas to their native places are yet to come back. Though the offices are open, they are still operating on the work-from-home front. And only the opening of schools will bring the parents back to urban areas. We operate mostly in urban areas. Our consumption is in urban areas. So the full-fledged recovery in the demand will happen once all the workforce returns to urban areas.
The next question is from the line of Aniruddha Joshi from ICICI Securities.
Sir, can you indicate the procurement price again in Q1 FY '21 and Q1 FY '22, both the quarters?
INR 34.49 current quarter, current year.
INR 34.49?
Yes. Last year, INR 33.45 per liter of average of cow and buffalo.
Okay. INR 33.45 last year, same quarter. Okay. Okay, understood. So also, lastly, if you can indicate curd sales in rupees -- in terms of rupees lakhs or rupees million.
Sorry, Anirudh, could you repeat?
So curd sales in rupees million or rupees lakhs. So basically, rupee terms. Not the quantity.
Revenue from curd sales?
Revenue from curd sales. Correct.
Just a moment. Last year, Anirudh, we view current year first quarter...
Sorry, sir?
INR 141 crores in the current year quarter 1, curd revenue.
INR 141 crores. This is June 2021 quarter revenues. And, if possible, June 2020 quarter as well?
Yes, that's readily not there. Just a moment.
Sure, sure.
It was INR 126 crores last year.
INR 126 crores. Okay. So with now induction of multiple professionals in Nutrivet business as well as the dairy business also, so just a question for Brahmani, madame. So how do you see the family's participation in actual management role? So we have seen in many consumer companies like [ Asian Paints ] or even [ Barger ] or other like [ Dabar ], et cetera, so over a period of time, the family has taken a kind of back sitting, actual management of the business. And professionals have taken over completely the day-to-day running or even the strategic decisions of the business also. So do we see such similar trend in case of Heritage too? So do you see over a period of next 5-odd years, entirely the business run by professionals? Or will the family continue to have a majority say in the management?
Anirudh, she just joined the business. You're asking her to retire?
No, no, no. No, sir. I mean what will be the role then? I mean that is the only question. That is the only question.
We all do this business well. I don't expect retirement so early.
Not at all about the retirement. I'm sorry if I have asked the question wrongly. I'm really sorry. But what will be the role? That is all in this question.
You take my answer rightly.
The next question is from the line of [ Rohit ] from Samatva Investment.
Yes. I just had a couple of questions. My first question was on the additional curd capacity that's coming up in the next few quarters. So once the capacity comes in, and what will be the peak revenues you know you can achieve from those curd capacity? That's my question. In the next 2 to 3 years.
Yes. So we've -- Brahmani here. We've added in the past year, we've added about 125 tons in curd capacities to our existing capacity and 50 tons in Karnataka, 50 in AP, and then another 25 in Maharashtra. This year, we don't intend to increase the capacity because this is suffice for the next financial year. So that's where we are when it comes to curd capacities.
Okay. And my second question was just a small data point. What will be the mix between cow milk and buffalo milk? Some broad numbers?
Yes. It's -- this number just keeps fluctuating again because cow milk production cycle, buffalo milk production cycles are different in terms of lactation start time, end time. We average out to 60-40, 60% cow and 40% buffalo at an annual level. But monthly level, quarterly level, it keeps fluctuating depending on the seasonality.
Around 2 years back, was that a similar range? Or was it like pre-COVID in the system?
It was a little more on buffalo side. It would have been, let's say, 43%, 44% buffalo and 56%, 57% cow. During this period, the buffalo milk has come down a bit.
The next question is from the line of [ Dipen Shay ] from Crystal Investment Advisors.
Yes. Can you hear me?
Yes, sir, please proceed.
My question is perhaps driven by my inadequate understanding of the company. So please forgive me if this sounds a little bit under. But I'm just looking at your stated chilling capacity, which is at 21 lakh liters per day. And you have procured about 12 lakh liters per day in the last quarter. And I think the peak that you would have done has also been about 14, 15 lakh, but I'm not sure, right? So the question is we have a very large -- much larger chilling capacity for primary -- for -- to chill primary milk, which is procured. And we are just about maybe 60% or 70% of the way there. Is the constraint in our ability to distribute and sell or is the constraint in our ability to procure?
Yes, there are multiple ways this could be understood. One, in terms of chilling capacity, 21 lakhs, and procurement, 12 or 14. In the peak season, peak months, we might be procuring 15, 16 lakhs. In the lean season, it will go to 11 lakhs, and the lakhs averages keep changing, 1-year average. Second is it's a legacy issue. Our company started 29 years ago. At that time, there were very few players. In a particular locality, a company has built 50,000 liters chilling center per day capacity in a particular location, anticipating that kind of milk and that kind of milk has come, 20 years back, 25 years back. Over a period of 3 decades, the number of players have come and set up their facilities around that location, in the same location. Several people have come. The milk shared, our milk pool remained same or there's a marginal increase. The sharing of the milk, shared milk, reduced the ability for chilling centers to procure 50,000. So over a period of time, what happened, we have to set up smaller units of 5,000, 10,000-liter capacities deeper in the milk collection areas. So there used to be one chilling center at, let us say, [ talus ] level, [ thirsty ] level, block level. These are the administrative units in the government. And now we have gone below the block levels and set up the smaller units. So the larger units have become redundant over a period of time. So therefore, the capacity remains underutilized in those locations. As the milk got shared, same milk pool divided by more people. And we started expanding into the deeper areas to pull up the milk from the distant places. So that's how certain capacities are underutilized. That is one way. Second is the procurement volumes and sales volumes typically go hand-in-hand. Whatever is the market demand, we try to catch up by setting up back-end infrastructure. Certain markets, we may be going faster. Like, for example, ex market, we were doing 50,000 liters and now it has gone to 1 lakh liters. In that area, there will be a procurement shortage. That area potentially is low. Milk availability is low in a particular territory, but demand is high. Take the case of Hyderabad. Hyderabad demand is far, far superior to milk availability in 300 kilometers around Hyderabad. Similarly, if you take Chennai, the milk availability is far -- so Bangalore, milk availability is far higher than milk requirement in Bangalore. So these mismatches are there. So certain areas, we need to add capacity. Though in some other areas, capacity is underutilized. In Karnataka, milk capacity is underutilized. I cannot start growing in Telangana our milk required for Hyderabad. So the growth and the growth of demand and supply areas imbalance is there. That is how this looks higher. It doesn't answer directly why the differences are there. So you have to really understand the milk production areas, milk consumption areas, logistics costs involved, perishability of the product because we have another commitment to offer fresh milk to consumers. We do not carry Pune milk to Delhi or [ Goji ] milk to Delhi. We try to procure milk in within the nearby areas. And fresh milk, we want to deliver next day to the farmer unlike certain brands who will have milk transit distance itself 3 days, 4 days.
I appreciate that. Does it mean that...
There is actually limited capacity, but transport long distance over 2, 3 days and give stale milk to consumers, which is against our principle of quality standards.
Okay. Okay, sir. And the milk powder that we are carrying in the inventory on -- how do we value this? Since it's probably a substantial part of inventory as we speak.
We have consolidated accounting, cost of production versus current market prices. Comparing both, the lowest of the 2, we take.
I think that's a very good answer. But the first answer was pretty detailed and much more than what I would have bargained for.
[Operator Instructions] The next question is from the line of [ Deepak Maharda ] from LSI Securities.
Sir, ma'am was speaking about you shifting like we are shifting more towards the FMCG business. Like what is the bouquet like we would like -- we would see in the future? So one product, what we launch is this ready-to-eat tikka? And what are the similar products which we can see in that?
Yes. This is Brahmani here again. We have several products that already appeal to the FMCG space. All our products are fast moving. All of our products are consumer good products. So be it our existing value-added product curd or our existing paneer, beverages, drinkables, all of the fat products, ghee, butter, all of them are big in FMCG.
Mainly I just wanted to know like since we have launched this product, paneer tikka, like what other similar products are we going to launch? And which are the main targets for us? Will it be the hospitality sector directly or it will be directly -- be it the consumers?
No, no, no. We've been very clear since the beginning that we are a clearly B2C company. We will not focus on other channels significantly. We will only go through -- go to consumers. And that's why we're so focused on building a stronger image and a stronger brand towards the consumer. We believe that, that will give us strength and sustainable growth in top line and bottom line.
Madame, do we see any similar products in the same line with it? In ready-to-eat category?
We have some products in the pipeline. It's too early to discuss that now. But earlier this quarter, we will be launching a more [ conventional ] tikka.
Okay. Got it. And madame, in this Novandie tie-up, like can we see more of products on that side also?
We currently have aid of sales for the invested fruit yogurt space, 4 in the drinkable yogurt space. We will focus on growing these products. However, seasonally, some flavors might be changing. But the idea is to first focus on curd and drinkable product, yogurt as product categories and grow them in our markets, mainly Maharashtra and Telangana as well.
Okay. Got it. Like how much is the revenue we are looking for this paneer ready-to-eat and this in the current year and in the next year here? [indiscernible]
Yes. For -- as mentioned, it was all part of our value-added product. So they are part of our plan to reach the 45% contribution of our revenues. In terms of specific numbers, I will request Mr. Murthy to talk about plans of tikka paneer.
We are actually expecting it about 25 tons to 30 tons per month of participation.
Sir, your voice is echoing, sir. Can you please repeat?
Yes. We are expecting around about 25 tons to 30 tons per month.
And what would be the value for that, sir, in rupee terms or revenue terms? Hello?
Yes, just a moment. Around INR 1 crore.
Due to time constraints, I would now like to hand the conference over to Dr. M. Sambasiva Rao for closing comments.
Thank you very much, all the participants, for interaction with us and continued interest in Heritage Foods. And we will be coming back to you with greater details in the coming call. Thank you very much, and stay safe and take care.
Thank you very much. On behalf of Heritage Foods Limited, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.