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 '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now like to hand the conference over to Ms. Sonam Raghuvanshi. Thank you, and over to you, ma'am.
Thank you. Good evening, everyone. I welcome you all to the earning call of Heritage Foods Limited for Q1 FY '23. Today, we have with us the management represented by, Dr. M. Sambasiva Rao, President; Mr. [ A. Prabhakar ], management Chief Financial Officer; Mr. Srideep N Kesavan, Chief Executive Officer; Mr. J. Samba Murthy, Chief Operating Officer; Mr. Umakanta Barik, Company Secretary and Compliance Officer.
Before we get started, I would like to remind you that the remarks today might include forward-looking statements, and the actual results may differ materially from those contemplated by the forward-looking statements. Any statement 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 any future event.
I would now like to invite Dr. M. Sambasiva Rao from Heritage Foods to make his opening remark. Over to you, sir.
Thank you, Sonam. A very good afternoon to everyone joining us today on this call. We welcome you all to this Q1 FY '23 earnings call of Heritage Foods.
Let me start by giving you an overview of the financial and operational highlights for the quarter 1. Consistent with our performance over last many quarters, our consolidated revenue for Q1 registered a robust growth of 27% year-on-year at INR 8,209million. The EBITDA during this period stood at INR 220 million compared to EUR299 million in Q4 of FY '22. During the quarter, the PAT stood at INR 73 million. In spite of our solid revenue growth, unprecedented increases in raw milk procurement costs and overall operational cost suppress the quarter's net profits.
Now let us look at the operational aspects of our business in detail. In the dairy business, our average milk volume procured during Q1 stood at 14,66,000 liters per day compared to 12,14,000 liters during the corresponding quarter previous year, registering a growth of 20.76% year-on-year. While on the sales side, our average milk sales during Q1 recorded an increase of 15% year-on-year, whereas curd, which is our most important value-added product in our portfolio registered a massive growth of 45.4% during this quarter.
Revenue from the value-added products portfolio grew solidly by 62.5% year-on-year to INR 2,838 million in Q1 compared to INR 1,746 million in the Q1 of last year. I'm pleased to inform you all that this helped our VAP business contribution to increase by an interest in 750 bps year-on-year to reach 34.9% of overall dairy revenue in the past one. Despite this quarter's suppressed profitability, our sustained volume growth, especially in the value-added portfolio brings us the confidence in recovering profitability in the coming quarters of flush season when raw material procurement prices are expected to cool off.
The company's primary mission, as you know, is to delight every home with the quality products. In line with our plan, during the quarter under review, we have launched new value-added products like Gulab Jamun and Rasgulla, in time for the festive season, buttermilk in cups, addressing the new consumer segments and ghee in differentiated and convenience spout packs. These launches further strengthen our value-added product portfolio and will strengthen our push towards becoming a more diversified value-added foods company.
The company is also constantly taking strategic initiatives to connect with our consumers better. Our marketing strategies are being redesigned to better our understanding of changing consumer preferences and behavior patterns. This helps us designing winning differentiated high-quality products. As we demand strict sequential solid demand growth for our products, we are making concerted efforts to improve our profitability.
Procuring milk at reasonable costs amid generally lower yields from cattle would also be a near-term focus for the company in the coming quarters. We are also taking many long and short-term cost efficiency initiatives to reduce our cost of conversion and cost to serve. We are happy to inform that we are already seeing significant progress on both discounts and are confident of delivering better value to our shareholders in the coming quarters.
Now we open the floor for the question-and-answer session. Thank you.
[Operator Instructions] We have the first question from the line of Digant Haria from GreenEdge Wealth.
Sir, my first question, firstly, congratulations on finishing 30 years and you started the 31st year with probably all-time high quarterly growth. I analyzed like last 24, 25 quarters, we have been struggling in the INR 600 crores to INR 700 crores per quarter range. And now we are straightaway broken out to cross INR 800 crores a quarter. So my first question was, is this run rate sustainable? Like was there any one-off in this quarter that may not continue for the next 3, 4, 5 quarters. And then if so, if you can give some more elaborate details on what all did we do to reach such high levels of value-added product sales and milk sales and will procurement as well. So that's my first question. I'll take the second question later.
Sure. Srideep, will respond to this.
The growth that we have seen in this particular quarter is actually consistent with the trend that we've been seeing in the last 3 or 4 quarters. There are many fundamental things that have fallen in place as far as our strategy is concerned, which gives us confidence in terms of ongoing performance in similar [ lines ]. There are 2 or 3 things here. One is most predictability as far as our growth and volume numbers are concerned. #2, is a shift towards value-added products, which is more engineered rather than accidental. And #3 is growth in the geographic segments where we want growth to happen. So we are very happy to say that we are progressing well on the strategic priorities that we spoken in the previous quarterly update, and those efforts, which has resulted in the outcome that we have seen.
Right, right. So, Srideep, fair to assume that this should not be a one-off quarter. Like there was no extra sales [ of fat ] sales or any special order from one customer. We don't do that. We have never done it the past, but that's because of the huge revenue. I wanted to be sure that this looks more like a sustainable run rate?
Absolutely because, first of all, in this particular quarter, we have not made even INR 1 of any bulk or institutional sales. That's absolutely none. In fact, on the base revenues, we might have some bulk sales. So despite having the base bulk sales or bulk revenues sitting in the base quarter, without that just through consumer product sales, we have achieved these numbers. Like I mentioned before, we have -- the strategy is on 4 steps actually. As far as market growth is concerned. Of course, I'm speaking only the market trading strategies that we have put in place.
First is to have segment our portfolio into 6 consumer-centric product losses. We said that we are looking at liquid milk separately, dairy foods, dairy drinkables, dairy sweet, [ dairy fats ], ice creams and frozen deserts, separately. Because we are looking at product clusters, differently, we are able to also decide on what's the fit-for-purpose [ throughout ] the market that makes these products available in hand to the consumer in the most efficient manner.
The third thing that we have looked at is innovations that are consumer-centric. And in these last many quarters, we have made several corrections on just in terms of launching new products, but we have recalibrated our tax price channel architecture to make our products perform much better on the shelf. And the fourth thing is a new format or a new framework for engaging with customers, especially our key national as well as regional customers, which are helping us get tremendous growth and gain market share as well. So there is a very clear plan in place, which is being executed, which is resulting in the kind of growth that we've seen.
My second question is that, [ Srideep ] in your last call, clearly explained that what we are doing to find inflation like you explained 3 points and one is smart sourcing, second was negatively operating efficiencies and third one is increasing value-added products. So in this quarter, we actually saw the value-added products increase, but even then the margins are probably at [ 24-quarter low. So revenue is at 24-quarter high and margins are at 24-quarter ] low. So is this mostly attributable to the milk inflation we are seeing across the country? And if this continues for 3, 4 quarters, is it even fair to assume that we'll reach 6%, 7% margins with this kind of a milk sourcing challenges?
Yes. See those -- those margin expansion strategies are that you discussed just now that we talked about in the previous quarters are directional in nature. Those are continuing activities. For example, expansion of gross margins through reduction of operational costs is a continuous process. We have, at this point in time, at least 8 projects of significant nature, which will help us reduce our cost of production significantly over the next many months. Now these projects are -- the reason why I say continue as in nature as said at this point in time, as we are executing these projects, we are looking at other options or other projects that will kick in once these are completed. Similarly, there are many other stuff that we are working on in terms of reducing our outward freight or invert freight through conversion of more and more of our vehicles to electric reducing dependency on fuel cost inflations, et cetera.
That said, what happened in the first quarter, and this is not just -- we are not the only the ones that got impacted, this impact of sell across industries, across [ FMCG ], across dairy industries, it's almost like a perfect storm. On one hand, we had global inflation -- inflationary pressure due to the ongoing war and many other aspects. And specific to our industry, there was severe milk shortage, which were felt across the country, which was reported by many large cooperative companies as well. And it was a combination of this, which impacted the profitability the way that it did.
While raw material prices or milk prices is something that has to cool off once the flush season begins to happen, and we have already seen pulling off to a certain extent in the last, I should say, 45 days. But the other thing, let's say, for example, inflationary pressure on input rock, input material, packaging material or fuel costs. It's not something that we can be assured of. So we have put several things in place to see whether it is alternate packaging, material or alternate ways of reducing costs to fight off these inflation crusher. So those are things that are already put in motion and we are making good progress against those.
My last question is for Ms. Brahmani and Mr. Rao. Actually in the last decade, we had this Heritage Fresh Stores where we spend certain time energies, then we sold it off for future growth that also other future growth also went through its own share of volatility. And then probably that consumes a lot of time and energy, but now like can we really say that all those things in the past are over in company is completely focused on these new things? Like there are no vestiges of that phase where something went into ventures, which were always on the dairy segment. Sir, that's just my last question.
Yes, absolutely, you're right.
Mr. Haria, does that answer all your questions?
Yes.
We have the next question from the line of Sameer Gupta from India Infoline.
First of all, 2 bookkeeping questions, milk procurement prices and liquid milk prices this quarter?
Milk procurement price, liquid milk sale price.
Yes. Just to give these numbers like some time back, yes.
Yes, procurement prices in the quarter [Technical difficulty] the average is on [Technical difficulty].
Sir, there is an equal increase in liquid milk price and milk procurement price, there is a 15% kind of a sales growth in liquid milk. So is our VAP portfolio currently at a lower gross margin than our liquid portfolio? Because otherwise, sequentially, our gross margin should not drop, right.
Just a moment. He has given an average of all products for milk together. Only milk, if you take…
[ INR 49.16 ].
Yes. Sameer, is it clear?
No, no, sorry, I didn't get it. I thought you were talking internally.
The milk procurement price average per liter is INR 40.77. Liquid milk sale price is INR 49.16. What he earlier said was an average realization of milk and all products put together.
But again, since that average is also there and it's pretty healthy, sequentially or -- okay, the sequential that I'm looking at might be of the liquid milk price. So my second question is this, and this is based on these data points only. So that -- here on, we are at a gross margin, which is one of the lowest. And we are -- our milk procurement in a lean quarter, is that 1.5 million, which is one of the highest. And at a time when the milk prices are supposed to be high. So is this a mistake by chance that we have had and not have had enough SMP stores that led to this situation?
[ Not have we ]?
So typically, you procure more in a flush season, so that it lasts in a lean season. What I see is that if procurement is one of the highest this quarter and that too in a lean season where generally milk availability is lower and hence those prices are higher. So have you made a mistake this time that we didn't procure enough in our flush season and now it is being paid in the -- in terms of margin pressures in 1Q? Or is that understanding wrong?
Yes. You need -- let's call it a mistake. If you say strategy to grow, we wanted to raise the sale volumes. The typical well structured in the flush season gets converted into milk powder and it is used as an additional factor in the curd and other products also for reconstituting the milk. So irrespective of that, the growth has to come from the milk only. So we have grown on the sales side consciously as the milk prices cool off, then the benefit of margins will kick in as soon as possible. So it's a great expansion.
Milk prices will not remain same throughout the year. I mean, if you go by the trend, there are 2 cycles or precycles in a year where milk prices fluctuate. And the lowest are expected to be in the winter months after the rain when the animal yield is very high. And that's the time we get milk at a lower price. And certain excess milk will be converted and kept in the powder form for the summer season. That continues as an operation every year. But this lean season growth is something which we can sustain in the flush season, and we'll have much more milk in flush season coming flush season.
Just a follow-up to that. Let's say -- let us suppose because I have seen this in the past 2, 3 years, what has happened is for some reason or the other, the milk prices are not very favorable in the flush season either. Sometimes there are unseasonal rains, sometimes there are late rains. So let's say let's assuming that these milk prices don't correct in the flush season to our expectations, will be willing to increase our end consumer prices so that our margin stabilized back to our 6% to 7% range? Or will still weather the storm and see wait for another better period of cooling off these milk prices?
No, we have already taken price hikes towards the end of the quarter. And the price benefit is a bit -- there's a lag between the procurement price and sales price increases. And there is -- we have not taken full hike also. So one round of hike has been done in the quarter 1, another price hike will happen in quarter 2. So therefore, we try to reach the margin level as it were earlier. Already that process is on.
But I still heard that with the flush season, the prices will cool off and our margins will come back. I understand that is the normal course of operations. But let's say, because these are quite unpredictable times, normal prices for some reason don't cool off. Will we be willing to take more price hikes? Or we will be thinking that this is just a one-off and let's just wait and wait the season out. And just 1 year of the [ fresh ] margin is okay.
Yes, there are 2 elements on it, but margin build up, as you know. One is the procurement price pulling off. Second is the sales price increase for end consumer. So both the levers we operate. Only thing we don't stretch passing on entire price burden to consumer in one group. It is staggered. 2, if somewhere we see the prices of farm gate prices are falling, then we stop there to build the volumes. So it's a kind of a careful synchronization of both the trends. It's not that we just wait for the prices to cool off only, that is one of the 2 elements. And third element is also there is the increase in the contribution of value-added products where the margin is slightly better. So we play with all the levers in such a way that we gain market share and we recover the profitability levels as early as possible. But the lag always will be there.
If I can squeeze just one more question with your permission. So now we are also in a sort of expansionary phase where milk procurement has gone up by 21% on a Y-o-Y basis. And we are expanding our value-added portfolio, which would imply that we are peaking out to more distribution touch points, typically, which don't have a Heritage product. Does that also put downward pressure on our margins? I know it won't be very high, but something that we should factor in?
No. Because we are operating in the same regions where we have operated. And the more and more we deepen our penetration in these markets, what we are experiencing at this point in time is that our net revenues have improved, even though in quarter 1, it is only -- I think you can only see part of this improvement, but in the last, like I said in the last 30, 40 days, we have seen significant improvement in net revenue. And #2, our cost of operations, whether it is in terms of efficiencies of those plants in those geographies or in terms of market discounts and other sales and distribution costs have all seen significant improvement.
So you can imagine that, let's say, a stock in one of these marginal markets earlier was carrying 50 percentage load and hence, cost of operation was higher. Today, is carrying 70% or 80 percentage of truck utilization in these markets. So costs are constantly coming down for us in these marginal markets. And we do not, Heritage, right from the beginning. We do not -- if you are consumers, you will also know from the market that we do not go for deep discount kind of strategy because our products sell because they are high-quality products. And all this growth we have got with just only by acquiring more and more consumers and not [ at a discount ].
[Operator Instructions] We have the next question from the line of Rohit Suresh from Samatva Investments.
So my first question would be, if you could [ deliver number ] of the contribution of the non-curd products in the value-added segment for this quarter and for last year as well.
Can you repeat, Mr. Rohit.
So in the value-added segment, the non-curd portfolio, what would be the share of that for -- in Q1 and for the entire financial year 2022? Non-curd, curd, curd.
Other than curd…
Other than curd, yes.
Mr. Suresh, do you have any more questions?
No, I haven't.
Yes, roughly around 25% would be the contribution.
And sir, within this 25%, what would be the top 2 selling products which is in this, like in the Ice creams and all.
I think your voice is slightly muffled. We are not able to hear you very well, Rohit. Please repeat the question.
Sir, so you indicated 25% is products apart from curd. So within that 25%, what would be the major segments that are contributing to the revenues, the top 2, top 3 products?
Yes, it would be like Paneer, Ice creams and drinkables would be the larger contributors in that. And drinkables, we have a long range of flavored milk, milk shakes, cold coffee, butter milk, lassi.
Sir, and just one more question. Was that right now will be -- our expansion will be focusing -- we'll be focusing only in the southern markets, right? Our existing markets will be penetrating much deeper. We won't be getting into the north and western markets, right?
We have presence in Delhi NCR, Mumbai and Pune, where we are deepening our presence rather than going horizontally. So you will see us more and more in parts of geographies of Mumbai and Pune and Delhi NCR. But yes, you're right. As a percentage to our overall business, our business is still largely concentrated in the southern markets, especially AP, Telangana, Southern Karnataka, which is Bangalore and surrounding and parts of Tamil Nadu.
We have the next question from the line of Nitin Awasthi from InCred Equities.
I had one question regarding the upcoming flush season, which has been talked about by you and your competitors also? And what we're seeing in the market is -- this is growing around lumpy skin disease, which is affecting a lot of cattle and dropping yields all around on the outer cattle that survive. So will that have an impact on the upcoming flush season, do you think that would be a part because of the drop which you'll see in the east?
Not really because this year had a great monsoon, heavy range all over, and we expect green order availability to be higher, temporary just to be lower and milk prices at home gate being high, the interest of farmers is back, unlike the 2 COVID-affected years where the farm gate prices were low and farmers interest was also low in dairy. Now the interest is high and more and more care and we see the nutrition supplies, et cetera. So we don't anticipate any such adverse impact on the yields in the coming flush season.
My question was at the specific rise of the disease which is not something which we see normally in the industry.
We don't see that as a big impediment for milk production. In fact, there is always -- the last year in quarter 2, quarter 3, we saw foot-and-mouth disease in parts of Tamil Nadu. So I don't think that will be [ rural impact ].
We have the next question from the line of Resha Mehta from GreenEdge Wealth.
Sir, my first question is on the curd sales, right? So I think this is the highest ever curd sales that we've done. So the kind of growth that we have seen. So what really drove that? Was it, that the demand in the market like came back in a big way after 2 last summers? Or is it that we've gained share from some organized or unorganized players? Or is it that going deeper into existing markets is something that has brought us growth?
I think it's a fair question. I think it's a combination of all, yes. First of all, I think it was a great summer for -- not just for us. I think even many related industries as well. We were perfectly poised because we had been working on our correction of our portfolio, sales and distribution, our teams, organization structure, a lot of things. So we were in the right place at the right time. We were able to capture the opportunity. That's the way I'd like to put it.
In addition to that, we had opened several new channels, for example, whether it is quick commerce, which we see significant growth this year compared to -- as a subsegment of e-commerce. So here, we were one of the first movers in the quick commerce, which gave us a tremendous boost as far as sales is concerned. Even many of the geographies where we've been working to build our presence, we have gone deeper this year. So it's a combination of all factors, right now.
And so I guess to some of the past participants, you did allude to your execution plan, right? And the fact that you all have been able to recruit new customers. So can you just elaborate a little bit more on this on the execution front, like what has changed? What are we doing differently versus, let's say, some quarters or years ago? And it is helping us get this kind of growth?
Not so much so that others can capture it. Yes. So I'll keep it at a very high level. Rest assured that we have very micro detailed plans that are being executed. But yes, because I already mentioned quick commerce, I can confidently I can probably speak about that. For example, today, you can buy Heritage and whether it is [ Western Blanket, swinging Samad ]. These are all channels that carry Heritage products and in most of the markets. Because we are one of the first movers, we have that advantage to those customer segments. Just one example. There are several other customer panel market combinations, which we have opened up this year, which was not there in the previous year.
Secondly, like I said, portfolio correction is something that we have done so that we know where the market is, where the manufacturing happens. We have fixed that, to the extent that we have a write-back in the right time in the right market. That is the strategic set has been done. And today, it's quite smooth.
Third is we've been speaking about organizational structure. So we have the right capability of people in the right market, in the right place. We have divided our portfolio into multiple route to market is something which we talked about in the previous quarters. Earlier, we used to have a large part of our business coming from [ milk-aided network ]. Today, we have large professional FMCG distributors who take our products to our market. We also have ultimate -- we have strengthened our sales through Heritage own parlors. We are also, at this point in time, building a unique distribution structure, which is at a very nascent stage, but showing promising results. So these are we are working on, and that's what is giving us the results.
Right. And also a related question, right? So I think that your Heritage distribution centers, they've almost doubled sequentially, right? So from [ 65 ] to 121 in Q1. So anything to lead here? And what kind of expansion are we looking at? And how is this expected to help us in our top line growth further?
Yes, the only thing to read there is good news. The future is right.
Got it. But this kind of aggression we've not seen -- so that's why I was trying to understand a little bit on your pace of expansion of Heritage distribution centers and how that will help us in the revenue growth. Because I think the number of parlors are the same, while the distribution centers have doubled.
So yes. So distribution centers are [ parlors plus, plus ] kind of concept. They are parlors as well as they also contribute to creating distribution network. And see, to be fair, last couple of years, that is from 2020 March till about March or April of 2021. Life was difficult because of COVID restriction of movement. We even lost in certain markets. We had a little bit of a distribution shrinkage because some of our distribution partners stopping business during the pandemic and all of that. So that's the reason why we probably do not see much of an expansion in that period of about 18 months. But since August, -- sorry, since June of 2021, we have been aggressively building the working on these strategies. And yes, it will little pay us dividend in coming months and quarters.
And if I can squeeze in a last one. So you also spoke about [ nil fat ] revenues in this quarter. So structurally, is it possible? So I think historically, our fat revenues have been in the range of 8% to 10%, right? So structurally, is it possible that you will bring down this number a little more because this is anyway a low-margin kind of a business?
Can you repeat, Resha, your presumption. I couldn't get you. You said milk revenue flat?
No, no. Sorry. Sir, I just repeat. So you did mention that the fat revenues were almost nil for Q1.
Fat revenue?
Fat revenue? Let me clarify -- yes, in the base quarter, which is quarter of FY '22, quarter 1, we had some revenues coming from bulk sale of butter and bulk sale of fats. So just clarifying the gentlemen, I think it was Vikas, who asked the question, how much of it is repeatable sale and how much of it is onetime sale? So I just reassure them that we don't have any more onetime sale because we are doing everything as consumer products.
Yes, in the last financial year, there was some surplus butter, which was sold in the bulk packs, not in the consumer packs. That factor is not there in the [indiscernible] he was trying to present -- there is no institutional sale. There is no bulk sale. It is all consumer fat sale. In that context, he mentioned that.
So now fair to assume that 90% plus would be B2C sales for us?
Yes.
Why 90%? 100%.
We have the next question from the line of Sneha Jain from SKS Capital.
My first question would be for -- will we always be dependent on the fluctuation of the milk prices? Like if things go ahead like this, how are we planning to hedge ourselves against that?
Inbuilt nature of the business, the dairy sector. There is -- there are 2 seasons in a year, summer and winter. In winter season, animals need more milk after the lactation cycle begins. As lactation cycle ends in summer season, the milk yield comes down. So availability of milk is dependent on a biological reproductive cycle of the animal in the beginning of the lactation, the end of lactation. That synchronizes its winter and summer. And in summer, the sale consumption -- consumer side consumption goes up, demand goes up because of the ambient temperature being high in summer. So that puts more pressure in the summer season for more products and more sales. As the winter consumption comes down on the other hand, because of the chill weather. So it reduces the demand.
So it's a combination of availability and demand in a reverse manner in winter and summer. So as long as we depend on the fresh produce and we depend on fresh sales, this cycle, I think, is inevitable. There is no method of undoing this cyclical nature of the dairy business in India. Unless we go into the preserved products like UHT and where you have long shelf life, we can undo the seasonality. But country being a fresh product business, consumers preferring only fresh products, and we don't have processing capacities in the country for handling entire ES production and then hold on for -- in ambient temperature for the next season. I don't see any possibility of hedging the price fluctuations in the next decade.
That's it, if I could just add. That said, one of the strategies we have discussed and what we have -- we are working on in which -- where we are seeing significant progress is increasing value-added products portfolio. Now the more and more value-added products that we have, we'll be able to decouple ourselves a little bit. And if I can explain, roughly 70 to 75 percentage of the revenue that we get is -- or the raw material price or raw milk price would be about 70 to 75 percentage of our net revenues. The more and more value-added product portfolio grows, the salience of raw milk to [ N R milky producing ]. So that's the one clear strategy that we have, which also helps us expand our margins. So that impact of raw milk cyclicity will be reduced. But there is no way or at least we, as a heritage alone cannot make much impact in terms of reducing the [indiscernible]. Because that's nature of the industry. I hope together, we have been able to answer queries.
Building on that, what are we planning? Like what should be our future as a value-added product versus milk percentage in our revenue that we are looking at?
So last year, we closed at 26.5%. And we said that in the next 3 to 4 years' time, we are planning to take it to 40%. And which means that a good milestone for us to have this year is about 31%. We are internally targeting that kind of jump in terms of value-added products contribution improvement. And this quarter, we have delivered 34.9%, roughly around 35 percentage. But then like President alluded to it, in the quarter 2 and quarter 3, this value-added product portfolio comes down a little bit. So overall, this year, we are expecting VAP contribution to jump significantly up from last year and on good way towards a 40% contribution in the next 3 years -- 3 or 4 years.
Sir, another thing, what do we have a vision for strengthening our business model going on from your [Technical difficulty]. Any thoughts on that.
It moves in the same direction. Like we are expanding our risk in terms of back end, we are expanding in the front end, and we are expanding value-added product sales. So we continue to grow every year-on-year with higher mix of value-added products.
And lastly sir, to ask like macroeconomic situation, basically the entire thing if you view in a entirety. What would you think would drive growth going ahead in the -- like coming quarters, at least [indiscernible] long term?
Yes. It's only organization. As you know, we are all in the ag product segment in the urban areas, urban markets. And now we are also getting into suburbs like type 1, type 2 cities, markets. So this urbanization is one factor where the milk and milk -- milk is not available in [ lose form ] anywhere. And the health consciousness, which is shifting people towards the pack products coming from the time where quality is taken care by the companies. And third is affordable income, increased income from the families, particularly the convenience also is one of the factors where making these products at home was profitable one. But now everybody is on the time pressure.
So the ready to consume products are gaining ground. So you have population increase, urbanization to increase the health awareness towards dairy products and utilization for fat products for health reasons and convenience of the product availability and access to products and most of the consumers get home delivered today through various channels. And we are in the predominantly home delivery model with e-commerce, without e-commerce also, our model is essentially home delivery model since the beginning. So these are all the factors which continue to help us grow in the market irrespective of the major economic factors fluctuating. And this being one of the essential products and low-cost source of nutrition, including protein.
So one last thing. Any thoughts on how can we improve multiple compared to our other competitors or like might not [ claim the same field good job ]. Any thoughts on that?
Margins? Yes. Yes, the value multiples, right? Sneha, you're talking about value multiples?
Yes, sir, I'm talking about value multiples, yes.
It's certainly our strength like in terms of growth, in terms of quality of the brand and our strength in the balance sheet, our principles of governance, these are the factors which market has to perceive in rights perspective and rates. So we are -- I think this question came up -- comes up in most conversations. We are focused on our work. We'll continue to grow revenues and grow revenue profitability, profitably in the long term. We are building a value-added product portfolio. We are building a portfolio of brands which consumers love.
We have the next question from the line of [ Anupama Bhootra from Arihant Capital ].
So I just wanted to understand what is about product mix like for FY '22? When you buy milk, value-added and fat in terms of [ processing fees ]? And which is the highest margin contribution of that?
FY '22, right? You're asking.
FY '23, sorry, FY '23.
FY '23 is not ready. You're asking current quarter, Q1 '23?
Yes. Current quarter, Q1 product mix, 2023.
For milk, 62% -- [ value-added milk 62% ], VAP 33%, fat 3% and other [indiscernible]
And one more question is what is the CapEx that the company is planning for FY '23 and FY '24.
There is slight correction, [ milk 60%, VAP, 35%, fat is 3% and others 2% ].
And any CapEx plan, if you can like elaborate also quantify FY '23 and FY '24?
Yes. Generally, to be presented about [ INR 100 crores, INR 120 crores per annum ]. So even coming years it would be around [ INR 120 crores per annum ].
I could not hear you. Can you repeat that CapEx?
Yes. It is going to be INR 120 crores CapEx per annum. For the coming year also it's going to be like that.
We have the next question from the line of Digant Haria from GreenEdge Wealth.
We've always explained that margins in [ liquid milk around 6%, or it will be around 9%, 10% ], other value-added will be around 12%. But I assume that the 12% in value-added comes when we have scale in those value-added products. So I just wanted to check, have we achieved -- how far are we from that scale in Paneer, drinkables, ice creams which are largest value-added products after [indiscernible].
You are asking about [indiscernible] about the profitability. Yes, this quarter being an exceptional quarter because of the raw material prices, the fuel prices, energy prices, packing material prices and not pass down fully to the consumers are done in a staggered manner [indiscernible]. So this quarter may not be a reference quarter for these numbers. We will perhaps give you a better picture as we go into the financial year.
If I can just add about 4.5 to 5 percentage was the impact because of procurement price to sales price. So we can say that whether it is milk or value-add products that the 4 or 5 percentage got negative because of that.
Sir, my question is more, let's assume that raw material persuasion is not there. And even in Paneer, if we have to earn the 12% operating margin, we at least made some scale. We will not achieve 12% margin that at [ INR 20 crore ] revenue, but we can achieve that as [ INR 200 crore ] revenue. So I'm just asking that on that scale level, have we reached that critical margin, these 2 or 3 value-added products like drinkables, paneer and ice cream that we can actually someday see that 12% margins when there's a raw material stability.
Yes. Maybe we will help get into this next round, next quarter or next following quarters as not really readily available in that. And we also did see that perspective as we were going through an abnormal price scenario. Certainly, we'll explain next time.
We have the next question from the line of [ Disha from Annual ].
Sir, since we are entering the flush season, we expect with the lower milk prices or margins to go up from here on? That's the first question. Second, what is the margin difference between a liquid milk and value-added portfolio? And third question is on our subsidiary Heritage Nutrivet. We have an ambition to achieve INR 500 crores sales. So if you can throw some light on that.
Yes. First one, yes, milk procurement prices are expected to cool up at flush season. Flush typically begins towards end of September, beginning of October, that's the season we have to watch out for. And the second one, the difference between the liquid milk margins and value-added margins, okay, consolidated level will be almost double the milk to products margins would be doubling in any season. Then coming to Heritage Nutrivet growth ambitions I request CEO, Mr. Upendra Pandey to elaborate a bit.
Just to -- roughly around INR 100 crores business last financial year. And our outlook is that, we also grow with 25%, 30% kind of year-on-year the next few financial years. And we have our strategies in place. We have the state-of-the-art plant, and our capital business is growing well. So we are focusing on deeper penetration in our [ captive network ]. At the same time, we are also spending in our general trade business, having the right product, right market, right channel. So we are quite hopeful that we will be able to achieve [indiscernible]
Sir, so when you mentioned that the flush season will start from September and October. So we're on the margin -- positive margin impact from Q2 onwards or we have to wait for Q3?
Something has dipped in Q2 also, but the real flush and the best price scenario that production scenario will emerge in October.
And when you say that we own the 40% value added, sir, what overall margin guidance do we say on the overall portfolio when coming to…
Perhaps, it would not alter much because of the increased contribution as well the cost of growth during the period. So [ post ] stabilizing at a particular level, we can look for an alteration in the overall margin structure.
So earlier, you had mentioned that you will have a 6,000 turnover with 40% value-added with 8% margin. Is that [ assessment and in right ] we are going on the same?
Yes. That is the ambition.
Ambition, yes.
[Operator Instructions] I would like to hand the conference over to Dr. M. Sambasiva Rao for closing comments. Please go ahead.
Thank you very much for your valuable time in joining us for this call and also sharing your thoughts. The company is confident in creating sustainable value for its stakeholders, and we thank you all for your continued interest and faith in us. Please do contact Dickenson World or us directly should you have any further queries. I wish you all a great evening, and I look forward to reconnecting with you for the next call after Q2. Thank you.
Ms. Raghuvanshi, would you like to make any closing comments?
[indiscernible]
Ladies and gentlemen, on behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.