Heritage Foods Ltd
NSE:HERITGFOOD
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Heritage Foods Ltd
Earnings Call Analysis
Summary
Q1-2025
Heritage Foods celebrated a milestone by surpassing INR 1,000 crore in quarterly revenue for the first time in Q1 FY25. The company posted a revenue of INR 1,033 crores, marking a 12% year-on-year growth. EBITDA surged by 133% year-on-year to INR 94 crores with an EBITDA margin of 9.08%. Net profit rocketed by 249% year-on-year to INR 58 crores, resulting in a PAT margin of 5.66%. The firm experienced a 20% growth in value-added products revenue, further bolstered by new product launches. The management remains committed to sustaining a 7-8% EBITDA margin going forward.
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Ladies and gentlemen, good day, and welcome to Heritage Foods Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Anuj Sonpal. Thank you, and over to you, sir.
Thank you. Good morning, everybody, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Heritage Foods Limited. On behalf of the Company, I would like to thank you all for participating in the Company's earnings call for the first quarter of financial year 2025.
Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today's earnings call is purely to educate and bring awareness about the Company's fundamental business and financial quarter under review.
Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. Firstly, we have with us Mrs. N Brahmani, Executive Director; Dr. Sambasiva Rao, President; Mr. Srideep Kesavan, Chief Executive Officer; Mr. A. Prabhakara Naidu, Chief Financial Officer; Mr. J. Samba Murthy, Chief Operating Officer; and Mr. Upendra Pandey, CEO of Heritage Nutrivet Limited; and Mr. Umakanta Barik, Company Secretary and Compliance Officer.
Without any further delay, I request Dr. Rao to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good morning to everyone joining us today on this call. We are pleased to welcome you all to this earnings call for the first quarter of the financial year 2025. The financial results and earnings presentations have been uploaded on the exchanges, and I hope you've had a chance to review them by now.
Let me take you through the financial performance of the quarter under review. I'm delighted to inform you that Heritage Foods crossed the INR 1,000 crore quarterly revenue for the first time ever in its history. Along with very healthy improvement in EBITDA margins and profitability for the quarter. For the quarter under review on a consolidated basis, we recorded a revenue of INR 1,033 crores, reflecting a 12% year-on-year increase. EBITDA for the quarter reached INR 94 crores, which grew by 133% year-on-year with EBITDA margins at 9.08%. Additionally, net profit for the quarter was INR 58 crores, which surged by 249% year-on-year, resulting in PAT margins of 5.66%.
Now moving on to the operational performance. Our milk sales volumes continued to grow steadily in Quarter 1, registering a 4.26% year-on-year increase to 1.13 million liters per day with milk selling prices averaging INR 54.81 per liter, up by 0.40%. Average milk procurement for Quarter 1 stood at 1.62 million liters per day, making a 6.66% year-on-year growth. Average milk procurement prices for Quarter 1 decreased by INR 3.47 per liter, down by 7.75% compared to Q1 of previous financial year. Momentum in value-added products continued in Quarter 1 with robust revenue growth of around 20%, reaching to INR 423 crores with value-added products contributing 41.5% compared to 38.6% in the Q1 of last financial year. This revenue includes consumer packed products of ghee and butter. Excluding ghee and butter, value-added products revenue was INR 382 crores contributing 37.5% of revenue in Quarter 1, up from 35.3% in the same period last year, growing at a rate of 18.7%.
This summer, we launched 3 new variants of Lassi. That is sweet, mango and strawberry. And 3 new variants of ball ice-creams under Alpenvie brand, Cotton Candy, Banana Strawberry and Bubble Gum. We also introduced long shelf-life milk in UHT cartons of various sizes. Ahead of the festive season, we also launched a range of healthy yet indulgent Laddus under ‘'Heritage Truly Good' brand in 3 variants that is Ghee Besan, Ghee Jawar and Ghee Millet Laddu.
Lastly, Heritage Nutrivet Limited, our wholly-owned subsidiary achieved robust top line growth of 29% year-on-year to INR 42 crore and an exponential bottom line growth of 363% to approximately INR 3 crore. Heritage Novandie Foods Private Limited, our joint venture company, reduced its losses by INR 23 lakhs year-on-year from INR 3.34 crore to INR 3.11 crores.
Now the floor is open for question-and-answer session. Thank you.
[Operator Instructions] First question is from the line of Abneesh Roy from Nuvama.
Yes, this is Abneesh Roy. My first question is, given good monsoons expected, and that will lead to higher fodder crop, what is your expectation on milk prices over the next 2 to 3 quarters? And till now, how much would be the price cut you have already taken given your gross margins have expanded. In Maharashtra, for example, we do see that milk costs have come down in the last 2 quarters. So in your State, so if you could tell us what has been the price cut in the last 1 year.
Okay. See, Samba Murthy, would you like to take the first question on price outlook?
Year going forward, there won't be much -- no big spring in the procurement prices. There won't be -- the fluctuation will be there in the region wise but there will not be any much change also. So compared to last quarter to this quarter, there is a drop of INR 3.47 per liter actually overall procurement cost. So looking forward, there won't be much change, looking at the current procurement actually under the current commodity available in the country.
What was the price cut? I did not get that.
That is last quarter to this quarter INR 3.47 per liter.
That is the price?
Yes.
And are you seeing the increase in competition, we do see whenever the margins expand in dairy and FMCG companies, local players become more aggressive. So local, smaller, unorganized players become more aggressive. So would you comment on how the competitive intensity is in your market?
This is Srideep here. See these quarterly variances is nothing new to the dairy industry because there is always lean season and a flat season. And there is also inter-year cyclicity that we have seen that happens once in 3 or 4 years. So I don't think there is anything unusual after a very bad 2023, this was bound to happen. So I guess the industry expected it. And because of this temporary phenomenon, I don't think that we are not seeing any significant change in terms of the competitive intensity. We'll continue to compete. And in fact, actually quite on the contrary, we are seeing consolidation happening in the industry at a very rapid pace, both on the procurement side as well as on the sales side.
On the sales side, consumers are preferring known high-quality brands, which is helping all branded dairy companies like us. And on the procurement side, because of that -- because of the growing demand with the branded players, we are able to procure strongly with the farmers.
Next question is from the line of Sameer Gupta from India Infoline.
Firstly, on the milk prices front, on the selling milk prices. So we have seen some pricing actions from industry leaders like Amul and Mother Dairy post the general election result announcement. Have we also taken any price hikes following them? Or we continue to remain? And if so, do we have plans to take price hike in line with the industry?
Yes. Thank you, Sameer. This is Srideep here. The price hike that Amul and Mother Dairy has done is in the northern part of India where even farmer wise prices were slightly subdued. So we alongside the increase of the consumer milk prices, they also took up the farmer milk prices.
For our business in the north of the country, we have also done similar as in line with what Amul and Mother Dairy has done. But the dynamic in the southern part of the country, that is Maharashtra southwards is a little different. We had a good milk production period from last October till now which means that there is sufficient milk available, there is stability on the procurement side in terms of milk prices are concerned.
As we explained before, the raw milk procurement prices are lower by about INR 3.5 in the southern part of the country per liter compared to same period last year. So there has been no need -- I think there is no justification for us to increase the consumer prices at this point in time. And we do not anticipate ticking up the prices immediately.
That is very clear. Secondly, on the EBITDA margin now. The company has done a 9% EBITDA margin this quarter. And this is a benefit of lower milk procurement prices. Also the value-added contribution supposed to be the highest in first quarter of the year. So if let's say, milk prices remain where they are, would it be fair to assume that this is the peak, at least for the time being, and sequentially, margins should start trending downwards?
More importantly, where do you see this settling on a full year basis, the margin assuming that milk prices remain where they are and there is no bumper slash or subdued slash.
Yes. Thank you, Sameer. This is a million-dollar question. You are asking us to predict the future profitability. But if I can say that in the last many quarters, we have always mentioned and ensured that our objective is to stay in the corridor of 7% to 8% EBITDA, and we have worked hard to get here.
Yes, at this point in time, we have a slight advantage as far as the milk price is concerned and which may or may not remain, we do not know. And you also know that the dynamics of Quarter 2 and Quarter 3 are very different, both on the procurement side as well as on the sales side. On the procurement side, usually, the flush season starts from the month of October, November post-Diwali, which means that there could be further downside to the pricing. We do not know that yet.
On the sales side, usually, the flat sales go up with a festive period, whereas some of the profitable value-added products like ice creams and all come down. So there is dynamics on both sides. We will have to see this -- it will be our effort to sustain the margins, but then it depends on many other factors.
Next question is from the line of Aniruddha Joshi from ICICI Securities.
Sir, just on ice cream business, how was this season because we have seen across the board strong growth in ice cream business. So for Heritage as well as Alpenvie both the brands, how was this season?
And then secondly, we have seen multiple product launches from Heritage and some of these products are actually competing with Novandie products also. So how should we read this? And any update on Novandie business as well?
Yes. This is Brahmani here. I can take the second question first Mr. Joshi. Novandie has seen -- I'm happy to say that we've seen strong growth, not just year-on-year but quarter-on-quarter, and we've seen significant growth in our existing markets itself across existing channels as well as relatively newer channels such as general trade as well as e-commerce. So we're seeing really good consumer acceptance, consumer loyalty and customer -- customer confidence when it comes to our Novandie type of products. In addition to that, as President has mentioned, we had seen improvement in bottom line. So lower losses this year. And we are seeing that given the fact that we are scaling and increasing in terms of volume, our costs are also getting better optimized for instance with the fixed cost et cetera.
So strong growth over there and improvement in bottom line when it comes to Novandie business, which we expect to continue in the coming couple of quarters. In addition to that, there is no competition between Novandie and Heritage Foods when it comes to product portfolio. The joint venture company is into the business currently of making yogurts, curd as well as [indiscernible] yogurt. So there's absolutely no overlap of products between the two.
Thank you, Brahmani. This is Srideep here. Aniruddha on the first part of the question, which is regarding ice cream business. Ice cream business has grown at a strong 18%, 19% in the first quarter in terms of volumes. In terms of revenue, it was close to 20% growth that we have seen. And the growth was -- it's very, very strong in the first part of the Quarter 1. And you are right, as far as maybe national average is concerned, Quarter 1 was excellent as far as ice creams are concerned. But in the southern part of India, we were -- we had exceptionally high levels of rainfalls in the second part of Quarter 1, which actually played a little bit of spoilsport and which softened the numbers a little bit. Otherwise, the numbers would have been even more higher.
Okay. Sure. Understood. Very helpful. Just last question. Just a quick update required on the subsidy. As we understand, there is INR 6 subsidy in Karnataka. I guess INR 3 subsidy in Andhra Pradesh. And now Maharashtra government has also announced I guess, INR 5 subsidy per liter. Is this understanding correct? Or please suggest if any changes are in this. And any other states, if any subsidy is there. Yes, that's it from my side.
Yes, Aniruddha, it is Sambasiva Rao here. That is a support price in Karnataka at the rate of INR 6 per liter if the milk is supplied to cooperative. In Andhra Pradesh there is no subsidy. But in Telangana, they have the same support price of INR 4 per liter. Maharashtra has announced very recently this additional INR 6 or INR 5. I think, it's INR 5 subject to [indiscernible] The milk procuring come INR 5, subject to milk procuring companies paying INR 30 per liter for a particular quality of milk. Over and above that INR 5 government would offer to the same farmers. And there is no other State as of now, giving such supports.
Okay. Understood. So Maharashtra, subsidy is not just for cooperative, even rate -- for that matter any private company can also avail subject to they fulfill the required percentage? Correct?
Absolutely correct.
And sir, is there any subsidy from central government because in last cycle, we had seen -- there was a subsidy of around INR 50 per kilogram on FMCG exports. So now I guess even more cooperatives are also full with this amount of SMP. So have you any -- do you see any such possibility in the sector? Or it would be a bit premature?
As of now, there is no such support. We are not sure whether something is in the line.
And it is incentive and not subsidy, export incentive.
Export incentive also. Correct. So as of now, there is...
Yes, yes, you're right.
Next question is from the line of Vandit Dharamshi from Alpha Invesco.
Congratulations on great set of numbers. I think what you've been speaking about and finally, we have seen that happen in numbers. First question is towards I think some of our competitors and peers have taken somewhat of price cut in our core Telangana, Hyderabad market, while we continue to sell our products at the same price. So any thoughts in terms of market share gain-loss -- how do we think of this?
Thank you, Vandit. Yes, we have seen that certain brands have dropped prices actually. This has never happened. And for the last 45 days since this happened, we have not seen any change in market share at all for us. So we have sustained the prices. We continue to sustain the prices. We have no plans to drop prices. Secondly, we are -- we have put in place several strategies to ensure that the damage because of any price disparity is to the minimum.
Got it. Got it. And sir, my second question is, as we see some competition coming up and maybe you might not lose market share, but as more and more local competition comes up, would you think that our volume growth might take some kind of softer hit in terms of how we have been doing right now versus what we have grown historically? Do you think that can happen because of more competition?
So Vandit, let me just break down the growth numbers or rather growth potential opportunity for you. Even today, 40% of -- even today of the total industry, roughly around 40% is what the organized players contribute. 60% is still in the unorganized sector, right? So it's not like unorganized players have just come in or taking an opportunistic one way. It's a largely unorganized market. And the level of organization varies from, for example, the highest level of organization is in the milk segment where 50% of the volume is in organized, whereas the lowest would be in categories like paneer and all, where only 5% is organized.
The growth that we are seeing is primarily because of consumers moving from unorganized to organized, not the other way around, right? Because consumers are demanding better and higher-quality. They're also discovering their affinity towards brands. So for example, we are seeing very clearly that our consumers who used to buy only Heritage milk are now buying Heritage Curd, Heritage Paneer and even Heritage Ghee. So people are buying into the idea of the brand, and that is what is helping us drive our growth.
Thirdly, the growth is not just because of milk because milk as a category will always grow at the rate of population growth or organization because milk -- I would presume that everybody is already having as much milk as they ask. The growth we will differentially see will be in the value-added products where we do not have like -- the dynamics that you just mentioned, don't come into the play at all.
Okay. And sir, last question from my end. I think the entire industry I think including corporators -- the entire industry, I think, is having good amount of SMP inventory with them. And looking at the kind of range that we're seeing in Maharashtra, Telangana, Karnataka and the further flush season that we see coming, what would be your view on SMP because I think most of the balance sheets are fairly loaded up with SMP. So how do you see that play out for the industry and for us?
This is Srideep here. I'll request our CFO, Prabhakara Naidu, to give a comment on our SMP stock, and then I'll answer the second question.
We have SMP stock as on 30th June 4,586 tonnes. Value is INR 117 crores, 1-1-7.
So this -- thank you, Mr. Prabhakara and just 4,500 tonnes is the stock that we will require for the rest of the year, and there is nothing special for us because every year, we cover ourselves for the commodities that we require till the end of the year, which end of the year in the sense calendar year, which is November, December. So that -- the stocks that we currently have should sufficiently cover us till the beginning of the next flush cycle. And this is just a useful phenomenon. As far as the industry is concerned, we have said, there has been several reports that the industry is holding a high stocks of SMP and butter. How the dynamics will play on this will depend on how the milk production will go in Q2 and Q3.
The good news is that on the production side, so far, we are seeing -- we are getting a lot of -- getting signals of stability. So we -- at this point in time, at least, we do not see any cause for concern.
Next question is from the line of Rishabh Gang from Sacheti Family Office.
Yes. So I have been seeing your products. I think you are doing very good on branding and the marketing of them. I wanted to understand like what has been the initiatives that we have been taking on creating a key brand differentiator. And how much of our initiatives are in-house and how much external help are we taking on the branding and marketing side in the last 5 years and maybe going forward also.
Okay. Thank you, Rishabh. This is Srideep here. Thank you for your nice comments. In terms of marketing, I think our differentiation story starts with our product itself. I think what makes Heritage very unique is our distributed network of procurement as well as sales. So on the procurement side, we are closest to the farmer. We procured from over 10,000 villages. We have 198 chilling centers, which allows us to keep the milk as fresh as possible. And on the sales side, we have 18 factory locations which are, again, closest to the consumer, which means that both on the raw milk side or on the finished goods side, we do not transport the goods for long distance.
This is the biggest differentiator so when you taste any of our products, you will see that it is far superior to anything else that is available in the market. Further, in the last several years, our marketing team and R&D team have worked closely in improving our product superiority even further. So we spent a lot of effort, time and money in terms of improving our products. So a good amount of investment goes into that as well. Apart from all of that is communicating the superiority to the consumer. And for that, we work with multiple partners in this.
On the creative side, we work with [indiscernible] as the agency. And on the digital side, we work with LS Media, which helps us with all our digital campaigns. And we also work with several top of the game packaging design firms, which help us really create clutter-breaking packaging designs.
Which packaging design sir, just curious to know?
I think we -- I can tell you on a one-on-one, but this is not the forum for that.
Absolutely. Because your packaging is very beautiful. Second thing I wanted to understand is how much has been our marketing spends as a percentage of revenue?
Currently, we are tracking around 0.9%.
Okay. On two points on the distribution and the procurement side, what has been the key initiatives or practices which we have, which are different from the competitors that have held us across the procurement and distribution side because I think you are very close to the -- you are doing brilliant on procurement as well. I want to know on that.
Yes, Rishabh, this is Srideep again. I do not know -- I think if your question is to differentiate with competition, because we have a very wide variety of competition. We compete with so many companies in so many states. You must be familiar that we procure from 9 states and we sell in 12 states. So the competition for us is like such a huge spectrum.
So I don't want to differentiate versus any of our competitors. I can tell you what makes us stick on the farm side, it's the same principles that Heritage had established 52 years ago. We continue to follow that. First and foremost is the transparency in terms of measurement. So when a farmer pours milk to Heritage, we can -- we realize that the measurement that we give to the farmer is accurate. And for somebody who's been pouring milk to an unorganized vendor collecting milk in the villages -- the difference is obvious, instantly.
Secondly is a fair price. Fair price in the sense that our pricing is always in any of the procurement regions that we operate. Our pricing is on par or better than anybody else offering in that particular region. In fact, we gave a lot of stability, which gives our farmers a comfort and confidence in pouring milk to Heritage.
And the third is the most important part, which is payment on payday and which means that on 11th, 21st and 31st of the month, 3 times in a month, money will be in the bank account of the farmer, irrespective, anything, like if there is a bank holiday, the money will be paid the day before. Even if there is a cyclone, money gets into their bank. And this is not for 1 year, 2 years, this we have been doing it for the last 32 years, that's more than 1,000 payment cycles. This is actually what is the secret mantra of our -- on the procurement side.
And another most important aspect is the assured marketing of the surplus milk as far as the farmers are concerned. 365 days, they do not have to worry, will somebody buy the milk? There's a concept in our industry called Milk Holiday. Heritage has had not even 1 milk holiday. Even during COVID pandemic when there was a lockdown, when many of the cooperatives also did not procure milk, Heritage procured milk, not even 1 day we stopped procuring milk.
So as far as the farmer is concerned, this is one assured bank Heritage, right? So that's clearly the strength we have. Similarly on the distribution side, we have a very clear omnichannel strategy, and this is something that we had spoken in the previous quarterly calls as well. We do not depend on only 1 channel. We are very strong in the traditional channels of distribution, which is what we call as milk agents. We also have roughly 50% of our business revenue comes from milk agents. We continue to grow on that. Like for example, in Quarter 1, we added about 150 milk agents. So that -- it's not just traditional and strong but we also continue to expand on that.
But we also have milk parlors. We have about 859 Heritage parlors to service our consumers. We have a new concept called as Heritage Happiness Centers. We have close to 300 Heritage Happiness points now. We are also very strong on the product side with close to 400 product distributors who are typically FMCG distributors, right? Who take our products to grocery stores across the country.
And we also are very strong with our modern trade and e-commerce partners. We work with each and every one of the modern trade partners. In fact, we contribute a good percentage of their revenue. So they consider us as a key vendor as well. So we have strategic partnerships with all the modern trade and e-commerce partners. So it's not just one. So we have an omnichannel approach, and that's what gives us strength.
I really appreciate the kind of clarity you have and you have given to me. Just 1 question, if I can ask more. So what do you think about competition from cooperative societies, right? Such as these players like Amul do not have a target of profitability. They can just -- they can make a breakeven and they are fine with it. So about how do we think about that?
So Rishabh, this is Srideep here. I'll just say that maybe you're asking this question for the first time. Every quarter, we get asked, and I'm sure Heritage has been asked this question for the last 30 years. All I can say is that in 1992 when the industry was liberalized, the private organizations contribution to the dairy industry was zero. Today, of the total organized play, private plants like Heritage contribute 55% whereas all the cooperatives put together contribute only 45%.
And you have our revenue report in front of you. You will see that our growth is always ahead of cooperatives. So how we do it? I just explained to you on the procurement side as well as on the sales side. I can't say anything more and the product.
So yes, just to add to what Srideep has beautifully articulated which is very close to our hearts. It's also the fact that we are always listening to the consumer in the different markets such as operation. And we are heavily quantitatively -- not just qualitatively but quantitatively driven in that direction. So we are listening to the consumer. We get brand insights through internal as well as external teams. And what we've seen consistently quarter-on-quarter is that our brand Heritage as a brand top of mind or in terms of repeat purchases, not just from milk and curd but also for other value-added products has been significantly increasing. Now it's not me talking from my heart or my mind, but numbers show that to us.
So I'm very happy to be sharing that. And also qualitative work comes out when people trust us as a brand, and we are seen as a very hygienically produced set of portfolio of products, and this is what drives them towards purchasing Heritage products.
Also, our D&E is very effective. We have a large [ SMB ] team that a cross channels keeps growing the number of touch points in terms of retail stores as well as other channels sort of others that we have. So that is supremely effective for us in the last couple of quarters.
Next question is from the line of [ Kiran Kumar ] from [ InvestWise ]
So I have a couple of questions. How are we trending on curd since Q1 will be our biggest quarter for curd, what is our growth rates of curd versus last year same quarter?
Kiran, our growth is 13% in terms of volumes.
And my second question is on procurement I missed. From last year to this year, it is INR 3.47 you have dropped your prices. Can we just know the same number for Q4 to Q1, how much we have dropped.
Just a moment. We'll come back to you, Kiran, on that. Meanwhile, we can take another one.
My last question is on SMP. You said you have some round 4,500 tonnes of SMP. Can we know the mix of buffalo-cow because I presume our buffalo -- BM and CM ratio referring to our previous investor calls, it is some 80%, 20% or something. So is the SMP also in a similar ratio 80-20 or is buffalo more than cow? Is it something like that?
Yes, it will be more or less 50-50.
And last thing is on sales distribution. So how are the sales mix in the geography like agents, distributors we have parlors, how are we distributed among it, a rough percentage mix. Can we have that number?
Sorry, Kiran, could you please repeat that question?
So what I was saying is the sales mix in the geography what we sell, among distributors, regions, reselling modern trade and resell to our own parlors. Do we have a specific percentage -- rough percentages. How much percentage of our sale is going to agent and how much percentage of our sale is going to parlor? Is there a rough percentage?
See, we can give you very high level numbers, okay? So the traditional channels, as we call it, are primarily agents and parlors. They contribute about close to about 70%. And the rest is all the newer channels that we have opened. Yes.
[indiscernible]
We, of course, where are you based? Which is your city of residence?
I stay in Bangalore.
Please order heritage on Swiggy, Zepto, BigBasket. In fact, we are -- our presence in e-commerce in Bangalore is far stronger than in many other cities.
Okay. I will do that.
I request you to buy and try our products today.
Definitely, I will do it.
Yes. You asked a question as far as the landed cost. Yes. Yes, 24% has increased compared to Q4.
[Operator Instructions] Next question is from the line of Vicky Punjabi from UTI Mutual Funds.
Srideep, just -- I mean 2 questions from my side. I think one is when -- I mean, in the past, we have alluded to the fact that there are margin expansion levers that we have like cost efficiencies, the gain in share of value-added products. How far -- I mean how much of more juice can you extract from these aspects going forward? I believe currently, we are being helped by procurement prices being lower but once the inflation returns, how far can -- how much of juice can be extracted from these levers going forward?
Sure. So you -- it's a point, which we have been discussing last -- over the last several quarterly calls. So one of the -- the biggest lever that we spoke about is the shift from milk towards value-added products. And you can pretty much imagine that we are still on -- we still have a long way to go, right?
Last year, we closed with the value-added product contribution of close to about 29.6 odd percent. So we can say roughly 30%. This year, it is our aim to improve it by another 3%. We still have some way to go before we reach the 40% target that we have set for ourselves. And maybe -- and hopefully, we should reach there in the next 2 years.
The second is as far as the operational excellence is concerned. We had mentioned in the previous calls as well that some part of the CapEx is allocated towards replacement CapEx. And the replacement CapEx is done with a very clear automation and operational cost reduction perspective, which we still have some good way to go. Last financial year was a year where we were able to reduce operating costs by close to about INR 0.50 per liter, and which is actually significant. And we think that we can further reduce it going into this year as well. So there is still a long way to go.
There are many other operational efficiency parameters -- efficiency initiatives that we are working on. For example, logistics, we're still on a single metric of liters of milk per kilometer as a metric is something that we are trying to improve through better vehicle organization, better out planning, conversion of fossil fuel vehicles to electric vehicles. We still have a long way to go in all of these things. We are making good progress. We are seeing those efficiencies kick in. But we are encouraged by the fact that we still have a long way to go.
Sure. And just last thing, I wanted to understand with realizations in milk kind of falling off. Would the growth actually trend down going forward? I mean, because I don't think we can -- I mean, more than a mid-single-digit volume growth is actually possible in the liquid milk segment. So from the expectations of possibly say around 6% to 7%, what's the actual growth in the liquid milk segment going forward be a little lower than what we can be and what would we be targeting?
See, this quarter, we grew milk by 4.6% and almost all of it came from volume growth because we did not increase the prices at all, right? Now -- but that need not be the case forever. We do not anticipate any price increase in the coming 3, 4 months but usually, cost increase, inflation, it's not just the procurement price cost increase, right? There is fuel cost increase. There is employee benefit cost increase. General inflation that is happening in the country. Overall, consumers' grocery basket inflation increased.
So in line with this, we expect before next Quarter 1, there will be increase in prices as well. So which means that we should be able to sustain either through volume expansion or through pricing initiatives sustain a mid-single-digit or high single digit kind of growth rate as far as milk is concerned. Plus, you will also know that we are expanding into newer geographies, right? So that will also help us grow our business.
Next question is from the line of Pratik Kothari from Unique PMS.
Sir, first question on the bulk backlog. Anything that we recorded in this quarter?
Yes about INR 7 crores.
Yes. We booked INR 7 crores of loss as far as -- one second, the CFO will be answering this in a minute.
And in the meantime, there were a couple of initiatives that you are working on to bring this down. I mean increase our procurements from -- I mean, increase of cow milk procurement, do more value-added or do more consumer sites. Any update? Any progress on that?
Bulk backlog is minimum actually only INR 3 lakhs, INR 4 lakhs only. Consumer backlog is INR 6.4 crores has been taken.
Bulk backlog zero and consumer is INR 6.5 crores.
Yes. INR 6.4 crores.
Yes. So as far as the milk procurement expansion is concerned, it's an ongoing process. And every year, we keep adding -- every quarter. In fact, every month, we keep adding our -- what you call is like village level collection centers. And that work is on, ongoing. So we expect by the end of the year, we would enter another 1,500-odd villages, which will keep the milk flowing.
More importantly, in these villages what we are also trying to expand to other access. One is the number of farmers in each of the villages. It's something that consciously, we are trying to increase. So on an average, we might have 15 farmers in the center. We are trying to increase it to 20, let's say. I'm just giving some hypothetical numbers. Please don't hang on to those specific numbers, but increasing and expanding farmers in each of the centers is also something that we are consciously working on.
Correct. And sir the margins that we did now -- maybe in future, is higher than what our exploration band is. How do we intend to use this margin? I mean do we pass it on to some growth, use it to spend on our advertising and how are we thinking about this additional windfall that we are making, maybe even for time being is.
Pratik, this is Srideep here. No, we are not making -- see, we have a very clearly defined strategy. We are sticking to our plan. So these things shouldn't better us and suddenly change the plan. So we are not doing anything, which we hadn't said before. So even when times were hard, we stuck to our plan and it helped us recover faster than others, and we'll continue to stick to our plan.
And how long -- I mean, can we hold on to this spread that we are making between the procurement in the final stage. At some point, I believe we would have to pass it along.
No. See, this is very speculative. I wouldn't be in a position to answer it. I wouldn't know. Whatever I say would be purely speculative.
I'm asking because we have seen multiple such cycles in the past. I mean like you said, every 3, 4, 5 years, it comes.
See, listen, if there is -- see, usually, what happens if this kind of margins have changed, let's say, for example, 10 percentage EBITDA margin, is it given, forever and ever and ever, right? If that's the case, then I think all dairy players, not just Heritage, forget Heritage, all private players have a serious job of expanding the category itself.
Like I mentioned some time back, only 5 percentage of the paneer consumption in this country is from organized branded play. Only 9 to 10 percentage of the consumption in the country is organized play. People still make curd at home. Only 20% of ghee consumption in the country is organized play. People still make ghee at home. So we will -- the kind of margin is -- given that naturally, this is hype -- purely hypothetical Pratik that when dairy will become like every other FMCG company. The advertising to sales ratio will go to 2%, 3%, et cetera. So the category momentum will increase. That's all I can say. But this is a very hypothetical question and a purely speculative.
Correct. And the sir last...
Sorry to interrupt, Mr. Kothari, may we please request you to rejoin the queue. [Operator Instructions] Next question is from the line of Resha Mehta from GreenEdge Wealth.
Yes. Congratulations to the entire team for a very strong set of numbers. So my first question is on the -- I'm sorry for hopping on this again, is on the Maharashtra subsidy bit. So 2-part question one. So I understand that I think we have around 4% to 5% procurement from Maharashtra. So would this INR 5 subsidy, does this apply to us because I think you mentioned that only if you pay INR 30 to the farmer, then the government will pay them INR 5 additional, so which effectively means the farmer gets a net realization of INR 35.
So how does this affect our Maharashtra operations and the procurement price there? That's the first part. And second, the farmers demanding at least INR 40 in Maharashtra and procurement prices have been subdued. So do you think that the farmer disenchantment is probably spreading in the South as well and how are you reading that?
And that very soon, while the commentary is that procurement prices are expected to remain stable, but if they remain stable for so long then the farmer disenchantment increases and it also affects the south part of the operations. So that's the first question.
Yes, Resha, thank you. We don't know -- we don't see the spread effect as you visualized. There is an event coming up in Maharashtra. I'm sure you are aware. That is why the aggression on ground. But the price INR 35 is quite reasonable. The government policy says, the procurement organization should pay INR 30 per liter. Over and above that, INR 5 government will give as a support that is INR 35. The milk prices went as low as INR 20 during COVID. Subsequently, it reached INR 40 during the last year's when production wasn't so good. So it has come to INR 30 plus INR 5 and we don't have much impact. We are already paying INR 28, INR 29 per liter in that area. So for us, it is INR 1 or INR 2 is on the volume we procure in that zone.
So it is good. Farmers are getting a reasonable price, INR 30 plus INR 5, which keeps them interested in the dairy sector and production will not fall in the following year. Whenever there is a low price, the following year had a production problem. This would ensure the production remains at the normal level in the coming year also. And there is no such indication in any other state. All states are quite normal. It's only in that state, this is happening.
Very clear. And second question is on the revenue growth.
Sorry to interrupt Ms. Mehta, may we please request you to rejoin the queue.
This is just the second question.
We are restricted on 1 question ma'am. The next question is from the line of Ankit from [indiscernible] Ventures.
Congratulations on the great set of numbers. My question is taking more of a medium-term view, say, maybe if I look 3 years forward till FY '28 for the entirety of the business. If I want to take a clear view, how do you see our growth profile, whether it's volume and value trending over these 3 years? And also with the VIP business keep growing, how do we see our EBITDA margin profile evolving maybe by FY '28. So idea being that, obviously, milk prices will fluctuate and that will affect it but kind of just assuming some sort of constancy there. Overall what should be our growth profile for 3 years and margin profile after 3 years?
Ankit, Srideep here. See, it's our intention to sustain the growth momentum. And part of the growth will come because of volume expansion as primarily more number of consumers consuming more of our products more number of times. That's what we are working on those 3 access. And part of our growth will happen because of revenue. So roughly, you can say if we aim to grow in high teens, let's say, 17%, 18% year-on-year, 5% or 6% should happen because of price increases.
Price increases actually partly because of MRP increase, partly because of mix change with more and more value-added products, the weighted average revenue also goes up, right? That should contribute about 5% to 6%. 12% to 13% should come from volume growth. That's what we aim to achieve, right? And as far as the EBITDA is concerned, we would like to have a business -- have the business sustainably deliver in the corridor of 7% to 8% that will be our aim.
And this 17% to 18% that we talk about, is this for the value-added product? Or is this for the entire piece, including number?
No, this is -- overall business, we are hoping that we'll grow in the 17% to 18% range. That's what our aim is. I'm not giving any guidance or like I have no ability to predict future. But that's what we are aiming to achieve.
Next follow-up question is from the line of Sameer Gupta from India Infoline.
Just a follow-up. Sir, just cow and buffalo milk share, just wanted some clarity over there. So 80% is cow milk. Is that correct?
Yes, that is right.
Next question is from the line of Raj from [indiscernible] Partners.
I just ticked the point on the growth part. Actually, you are intending to grow 17% to 18% on the sales side for FY '25 and FY '26. And with 7% to 8% EBITDA. Am I right?
Yes, that is the intention.
All right. How much is the fat sales for Q1 FY '25?
Are you asking in terms of revenue?
In terms of volume.
So volumes would be around -- roughly around 700 plus tonnes.
Next question is from the line of Pradeep Rawat from Yogya Capital.
I have 1 bookkeeping question. So what is the procurement price for this quarter, average procurement price?
That is INR 41.31. Yes.
INR 41.31?
INR 41.31.
The next question is from...
Question -- there was a question on what is the total fat sale during this quarter. The exact number is 1,084 tonnes.
Next question is from the line of Pradeep, an individual investor.
Yes. Congratulations for the good set of numbers. And I'm from Odisha, and that's why last 6 months, I could see your products in Bhubaneswar and interiors of Odisha and congratulations for coming into Odisha also. That's great news. First point -- first thing is what is the differentiation on the ghee part. If you see the competitors, they're clearly right that they make it a slow cook process for 3.5 hours or 4 hours and aroma of love will be there. But in your website, it is not mentioned anything. That's my first question.
And second part is, when do you do e-commerce in Odisha? These are the 2 questions.
Okay. Thank you very much, Pradeep, for appreciating our products and consuming our range as well. Thank you very much for that. The question on differentiation as far as our ghee is concerned, our ghee is made from milk. Most of the ghee that you buy in the market may not be. That's -- I think that is a very big differentiation. Most of the very well-known brands are also -- that may have Vanaspati.
So I just wanted to share that ITC brands -- if you see here, it is the most prevalent here.
We do not want to -- sure -- and see. Yes, see, there is something that our Executive Director mentioned some time back when Ms. Brahmani spoke, she said that we listen to consumers. So we understand that, for example, ghee, we understand that the requirements are -- the consumer expectation of ghee varies from State to State, from region to region. And we tried to formulate our ghee in terms of the boiling point and consistency, granularity, color. All these things, we tried to get it as close to the consumers' expectation as possible. So there's a lot of work that goes in making sure that it meets your expectations. So that's one.
And as far as e-commerce is concerned, we are working with our partners. We are figuring out some -- the back-end logistics, et cetera. Once we have -- solved for all of that, we'll be launching in e-commerce as well.
Ladies and gentlemen, due to time constraint, that was the last question for the day. I would now like to hand the conference over to Dr. Rao for closing comments.
Thank you all for participating in the earnings con call. I hope we were able to answer your questions satisfactorily, and at the same time, offer insights into our business. If you have any further questions or would like to know more about the Company, please reach out to our Investor Relations managers at Valorem Advisors. Thank you.
On behalf of Heritage Foods Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.