Heritage Foods Ltd
NSE:HERITGFOOD
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Heritage Foods Ltd
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Ladies and gentlemen, good day, and welcome to Heritage Foods Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dr. Sambasiva Rao, President, Heritage Foods. Thank you, and over to you, Dr. Rao.
Thank you, Mr. Sriram. And good afternoon to all the participants, and I welcome you to earnings call of quarter 2 of Heritage Foods. We have achieved on a standalone basis [ INR 593 crores ] of turnover for quarter 2, which is 10.9% lower than corresponding quarter of last year, which was INR 666 crores. At EBITDA level, we have achieved INR 85.91 crores during the current year's quarter 2 compared to INR 27.41 crores of corresponding quarter last year. At PBT level, our core business performance is INR 71 crores compared to INR 10 crores of the previous year same quarter. At PAT level, it is INR 52 crores compared to INR 14 crores of the previous year. For 6 months on standalone basis, our company achieved INR 1,213 crores net turnover, which is 11.9% lower than the previous year's first half year, that is INR 1,376 crores. At EBITDA level, it is INR 139 crores for the current year's first half compared to INR 78 crores of last year's first half. At PBT level, it is core business, [ INR 107 crores ] compared to INR 44 crores of last year. At PAT level, it is core business, INR 79 crores versus INR 36 crores of last year. Now I present consolidated results of Heritage Foods for the quarter 2. Net turnover achieved INR 610 crores, which is 10.2% de-growth compared to previous year same quarter, that is INR 680 crores. At EBITDA level, it is INR 89 crores versus INR 25 crores. At PBT core business, [ INR 71 crores ] versus [ INR 10 crores ] of last year. At PAT, [ INR 54 crores ] versus [ INR 11 crores ] last year. For the first half year consolidated level, our turnover is INR 1,249 crores, 10.9% lower than the previous year's first half, which was INR 1,401 crores. At EBITDA level, it is INR 146 crores compared to INR 73 crores. At PBT level, core business, INR 107 crores versus INR 44 crores. At PAT level, INR 83 crores -- sorry, PAT level, INR 83 crores versus INR 29 crores, core business. Coming to the details of dairy business. Quarter 2 of this year, though our performance at the net revenue level is lower compared to last year because of well-known COVID regulations, restrictions and drop in the demand, coupled with the unprecedented rains in the markets where we operate during this quarter, our profitability is higher, mostly contributed by the better selling prices and the lower raw material costs, including milk and milk powder we consumed. Milk procurement from the farmers, we have ensured all our farmers milk is procured by us in all the locations without any difficulty since April -- since beginning of the lockdown, post lockdown, during all the unlockdown periods. It stands at 12 lakh liters per day versus 13.86 lakh liters last year. Our sales volumes today, milk 9.63 lakh liters per day during quarter 2 compared to 12.09 lakh liters in the last year second quarter, which is 20% de-growth. Value-added product contribution is 22% compared to 24.5% in the last year. There's a de-growth of 21% in revenue terms for value-added products, which was INR 163 crores last year quarter 2. This year, it is INR 128 crores. Production capacities remain same, chilling 20.3 lakh liters, processing 23.7 lakh liters, packing 15 lakh liters for the milk. These are broadly the same numbers. Due to the regulations and weather, our projects' activities have been slowed down. Our capital expense during the first half of this finance year is INR 27 crores compared to INR 106 crores of the full finance year during the previous year. So we are far behind in terms of executing our projects. And there is no urgency to complete also as capacity utilization has come down compared to last year's due to same problems we are facing. When coming to the long-term debt status, as on September end, it is INR 184.85 crores long-term loans, including INR 161 crores for dairy business and INR 25 crores for renewable energy business. The full presentation related to quarter 2 was made in detail and uploaded on our website. I'm sure most of you must have got a chance to go through that, too. Now I'll open for the discussion, feedback, suggestions, any queries from all the participants. I once again thank you for your patience hearing and the time.
[Operator Instructions] First question is from the line of Sameer Gupta from India Infoline Securities.
Sir, I have 3 questions. First of all, on the sales of milk, I noticed that this quarter, the liquid milk sales itself have declined 10%, even adjusting for the milk price increases. And this is a sharper decline than what we saw in the first quarter. So just trying to understand that given things are improving on the demand front and the lockdown situation is easing, the [indiscernible] channel is slowly coming back, why is our decline sharpened instead of moderating this quarter? Hello, hello? Am I audible?
Just a moment, please. Mr. Sameer, I think somewhere we got the data issue. This year, quarter 1, our liquid milk sale was 9.18 lakh liters. And quarter 2, it is 9.63 lakh liters. There's a 5% hike.
But the price itself has increased, sir?
There is no price increase also. It is -- after lockdown, we haven't increased any milk -- any price of any milk or product, the same prices of quarter 1 and quarter 2. But you would see compared to quarter 2 of last year, milk products' realization is higher compared to quarter 2 of last year to quarter 2 of this year. That is because of the price hikes taken during quarter 3 and quarter 4 of the last financial year.
Got it, sir. Let me check and get back on that query. Sir, on the other things, are -- this milk procurement prices are down to INR 32.5. And with the flush season now arriving, there should be some more pressure on this milk prices. So first of all, sir, is this understanding correct? And second thing is that last time when we saw prices drop down to [surge ] levels, there were interventions from some various state governments. But this time with the Kharif season being good and the Rabi season being good, the other side of the incomes for the dairy farmers are not under pressure. So is there a possibility that this time around, there will be very few interventions from the state governments, and we can then retain most of the benefits from lower prices should it fall down further?
Yes. On the first point, yes, prices are lower compared to last year. Weather is good. Monsoon is good. The availability of green fodder is good. Production is expected to go up. So we expect prices to be stable at this level, may not go down further. Second aspect, whether the intervention of governments is possible, I mean, that is a bit uncertain in the current financial scenario where every government is under stress for the revenues. So we're not very sure how the governments will take it, which is very unlikely. Interventions are unlikely.
Got it, sir. And thirdly, sir, Y-o-Y, when I look at our milk procurement volumes, these are down 13%. So are we consciously reducing our procurement operations because of drop in demand? Or is there something else on this? And what is the outlook on our procurement? So we were trying to increase our procurement operations in North India and Maharashtra. So where do we stand on that?
Yes, we haven't reduced the production procurement anywhere. But we have withdrawn our operations in Punjab, Rajasthan during the beginning of this year as part of our rationalization exercise. That drop is visible.
And sir, going forward, will we start to procure again should the demand situation improve from those areas?
Procurement is now increasing for the last 1 month. It will continue to increase. As I initially said, all our farmers, whatever milk they give, we have been taking. We haven't denied any supplies from anybody. If there is surplus milk, we convert into SMP, butter and holding for our consumption or sale. As a matter of principle, we won't deny milk from any of our farmers.
Next question is from the line of Prashant Kutty from Sundaram Mutual Fund.
Just taking a little bit from the earlier question, I also believe probably the context was, if you look at the liquid milk sales data, while you're right, we have seen a sequential improvement from a 9.2 to 9.6. But just trying to understand, at a time where you've actually been seeing a lot of the category kind of coming back to near normalcy from what their pre-COVID level numbers were used to clock about 11 million and 12 million -- lakh liters. The reason for probably that not kind of coming back to near normalcy. I think that was the context. So if you could just share some thoughts over here that I can understand value-added probably seeing an impact because of out-of-home consumption. But milk sales, if you could probably throw some light on that part as to why you're not reaching a normal?
Yes. One is weather, which is unprecedented rains, you must have seen, we were floating in the water for a few days in the past. So then secondly is withdrawal of sales operations from Rajasthan, [ and Punjab ], where we have left some volume and pulled out compared to last year to this year.
How much would have been the impact of Rajasthan and Punjab?
Around 40,000 liters.
Okay. Okay. And is there also a case of here that because there's to be a lot of milk supply to Orissa segment and that has not come back -- is that also one of the reasons why milk volumes would not have come back? Or if there isn't anything in that?
Generally, these are all the weather-related issues in the last couple of months. Since August the weather is very, very heavy rainy weather. So we are hoping to come back. Now the weather is normal, more or less all the markets. Things are stabilizing in the rain point of view.
So just on a monthly run rate perspective, sir, both in terms of the milk volumes and also in terms of value-added product business, are we seeing a month-on-month improvement in terms of, let's say, September being better than August?
Except in September, when -- where there was a lot of disruption due to rains. Earlier, April to August, yes, there was a month-on-month progressive improvement. But September, we had a setback because of the weather. October also, it continued, though I won't deal with much of October now, but the September, October weather is unprecedented. In these markets, they say it's 100 years back, this kind of rains were recorded.
So you're saying the disruption continued in October as well?
October was much worse. 6, 7 days, the markets are shut here.
Okay. Okay. Sure. Got it. Sir, second point is about the milk procurement part. Again, you said that given the fact that flush season is kind of coming up, you should expect the milk procurement price to be stable. Is there any competitive activity building up anywhere, which is maybe making us to reduce our milk realization? Is there any such thing that might happen? Or you think when you're talking about milk price stability is on both the end, both on procurement as well as on selling price?
There's no competition activity, but every brand is procuring milk. So -- and everybody's surplus milk will go into powder plants and stock can be held for 1 year. So there is no -- and profitability is quite high during this period. So we will not be able to go further down.
Okay. So therefore, assume that the kind of milk spread which we are kind of enjoying right now for the last 2 quarters, this can last at least for another couple of quarters, at least if not something?
Yes. This -- I will reserve my comments.
Sir. Just last point, sir, on the -- you've actually seen a good amount of cash flow kind of being generated with strong profitability being driven. Any plans on reducing our debt and also on the capital expenditure part, what are we now looking at because you hardly spent anything in the first half of the year? You also highlighted that utilization level is also pretty low. So those -- do these plans kind of defer to the next year? And would you probably use this opportunity to probably pay back your debt or something [indiscernible]? Any thoughts on that part?
Brahmani, would you like to respond?
Yes. I think the thinking right now is obviously to retire some of our debt, especially the priority being high-cost debt with the initial internal accruals that we will accumulate now. And going forward, we'll take a decision depending on how things turn out to be. On the question of CapEx, yes, CapEx has been lower in the first 2 quarters of the financial year. However, going forward, we will still have to incur some CapEx for some ongoing projects, which will be commissioned later than expected. However, they will be commissioned some part of the second half of this financial year. So there will definitely be some CapEx expenditure going forward.
Any target on debt reduction? How much you plan to do [indiscernible] 2 quarters?
We will -- this is something that we have to play on the go. But definitely, that's a focus area that we will be looking at. At this point in time, I don't have a specific number, but we will keep you posted this current quarter when we have our next call, and let you know.
[Operator Instructions] Next participant is Sivakumar from Unifi Capital.
Sir, again, hop back to the same question on the milk volumes. We had seen a de-growth of about roughly 20% in each quarter, in Q1 and Q2. Should we brace for a similar number in Q3? Or Q3 should be better given that there should be some recovery in the [indiscernible] segment?
Yes. Q3, there is a bit of improvement possible. Things are opening up and consumption is increasing. It will be progressively improving only from now onwards. And since April, it is improving, I think we started some 8.9 -- 8.95 lakh liters in April and now come to 9.6 lakh liters also. So we are hoping to catch up in the coming few months.
All right. Sir, in the procurement prices, can one say that they remain at the same levels as what we saw in Q2?
Yes, that's what I was earlier clarifying. It's a bit speculatory thing to commit for a longer time. But if you take a rational analysis, the monsoon is very good. Agriculture season is good. Weather is good. Water is available all over the country. Green fodder is there, and the flush season is setting in. So all are favorable for getting a better milk production. And the demand is yet to pick up fully. Therefore, the prices may not go up with a rationale.
Got it. Sir, one last question with regards to the Future Retail shares. What is the plan of action now that the shares are out of lock-in period? And also there is some traction in the acquisition of Future Retail by Reliance Group.
Right. Yes. We've been following news regarding the proceedings of future enterprises and its companies and there are several other news items. Yes, you're right, we're out of the lock-in period. And in fact, in the second quarter, we sold around 5 lakh shares of Future Retail at an average of some INR 100. However, subsequent to that, whatever progress happens is we have to play it by the year depending on what the conclusions end up being. And we will, again, keep you posted end of the quarter as to how things proceed with respect to Future Retail shares.
[Operator Instructions] Next participant is Aniruddha Joshi from ICICI Bank Limited.
Sir, just on this Hyderabad floods that have happened. So what will be of revenues [indiscernible] ...
Sorry, your voice is a little -- I think you're too close to the phone. May I request you to repeat the question.
Yes. Sir -- madam, regarding the floods in Hyderabad, so what is the probable ...
Sorry to interrupt you. sir, may I request you to talk over the handset. And if you're not on ...
Hello? Is it okay now?
Yes, sir.
Yes. So the question is what is the indicative loss of revenues due to the floods in AP, Telangana? And are we back to a normal situation now -- normal sales now?
Yes, Aniruddha. Now sales have become normalized. There is a disruption of 1 week, mostly in terms of curd and other value-added products. We would have lost for 10 days, maybe a few crores of sale revenue. It is coming back now.
Okay. Sir, and lastly, the question on the project in Mumbai with Novandie. So any update that you can share?
Yes. I'm really happy to be saying that we are in the final stages of our project, despite many external issues such as COVID. And we had rains in between in the Mumbai area, et cetera. There have been some delays. There are some [indiscernible] international technicians to be able to commission some equipment, but they've also been able to travel. So Q3 is when we expect the launch of the product, we're probably a month away from that. And our plans are in place, and we're very excited about launching that [indiscernible] probably in December.
Next question is from the line of [ Rupin ] from [ RNA Associates ].
And congrats for a decent set of numbers. Sir, I have a couple of questions. First is regarding dairy cycle, like you must have witnessed multiple dairy cycles over the last 2, 2.5 decades of existence. Like looking at the global and local cycles and current high spread, where do you see the dairy cycle currently and outlook for the next couple of years? The question is -- I mean, the idea is to know the sustainable EBITDA margin. I mean, I know you have been consistently saying that it is around 7% to 8.5% kind of range. But looking at H1 super high margins, just wanted a perspective on the dairy cycle? That's question number one, sir.
Yes, [ Mr. Rupin ], thank you. The cycle got derailed this year by coronavirus. So the whole market was shut down for 2 months. And the farmers have had difficulties in selling milk. Those who have relationships with companies like us, our cooperatives are better off because we procured, we converted into powder and holding the stocks today. We almost have converted milk made 2,000 tonnes of SMP during that phase of lockdown. But many people who could not procure for this conversion and holding the stock, left the milk in the farmers' hands. So those farmers have suffered a lot and offloaded milk at a lower price. So therefore, this crisis kind of situation cannot be a benchmark or cannot be sustained over a long period. This might persist for a while till this economy revised, demand gets rebuilt and the sales volumes come back. So we will perhaps go back to normal levels of business as economies fully recover, countries fully open up, normalcy is coming. When that normalcy will come, when the prices get back to a normal level, is a question of speculation. Right now, the corona spread is continuing. Positive cases have come down compared to the first half year, April to September. Now the rate is low. And fortunately, the death rate has come down. Maybe recovery is going to be rapid, whether vaccine or no vaccine. That is related to -- our margin spread is related to the revival and the normalcy, which is not visible clearly.
Okay, okay, okay. And sir, second, it is more of a suggestion rather than a question. Your working capital management, asset turn is quite superior and return ratios is also very healthy, in line with FMCG players. So one humble suggestion, like dividend payout ratio, I know we are in a CapEx mode currently and around INR 100 crores, INR 110 crores kind of CapEx we have been doing in the past couple of years, and probably it would continue in future also. But then going forward, humble suggestion to increase the payout ratio and sir, set one dividend payout policy, like INR 2.5, that is absolute number. But then as a percentage of profit after tax, I think it needs to be increased, may not be in line with FMCG players, but then at a respectable level. That is my humble suggestion. That's it from my side.
Thank you, [ Rupin ]. We will definitely bring it up to the notice of the Directors in the next Board meetings.
Next question is from the line of [ Gokul ] [indiscernible] from [indiscernible] Capital Advisors.
Just again, on the [indiscernible] strong year with the current realizations in the procurement cost...
Voice is not very clear. Voice is not very clear. Can you check ...
Am I audible now?
Yes.
Yes. So the current spreads between the procurement price as well as the realization is obviously at record high levels, and you will have very strong cash flow this year. So could you speak about the usage of this cash, because you mentioned about repaying debt as a focus area? But are you finishing your old projects as of now? Or is this something where you are looking at new areas and new areas for investment [ only ]?
Right. As mentioned earlier, yes, debt repayment is something that we're seriously considering and especially the higher interest ones. CapEx will have to continue because, like I said, projects got delayed. We expect demand to come back in the next couple of months, and we have to prepare for the next summer season, which is our peak season, especially for out-of-home, higher margin value-added products. Now we are definitely considering newer avenues of growth within the dairy space, of course. And as always mentioned, we want to get to that level of 40-plus percent contribution of value-added products towards overall sales. Currently, even during COVID times, we are at about 22%, which was about 25% last year same time. And some investments will have to go towards R&D, marketing, et cetera, to ensure the same. So we've been investing a lot more time and resources towards a digital media, marketing. We've run many campaigns. We've been using this as an avenue for awareness and also sales generation. We've also been spending a lot more time on direct-to-consumer apps. We came up as one called Heritage TUCH, which we are piloting in the Hyderabad market, and the response has been quite positive. Similarly, we've have been spending a lot more time on R&D activities to focus on more nutritious products, taking advantage of the current situation that people are looking at more hygienic, more high nutrition kind of products. We also launched immunity -- our line of immunity milk very recently in [indiscernible]. We've also launched [indiscernible] Milk. We've also launched milkshakes, of course, which are generic products. But the idea is to focus more on nutritious products, higher-margin products. And that will require some investment, both on the R&D side as well as the marketing side mainly.
Right. So the investments are largely expansions of the current product [indiscernible] yogurt, which is a long-planned project and new product launch. But would you be extending this to cheese and other dairy categories also, which are more highly capital intensive?
Certainly, we will be looking at cheese. This is a category, which is attractive. It is fast growing as well, even during COVID period. But we are looking at leaner ways of production. So we might start with the co-packing facility because there is a lot of idle capacity available for that. If we feel that the quality standards of those new facilities that are available are good enough. Else, we might have to invest into our own [indiscernible]. So depending on the product, we will be looking at how we will be investing into CapEx.
Okay. Fair. And second is on -- clearly, COVID has redefined certain ways of doing business. So in your parlance, are you looking at any cost changes, which are structural in nature? And is there something which the savings which you can continue even after COVID?
Not very clear, because, I mean, there is some voice issue.
Yes, I'm sorry. Just again, if I can repeat. Are there any changes in cost structure, which you have witnessed post-COVID with a structural in nature and you can retain these benefits even later on?
Not really. There is small cost difference in terms of travels only. There's no other structural change.
However, there is a change in deployment of technology, and that is something I can talk to you about in terms of people's automation, in terms of agent distributor management, in terms of real-time dash boarding, et cetera, which perhaps not today, but going forward, will potentially help us in terms of optimization and rationalization.
Okay. Lastly, when you pursue a new project or in terms of new investments, is there a particular [ era ] which you look to invest before you take an investment decision?
Typically, if it's a completely new facility and a completely new product, which hasn't happened in the last couple of years. But if it's something of that, naturally [indiscernible] very important, and we look at about 20% plus IRRs for those products, it becomes very important for us to be looking at that.
[Operator Instructions] Next participant is Bhargav Buddhadev from Kotak Mutual Fund.
Congrats for a good set of performance. First of all, you mentioned about the high cost debt. Is it possible to quantify what is this amount?
Amount of debt you mean or cost?
Both if possible.
Debt, I already indicated in the introductory briefing, that is INR 184.8 crores, INR 185 crores is our long-term debt. Our interest rates are hovering between 8.5% to 9.5%...
8.9%.
Average will be around, let's say, 8.9%. There are projects taken in different years. The rate of interest is different over a period of time. These are outstanding loans for the last 5 years. Some are 3-year old, some are 4-year-old, some are 5-year-old. The average cost of debt is around 8.9% for long-term loans today. And within it, there are certain 9.5%, some of them are 8.5%, depending on the time of drawal of the loan. So what our Executive Director was mentioning is, those projects which had a higher rate of interest, they will be sorted out, they will be taken out on priority while retiring.
So what would be the corresponding loan amount for that 9.5% interest rate?
Yes. That we are still working on that. We will -- we haven't quantified how much will go, how much will be there, but it could be half of it is above 9%, half of it is below 9%. That's why average has come to 9%.
Secondly, given -- you mentioned that a lot of large dairy companies had stepped up milk procurement. Is it possible to quantify what is the SMP inventory that you are starting as on September balance sheet? And what would it be on a Y-o-Y basis?
Yes. In quantitative terms, we have 3,900 tonnes of SMP at the end of September.
And what would be the same number last year?
Last year, 700 tonnes.
Oh, 700 tonnes, okay. So that's almost a 5x increase?
Yes, that is what we have done during the lockdown. We picked up all the milk from our farmers and converted and holding it. Most of it will be for capital consumption only in the coming months.
And is it possible to sort of project for how many months can this SMP last in the form of liquid milk if you were to convert into liquid milk?
We don't typically convert into liquid milk. We use it for products also for enhancing the 13 percentage -- SNF percentage in the products and the small quantity gets into conversion. This will last about 7 months requirement for us, coming 7, 8 months requirement.
Okay. Understood. Lastly, is it fair to say that given that the monsoons have been fairly strong this time around. The liquid milk production, at least for the next season, should continue to remain strong, and hence, the prices on the procurement [ supply] should continue to remain demand?
Yes.
Next question is from [ Jatin ] from [ Alpha Capital Advisors ].
Sir, my first question would be, as we increase our value-added products, do we expect some significant change in the working capital because currently, our working capital is quite good? So that -- that's the first question.
It won't significantly alter our working capital requirement.
So currently, we can expect these things to continue as it is?
Yes, please.
Sure. Most of my other questions have been answered. Just one sir. This quarter was very good for us. But because of Future Retail mark-to-market, it got -- I think it couldn't be visible in the reported numbers. So maybe if we can get rid of it because it is anyway non-core for us now. So if we can get rid of it as quickly as possible, that would be great for us, and we can use that to retire debt or to reward shareholders with some better dividend. That's my only suggestion.
Sure. We have taken note of it. Thank you very much.
Next participant is [indiscernible] from [ Allegro Capital ].
Just wanted to understand, historically, when procurement prices have fallen post the flush season, milk sellers have also reduced kind of milk prices. Now with COVID, we're in an environment where demand is actually weak and supply is high, and we've still been able to actually hold on and actually keep prices fairly high. Just trying to understand what's changed in terms of this dynamic that milk sellers haven't gone out and actually reduced prices in the market?
The milk -- unorganized sector could not handle the milk at all first during the lockdown of 7, 8 weeks. There was no movement possible. They were not able to process, they were not able to carry. This required herculean effort to get the -- ask for the people to move, vehicles to move and the fear factor. Most of them didn't want to come out and do the business at that time. Consumers also didn't want to buy from them. They wanted to buy from the well-known packaged brands so that this hygiene issue is addressed. So all factors have contributed for [ these]. No operation of the informal businesses, unorganized businesses, individuals, that is where the brands have continued supplies to the consumers at the same prices.
Okay. And how long do you think the situation could kind of continue? Has your unorganized sector kind of come back and therefore, say, within a quarter, we should get back to some kind of normalcy ...
We have to come back. We have to come back because [indiscernible] is not there to accept this loose milk and low-end brands. And consumers are not prepared to lower the guard of immunity at the moment.
Okay. Excellent. The second question was in terms of value-added products. Just wanted to understand what percentage of curd is consumed out of home. And what's the kind of outlook in terms of how long do we see before we kind of get back to the steady state volumes you used to have on curd sales?
The curd is basically consumed at home. Outside home consumption is related to [indiscernible] who carry small packs of 90 grams cups and all. Also we mess where the -- a lot of food service happens in [indiscernible] sector. Then weddings, parties, events, get together, all these activities are on a low key now. So that is why the offtakes are low, particularly the weddings where we used to have 1,000 members participating, more than 1,000 members participating, it was less than 100 officially. And people are also very careful not to eat when they go out. So the outside the home consumption happens through these events parties, get-togethers and mess, canteens, even offices. Most of the IT offices used to have the meals served, now that is also not there. People are carrying their own home food or working from home. So this is area where consumption has to come back. It is a function of total normalcy in the market, which is anybody's guess in the current pandemic.
So if we see this 34% kind of decline we've seen in curd volumes year-on-year, is this largely kind of attributable to out of home? Can we say that retail consumption is pretty much on track? Would that be a fair statement?
Yes, yes.
Okay. Great. If I could just ask one last question. Just wanted to check if there's any update as in the some kind of rumors around the AP government also looking at a subsidy or similar to what we've seen in Bangalore and Telangana. Any updates with relation to that? And just wanted to understand if at all the AP government were to come out with some kind of similar subsidy, what are things that we can do to kind of mitigate the impact because it does clearly impact milk procurement for us?
Yes. This is an 18-month old rumor. So we hope it will reach 18 years so.
Okay. But are there any steps, I just wanted to understand, if they were to kind of come out? How exactly do we handle this situation given the fact that we are largest market?
Yes, we have to adjust our prices, both on sales side and procurement side. Everyone has to adjust side. All the people procuring will have to adjust the sale price, procurement price accordingly, and we will also do that.
So just like how we coped with it in Telangana.
Next question is from Puneet Jain from Fair Value Capital.
Congratulations on a good set of numbers. So in H1, how many shares of -- how many shares you have sold of Future Retail? And currently, how many shares are we holding?
We have made a sale of 5 lakh shares of Future Retail Limited at an average price of [ INR 100.55 ].
And how many are currently holding after selling 5 lakhs?
The whole shareholding is INR 1.78 crores. You want to go ahead, sir?
Yes. As of 30th September, it was [1.73 crore lakh ]we were holding after selling 5 lakh shares.
Next question is from [ Gokul ] [indiscernible] from [indiscernible] Capital.
Hi, actually, [indiscernible] here. Okay, I just wanted to touch base upon this question that madam raised about on cheese, the possible investments in cheese in the future. Just one thought there that if we've observed one thing how [indiscernible] is. And obviously, it's a high working capital business. The return ratios are not as high as our existing business. So -- and then you did mention about co-packaging. So can you give some thoughts on -- I mean, for whatever point, the negative point I've raised, is it really worthwhile getting into it?
See what madam -- what our Executive Director is saying is an opportunity to enter into cheese business is being explored preferably as a light fruit. For example, if my quarterly income is -- revenue is INR 590 crores or INR 600 crores as of now, our cheese expected revenue will be maybe around INR 20 crores in the quarter. So it's a INR 20 crores out of INR 600 crores. If that is the kind of revenue we are expecting through a kind of co-packing arrangement, it will not impact significantly on the working capital. And even if I assume 3 months stock is in our control, inventory is 3 months control, that INR 20 crores will be the inventory value for the 3 months, and there will be returns and that delivering sales and recirculation of the stocks. So it's not going to be a significant share of our revenue. Therefore, it will not have capacity to alter our working capital cycle, our fund requirement, et cetera. Yes, Brahmani, I think you were saying something.
Yes. I was going to say the same thing that still 80% of our revenues when it comes to value-added products, 75% to 80% will end up coming from curd as the top product going forward. However, cheese is something that only becomes important because we need to fill in that overall basket, especially for newer channels of growth, which are [ recon ] channels and MRF channels, which have clearly expanded during COVID time. So if we need to reach out to these channels more efficiently through a basket of products, cheese becomes quite important as an additional product.
Okay. And my second question is, sorry to again touch upon the same topic, but just because ...
Sir, sorry to interrupt you, sir, your voice is breaking up.
Voice is not clear.
Hello? Is my voice audible now?
Yes, a little better.
Yes. So what price is the end-to-end hit of the INR 51 crores that happened this quarter? I'm assuming if you don't sell more, what will be the kind of end-to-end in this -- at this current price of Future Retail?
Your voice is not clear. Can you please repeat which -- there is a problem with your voice
Can you hear me now?
Sorry, your audio is still breaking.
Am I audible now?
It is better now.
Yes. My only question is that what drives the M2M hit of the INR 51 crores of the Future Retail happened this quarter? And assuming we don't sell more, what will be the kind of M2M at the current price?
You're not clear. I think we will have to answer separately. We're not able to follow it.
Okay. Okay. Basically, I'm hoping that we do have plans that -- because we sold only 5 lakhs ...
Sir, still your voice is breaking, sir. Next question is from the line of Rajesh from Doric Capital.
Congratulations on a strong profit for the quarter. You explained earlier that the volume was down because of the vendor and the COVID conditions. Could you give some additional clarity by segment in terms of daily milk supply to the home versus other segments? What would be the drop estimate by you? I know it's not directly available, but from your estimate perspective. Just also understand if there has been any market share loss for us because the volume drop on a year-on-year basis is higher in 2Q compared to 1Q?
I don't know how to say that. You're asking the drop sector wise?
Yes. In the sense, all [indiscernible] some understanding that you might have internally.
So we actually don't have a direct supplies to Horeca. What happens is the -- our distributors, our agents, our representatives in the market do supply milk to their neighborhood canteens, mess, offices, a few packs, a few liters to each outlet, those are not functional now. So the home consumption is as usual. Wherever we are delivering to home, they are taking the same quantities. Retail -- the MRF outlets are taking as usual. Only thing that consumption that happens in the adjacent to our agents' outlet, that is what is not available today, so which should come back in the next half year's time, second half year.
But year-on-year drop in the second quarter is more than in the first quarter it seems, is that correct?
Yes. That is also a pattern of consumption because loose milk will come into market during the flush season, October to January. A lot of unorganized players introduce milk into market at a lower price. Lower end brands also appear when the surplus milk is available. There will be a shift. But now they are not operating much in this season because of the COVID issues. And consumers are also not preferring such brands or such loose milk.
In addition to that, as mentioned earlier, we've seen tremendous amounts of rains in our core markets. It is probably the highest in the last couple of decades, especially in Hyderabad and parts of AP. That is another reason we've seen Q2 last year to this year a decrease in volumes, aside from the fact that what the President sir has explained. Otherwise, nonconsumption should be more or less the same.
As there are no further questions, I will now hand the conference over to Dr. Sambasiva Rao for closing remarks.
Thank you very much for participating and continuing interest in Heritage Foods. I'm looking forward to catch up with you in due course of time for the next quarter and present all the details. And any of the unanswered queries, will be answered next time. Thanks again.
Thank you very much. On behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.