Heritage Foods Ltd
NSE:HERITGFOOD
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Heritage Foods Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the Heritage Foods Q2 and H1 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hiral Keniya from Dickenson World. Thank you, and over to you, Hiral.
Thank you, Asad. Good evening, everyone. I welcome you all to the earnings con call of Heritage Foods for Q2 and H1 FY '22. Today, we have with us the management of Heritage Foods represented by Mrs. N. Brahmani, Executive Director; Dr. M. Sambasiva Rao, President; Mr. A. Prabhakara Naidu, Chief Financial Officer; Mr. Srideep Kesavan, Chief Executive Officer; Mr. J. Samba Murthy, Chief Operating Officer; Mr. Vinay Vertel, CEO, Heritage Nutrivet; Mr. Umakanta Barik, Company Secretary and Compliance Officer, Heritage Foods. Before we get started, I would like to remind you that the remarks today might include forward-looking statements, and actual results may defer materially from those contemplated by 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 the statements as a result of new information or future events. I would now invite Dr. M. Sambasiva Rao from Heritage Foods to make his opening remarks. Thank you. Over to you, sir.
Thank you, Mr. Hiral. Good evening to everyone joining us today on this call. We are pleased to welcome you all to this earnings call of Heritage Foods to discuss the financial and operating performance of quarter 2 and H1 of current financial year. The presentation with results has only been uploaded on the exchanges. And I'm sure every one of you might have got a chance to look at it. However, I'll give you an overview of the financial and operational highlights for the quarter 2 and H1. Consolidated revenue for quarter 2 grew by 10% year-on-year at INR 6,703 million despite severe rains and a couple of cyclones in our important markets. EBITDA during quarter 2 stood at INR 637 million as compared to INR 873 million during the previous year same quarter. The margin stood at 9.5% as against 14.3% during the quarter 2 last year, mainly on account of higher raw material costs during this year. During the current quarter, PAT stood at INR 328 million. The Board of Directors has proposed an interim dividend of INR 2.50 per equity share, that is 50% of the face value of INR 5 per equity share for FY '22. Now I'll take you through first half year. Consolidated revenue grew by 5.6% year-on-year at INR 13,184 million, on account of higher sales of milk and value-added products. EBITDA during the H1 stood at INR 1,158 million as compared to INR 1,432 million during the first half of last year. EBITDA margin stood at 8.8% during the H1. PAT, during H1 stood at INR 631 million. Heritage Nutrivet, our wholly-owned subsidiary, sales stood at INR 233.7 million in quarter 2 as against INR 306 million during the same quarter last year. EBITDA stood at INR 8.4 million in current quarter 2 as against INR 35.2 million during the last year. PBT stood at INR 0.3 million vis-a-vis 25.3 last year -- INR 25.3 million last year. On the balance sheet front, gross long-term debt stood at INR 327 million, and net long-term debt stood at INR 300 million as on September 30, 2021. The company has a strong balance sheet with a debt-to-equity ratio at 0.04:1, and the cash and bank balance of INR 731 million as on September 30, 2021. Now moving on to the volume performance. The average milk procurement during quarter 2 was 1.3 million liter per day as compared to 1.2 million liters during the quarter 2 of last year. Average sales -- milk sales during quarter 2 is 1.04 million liters per day compared to 0.96 million liters per day in the quarter 2 of last year. Sale of curd during quarter 2, FY '22 was at 280 tonnes per day compared to 215 tonnes per day during the last year's same quarter, registering a growth of 30% year-on-year. During the quarter, value-added product revenue surged by 31% year-on-year to INR 1,696 million. During quarter 2, value-added products contribution of overall revenue increased to 25.7% vis-a-vis 21.7% in the quarter 2 of last year. I'm happy to share a few developments in the company during the quarter 2, Mr. Srideep joined as Chief Executive Officer during the middle of the quarter and now taking greater responsibilities from quarter 3. In the recent meeting of our Board of Directors to strengthen the team of our Board, Mr. M.P. Vijaykumar was appointed as Nonexecutive Independent Director. He is a fellow member of ICAI, ICMA, ICSI. These are 3 prominent institutions: Chartered Accountants of India, Cost and Management Accounts of India, Company Secretaries of India. He has over 30 years of experience. He is currently serving as CFO of Citi Technologies, a Nasdaq-listed company. Heritage Food looks forward to gain from his rich knowledge and experience in accomplishing the company's long-term goals and vision. Despite the challenging business environment, Heritage continues to grow, expand its value-added product portfolio and strengthen its balance sheet. The company launched a few products during this quarter as Kesar Shrikhand, Amarakhand, in Hyderabad and Mumbai markets. The company also launched Malai Paneer Fresh in Mumbai. Heritage aims to grow its value-added product share in the coming years by consistently launching new healthy and value-added products. Heritage Foods is making swift progress towards achieving debt-free status sooner. In the last 1 year, the company has repaid debt worth INR 1,685 million. Now it's open for the question-and-answer session. If any of you have any queries or feedback post to this call, you may connect to Dickenson World, our Investor Relation agency. Please open it now for all the members.
[Operator Instructions] The first question is from the line of Sameer Gupta from IIFL.
First question is for Mr. [ CD ]. So just wanted to hear from you, sir, how do you view the growth strategy of the company now. You're coming from an FMCG background. So what is the current priority in terms of growth? Do we look at a bigger product basket in our core markets or we expand procurement to newer geographies, which was our earlier strategy of growth, a mix of both? Just wanted to hear from you and a little on an elaborated basis, please?
Yes. Thank you, Sameer for that question. And thanks, everyone, for listening in. I don't think that our growth strategy has changed in the recent past. We have had a very consistent growth strategy for some time now, and which is the reason why despite adversities of the second wave of COVID and many other adverse situations, we have been able to deliver consistent results. Like some of the aspects that you really mentioned, those remain at the core of our strategy. The first and foremost is our expansion of contribution from the value-added products. That remains at the heart of our strategy. The second one is expanding the regional footprint across the country into newer markets. All investors are very well aware of the investments we have made in geographies such as Maharashtra and in the North of India, in Haryana and Delhi and [indiscernible] region. And the third, of course, continues to be expanding both our procurement network and the sales network even fashion so that we are able to leverage the advantage of the full-value system, which has always been the strength of Heritage. In the first one, as far as the value-added products is concerned, we have been focusing on 3 areas: One is focused approach on products that give us -- products that give us an advantage as far as the market is concerned, where we have inherent strength and where we see significant headroom for growth. The second one is being consumer-centric in our innovations and in our marketing and communications. We have created, as the President made in his opening statement, we have been consistently launching innovative products in the market, which have helped us grow the value-added products. The third is an omnichannel strategy in making our products available and accessible to all our consumers. We have significantly grown our contribution from newer channels such as e-commerce as well as expanding in traditional channels in new geographies. So our combination of all of this is what is driving the consistent growth and delivery of our results. So the strategy continues to be the same, and we are very confident that we will continue to see such strong performances in the quarters to come. Thank you.
Just a follow-up on that. So what would be our e-commerce contribution now?
It's close to 5%, including the MRF.
The second question, sir, would be that last quarter, you had stated that in a more normal circumstances and state, our EBITDA margin would be close to 7% to 8%, which is typical of any other dairy company. But this quarter, we have done 9.7% -- 9.5% if you include -- based on your calculation. So just a question that are these still exceptional circumstances in terms of COVID, post-COVID and competition or now with whatever has happened in the past year, there has been a permanent reset to around 9%-ish margins for you?
Yes, your observation is perfect. The change is not complete. We are still transitioning from COVID-affected economy to a normal economy. We are still having some advantages now. We are continuing to have advantage for this quarter 2 as flush season has begun, and milk availability is high. Milk prices are stable. This may continue for a while and see how it changes into next financial year. It's a bit early to predict to the next year scenario.
Got it, sir. That's very helpful, sir. Just a last bookkeeping question. You normally give multiple government prices and liquid milk selling prices along with the volume numbers. I think you've missed those numbers in your press release or presentation this time. So just if you could help me with those numbers?
Yes, sure. We thought they're all not so relevant as the outcomes are more visible. So you want the input data also, we can share, we will now share. One second -- just the moment, Sameer.
You could share it subsequently in the call if that's not available at time. Don't want to keep others waiting, sir.
Milk procurement price on an average actually INR 34.36 based on the quarter -- current quarter INR 34.36.
And liquid milk selling price, sir?
Selling price -- milk selling price, INR 46.85.
The next question is from the line of Anirudh Joshi from ICICI Securities.
Thanks for the opportunity. So in terms of this, we are still generating extraordinary profitability. Not just us, but the entire dairy sector. So just on a sectoral thought process, till what time do you expect this supernormal profitability can continue? Now I guess we are entering flood season. So December quarter, again, might be in a way good, but how do you see, can most other commodities in India, including agro commodities and other commodities? Also globally if we see, there is a massive inflation, right? There is an inflation which is not seen in the past 10, 15 years also, that kind of inflation we are seeing obviously, at some point of time, it may happen with milk, but just your expert opinion, when do you see that happening in the sector? Or probably, it will take a whole lot of time for milk prices to come up? That is one question. And two, was there any increase in mix selling prices? Most cooperatives have raised the selling prices, but private, there is a not yet raised selling prices. So any particular reason for this?And also, do you see price hikes happening for the sector as well as Heritage in coming quarter?
What is the last point, Aniruddha, I couldn't catch you.
Their price hikes are happening in the sector. Most cooperatives have raised selling prices like Amul? But private dairies have not yet raised -- the private dairies have not yet raised the price. Yes so when do you see the price hikes happening in the sector as well as for Heritage?
Okay. Yes. Coming to the first point, yes, the changes are slowly happening compared to last year's wave 1 of COVID, we went through wave 2. Now things are looking much safer in terms of COVID, the occurrence is less in the country. Impact of COVID is also very minimal on the affected persons. Vaccination has crossed a significant number of population, close to 70%. So the safety levels have increased, markets are open. The demand revived to a great extent, still the growth is coming. In view of this, the situation they remain safe for some more time. Particularly, we are passing through the flush season now. But as you know, during this quarter, sale of value-added products would be a bit lower compared to other quarters due to the winter weather and rains, et cetera. So it might impact the margins a bit. To that extent, procurement prices will be stable or a bit down compared to the earlier quarter. So stability is visible as of now. We don't see much changes happening on any side of the prices, farm side or sales side prices, at least for this quarter. In the fourth quarter, we have to see how things pan out and depending on the global milk availability, national milk availability, et cetera. So stability is what we are seeing now. And coming to sale prices hike, there won't be any sale prices increased during the current year -- current financial year. If at all, it will be during the end of the year towards the month of March or so, but I don't see any reason to increase sale prices now.
Okay. Okay. That's helpful, sir. And last question. Now schools are starting again, and even offices. Many offices are starting now. So do you see the reverse migration happening in our key cities in South India? And also do you see that can drive as a demand driver for milk in next 2, 3 quarters?
Yes, definitely. Normalcy is coming back. Some of the schools are already open for higher classes. Some of them are doing hybrid sessions both online, offline. Post Diwali, maybe some more openings will be there. But definitely, by January, most of the institutions should be open for students with the children's vaccine also in site. So the next quarter should be much better in terms of demand.
[Operator Instructions] The next question is from the line of Gokul Maheshwari from Awriga Capital.
Could you comment on the HoReCa channel, how you're seeing the demand trends over there in terms of revival and compare it also with pre-COVID, how things are over there?
Sure. HoReCa is almost open. I mean there is no place where it is closed now. All institutions, all hotels, restaurants, caterers, everybody is open, except the size of gatherings has come down for caterers. The earlier weddings, get-togethers, parties that kind of [Foreign Language] is not still there. The crowding is not there. The numbers are limited. Maybe I could have seen a 500-member wedding is today managed with 150-200. So that is coming back in a slow fashion. Similarly, hotels and restaurants, also same issue. You don't see over-crowded places in full joints now, but it is visible. So with the precaution, with higher immunity with vaccination, I see the quarter 4 should be a normal demand for HoReCa. Now it is growing. -- growing from lower levels. Month-on-month, we are seeing the demand increasing. For them also footfalls increasing, revenue increasing. So it's a process driven maybe a few months down the line. Post January, things should be very, very normal; assuming wave 3 is not coming to India.
Right, right. And just 2 more questions. Could you just comment on the animal feed business, which is particularly slightly weak in this quarter and the outlook for the rest of the year? And secondly is your own expansion strategy in terms of deepening your presence in rural or even regional expansion, if you could comment on that then?
You asked the second question is related to milk dairy, right?
Yes. That's right.
Expansion and related dairy. First question is on animal feed.
Right.
Okay. I request Mr. Viney, CEO, Nutrivet, to deal with the first question.
This quarter 2 has been muted for the feed business. Typically, the -- we have seen a lot of inflationary pressure on the raw materials. And with abundant rates, there has been a lot of green products available for the farmers. So typically, start of Diwali is the time when the raw material starts, the prices start reducing, and that is the time when we expect the margins to get better. This year, there has been a slight problem with the monsoon that it doesn't seem to end. So crops, which were supposed to start coming into the market now, have still not started and there is excess moisture in the crops. So we expect that probably fresh arrivals will start sometime towards end of November, and that is when we see improvement in the animal feed business. I'll hand it back to President sir for the second part of the question.
Yes. Coming to the expansions, we are currently operating in all the markets where we are present. We are not going to enter new markets in any way, except deepening into Tier 2, Tier 3 in the same markets, same states.
Okay. But there was a plan to set up a curd-manufacturing facility on the Mumbai Service Road and that was entering the -- Is that operational? Or have you been able to commercialize that?
Yes, yes. It was done a few months back. The new plant near Mumbai. That's why I said we are in the same markets, not new markets. Our client is in Maharashtra. We were already there in Maharashtra. The plant has been commissioned and sales are happening now with Maharashtra.
Great. What was the value of the sales of curd in the quarter, value of sales?
Can you repeat, value of...?
The resales, the curd sales, assuming the volume and -- yes yes.
On [ finishing ] costs.
That's only INR 134 crores.
The next question is from the line of Shirish Pardeshi from Centrum Capital.
I have 3 questions. The first question is that if you could help us to have the update on the Novandie business. I think I could see that you have also launched Paneer Tikka in the ready-to-eat segment. So is that the core strategy that we are also going to get into aggressive and ready-to-eat food strategy. Maybe some color if you can see that how the expansion and how the whole business is shaping up?
Yes. This is Brahmani here. I will take the question on Novandie. So we're seeing good response since we launched our products end of the last financial year, beginning of this year. We are present currently in 3 states. In Maharashtra; in Mumbai, Pune and Nasik markets. In Gujarat; in Surat and Ahmedabad. And in Telangana, in the Hyderabad market. This month itself, I'm happy to share with you that we've also launched in the Karnataka market, in Bangalore City. Given the very positive response from the consumer, we are looking forward to launching these products in other markets such as Goa and the markets with the [indiscernible] such as Kolhapur, Mysore, Mangalore. And we're also looking forward to launching newer flavors within our curd as well as set drinkable yogurts category. And also, we're looking at certain mainstream plain yogurts sort of products also being launched very soon in these states again.
Just 1 follow-up here. I think now we have spent almost good time to learn and shape up the business. If you could give us some understanding on financial metrics for this business over next medium to long term?
Sure. This is a very new business. As you know, we have launched products during the second wave. So we are taking some time to stabilize when it comes to margin performance. We will get back to you with the numbers going forward. There are numbers. We also have a JV partner, which is an unlisted company, so we are obligated that we don't share too much information either. We will get back to you at the earliest possible, perhaps by the end of the financial year, you see the numbers.
Sure, Brahmani. My last question is on the entry. I mean, there was a significant investment in terms of plants. So if you can just help me to understand what is the per day run rate, what is the phase we have done and what is the plan in the maybe next 2 to 3 quarters, we can expect from this entry into the market? I mean any specific learning which you are satisfied or if you want to point out that it is not up to the expectation?
This is with regards -- sorry, with regards to ready-to-eat?
No, no. I'm saying we have put up the plant in [ Sahil ] there.
This is with regards to JV. Is that right?
Not JV. I mean, our own distribution and liquid milk.
In the Maharashtra market?
You're talking -- it is a bit overlapping questions. You are talking about the Novandie business or Heritage business?
I'm now talking about Heritage business.
Okay. What is the question on Heritage?
We have put up a plant in outskirts of Maharashtra. And we last said that we are trying to look at this market. So our aspiration is that we were planning to get to 1 lakh liter. So if you can give me some metrics where we have reached and what we are doing? And maybe on the front end, what are the sales numbers?
Yes, we would perhaps hold it for the time being because it's just started a few months back and started during the wave 2, the lot of difficulties were there in approaching the market in wave 2. Post wave 2, July, August, September only, we have done some numbers, still evolving the business in that area. Next quarter, we'll definitely present those details for the plant specific. On the Tikka Paneer, I request Mr. Srideep to respond to you.
Yes. Thanks for that question on Tikka Paneer. Actually, my response to that is in continuation of what I said initially, value-added products for us. We are focused on 4 advantaged categories. And we want to invest in, commit ourselves to first curd, which happens to be the biggest contributor for our value-added products. The second 1 in which we are deeply committed is the paneer category. And the third is drinkables, which includes flavored milk and the fourth being desserts in which we have investments in ice creams. So of the -- in the second category of Paneer is where we are trying to build national leadership. And hence, you will continue to see a lot of innovation happening in this. Tikka Paneer happens to be a good innovation that's going well for us, but still it is very early stages for us to comment on. It's been just 1 quarter, and we are getting great response from our consumers. And because we are directly connected with them through our B2C as well as e-commerce. We are constantly taking feedback on the product and iterating as well to get the taste more closer to consumer expectation. And in the same line is where we have very recently launched Malai Paneer Fresh as well. So you will see a lot of innovations in paneer going forward from us.
The next question is from the line of Nitin Awasthi from InCred Equities.
My question is relating to the cash, which is being accumulated by the company, which is going at a good transit and you're already sitting on a good amount of cash. Just wanted to understand how and when does the company plan to deploy this cash?
Sure. This is Brahmani here.
We did not hear you at end.
Yes, sir. So I would just like to know how -- what are plans to -- how are we going to deploy this money? In which business segments are we looking at to deploy this money and spend by value? Because we're going to be doing a good amount of cash flow even going forward, if things remain like you said, the [ COVID ] doesn't pick up. Then again, the good cash flows are going to continue when you're already sitting on a good amount of cash.
This is Brahmani Nara. Thank you for the question. Of course, the company is going through a very high growth orientation and part right now. So that requires some investments, both in OpEx as well as CapEx and people as well going forward, people and teams. So we will have to invest into our back end as we improve and strengthen our procurement network, our processing network, especially when it comes to value-added dairy products, especially given the fact that we have a very unique go-to-market, where we believe in having a full control over quality in our products and services. And of course, going forward, as mentioned, this is the time of the year that we will also be looking at skimmed milk powder and commodity purchases for the next season, especially the summer season to come. So some cash will be [indiscernible] a growth itself going forward to be able to reach INR 6,000 crores mark at the earliest possible and to be able to grow over 20% year-on-year. As you are aware, the Board has also approved our interim dividend very recently to shareholders. And of course, to reward the shareholders for their constant support, and we will always try to maximize shareholder value. Aside from that, I think any decisions that need to be taken will have to take growth and the need for growth into consideration and balance these different requirements as well as shareholders' requirements. And the Board will have to take -- dynamically have to take decisions based on the same. Also based on several external factors that the business could be affected by.
Okay. Understood. Just 1 more follow-up question to this. You're seeing lines getting blurred in the dairy business and the feed business and the whole agro business to some extent, not to some extent, but to a very great extent. And how are you seeing the evolution of the company going forward? So from a dairy company, you start doing feed and now feed companies are starting to dairy and having their own retail change, I think their own retail outlet. So basically, how are you seeing the sector and the company evolves and into what?
You're very right. I think there's a lot of synergies between the feed business and the dairy business that we have today, primarily because we are -- we, as a company, are directly connected with the farmers and we totally go through third-party aggregators in terms of our procurement model. And that's where we are able to offer subsidized cattle feed, that's high in quality. And that processed as well as manufactured by the company itself. There are several synergies. For instance, we're able to use the same procurement -- milk procurement vehicles that go empty one way to be able to deliver feed to our farmers. We're able to make feed available in smaller quantity -- smaller quantities versus them being obligated to be purchasing larger quantities of feed multiple times in a month. So there are several opportunities for that. And most importantly, we are also seeing that through our services that we are providing through both our [indiscernible] business or our feed business as well as our procurement network. The farmers are also seeing a benefit of using high-quality feed for their animals, which generally is not a habit in all parts of the country. So we're also getting them used to better nutrition for their animals, better than being for their animals, et cetera. So the company has also benefited in terms of better quality of milk that is helping in terms of margins and would be able to benefit from this particular value that we are adding to the farmer. So certainly, the feed business outlook is very positive for us. We are looking at growing this business into INR 400 crores to INR 500 crores business with a stable margin of about 3.5% to 4% in the next 5 to 6 years.
The next question is from the line of Shradha Sheth from Edelweiss.
Congrats on a very good set of numbers. Just follow-up on previous question -- So sir, just a follow-up on the previous question. As we understand, we are targeting a 20% sales growth and INR 6,000 crore sales mark across the company and with the kind of cash flow generation. Just wanted to understand, do we have enough capacity to be able to cater to this growth because as we see the overall procurement still stands at about 1.3 million on a capacity of 2.7 million. So is my understanding right that we have enough capacity to be able to cater to the growth and the incremental CapEx will be relatively lower?
Yes. I think I have taken time last time to explain the capacities and utilizations and growth. What we are talking of are 3 things: one, milk procurement capacities that is stopped as chilling capacity; second is milk processing capacity where milk is processed into various types of milk and products; and third is the packaging capacity. So different capacities are there in different markets and states. We have a decentralized company to ensure freshness of the milk to consumers. See, we have a 5 lakh liter capacity in 1 place and serving 1 market, it's easier to deal with the capacity -- demand fluctuations and capacity, but we are operating in 11 states. We have 18 processing plants. We have 187 chilling centers. So in certain areas, milk is higher -- availability is higher, certain areas is lower. It changes year-on-year. During the year also, summer time, it goes down to half, winter time, it doubles. So these are all the fluctuations we have accommodated. When there is a surplus milk, we process in our powder plant. We have 2 lakh liters per day milk capacity plant, which can convert it into powder. So that cannot be utilized throughout the year that we used only during the surplus period. So milk chilling capacity, we have 21 lakh liters; milk processing, 27 lakhs; milk packing, 17 lakhs; other value-added products, curd and other products is 7 lakhs. So the different capacities are there, different growth requirements are there. So we need to continuously upgrade. These are all 30-year-old infrastructure. There is a replacement CapEx. There is a automation CapEx. There are a lot of new locations we have to create where milk is not available. I explained last time also, we have set up a 50,000 liter chilling capacity unit 25 years back. The milk chilling capacity is 25,000 -- 50,000 liters. But in last 20 years, 10 other companies have come and set up the chilling units in the same area. The size of the milkshed is same, number of players and installed capacity is greater than that. So we share that milk. So we have to go and create another infrastructure in a new milkshed for 25,000 liters. -- though this capacity of 50,000 has come down to 25,000, I still have to create another 25,000 liter capacity elsewhere. So therefore, the capacity's increased and the volumes will not come there. So we don't downgrade the plant because it is same infrastructure. We reduce the utilization of compressors and IBTs for chilling, the refrigeration capacities, to reduce the operational costs, but capacity remains same. That is how we keep moving from 1 milkshed to other milkshed in the chase of milk. That's how the expansions happen. So it's a bit complex situation because of the dispersed nature of milk availability. The same milk is not available in 1 place to accumulate everything and then process and distribute. It is the nature of the business, nature of the sector.
Right, sir. What I was indicating is that on an overall basis, we have done almost about INR 100 crores sort of annual CapEx in the last 3 years. So incrementally, what is the kind of run rate on the CapEx with the kind of growth that we are seeing can we look at?
Yes, it will be a INR 90 crore, INR 100 crore CapEx per annum, next 4, 5 years, to meet the growth aspirations of the business.
The next question is from the line of Manoj Bahety from Carnelian Capital.
I just have a follow-up question to one of the participants. As you articulated your growth aspiration of taking the company to around INR 6,000 crores over next 4, 5 years, if you can articulate little bit in detail the journey from now to INR 6,000 crores. Will it be led by same categories or it will require significant category expansion? Secondly, what kind of -- you just mentioned that it will be INR 90 crores to INR 100 crores kind of CapEx per annum. Will that be sufficient to capture this kind of growth opportunity. And lastly, whether you will be aggressively looking for inorganic opportunities also to reach to that ambition?
Yes. The journey is essentially aimed at organic growth only because we are not able to find appropriate targets for inorganic growth in terms of geographies, in terms of quality of the product, quality of the processes and people. So we have been looking at it from time to time, whatever is coming to us, but we haven't been able to shortlist any target now. So therefore, going forward, our journey should be through organic growth. And coming to the -- it doesn't mean we have closed the rise on the inorganic opportunity if something appropriate at the right valuation, which fits into our culture is available, we are open for that. Always we keep looking out for that. But nevertheless, we look at organic only. Coming to the category expansion. As Srideep, on earlier part of the call, he explained, that we are creating exciting variants and products in the same category, dairy category at the moment. We are also looking at any adjacent white spaces nutrition products, which might be closer to the consumers' needs, same consumer who comes for the dairy products also look for similar products at that time of purchase. We are trying to identify any additional products that can also be added to our dairy basket. And coming to the CapEx, we are confident this INR 100 crore CapEx should be enough to meet the growth requirements of the company in the next 5 years.
Yes. Just a follow-up to this, like if I see your growth trajectory over the last 4, 5 years, it is like kind of stagnant growth. So just wanted to understand like unless we have a different plan or different execution plan going forward. And considering this sector is also a cyclical sector. So just wanted to understand that what gives you a confidence of jumping from now to INR 6,000 crores. A little bit more details on this will be helpful for us.
Yes. Srideep will talk to you.
I'll just give a couple of pointers and then hand over to President to give you further guidance on that. So first and foremost, one of the things that you hinted at is will the shape of the business be same as now. I can confidently say, no. Because today, you must have seen that in this quarter, we have increased the contribution from -- of value-added products from 21.7% to 25.7%. We have -- we are very confident about our internal plans, which shows that by the time we would have reached INR 6,000 crores, the contribution from the value-added products category should be close to about 40%. So that's when you look at it, the CAGR that we are expecting from the value-added products would be significant. And the advantage that value-added products that we have is that it need not follow the same footprint as the fresh milk footprint, you could pretty much imagine, which gives us the opportunity to grow that at a much rapid pace compared to fresh milk, number one. Number two, we have made -- President hinted at all the investments we have made in the recent past in expanding geographies into markets such as Maharashtra, in the North, et cetera, which are in very early stages. And we are very encouraged by the early results we have got. But still, it is too early for us to comment because it's been only a couple of quarters. And compared to a business, which has been around for 30 years, you know that a couple of quarters is a very short time for us to come and talk, especially because milk is something which is very habitual for consumers. But we are very confident the early signs we are seeing from these geographies that we will add significant growth to us going forward. So the CAGR that we will see in these markets could be 3-digit CAGRs, which will add up to a strong double-digit CAGR for milk itself. So this is -- I'm speaking about pure organic like-to-like categories and segments. So growth from value-added products at a very rapid space; secondly, growth from newer geographies at exponential rate, will be significant contributor to that apart from entering attractive adjacencies that President spoke about. I hand over to President to add to this?
Yes, Please?
Will cheese be one of that? Will cheese be one of the category because this is, I think, one of the largest category, but unfortunately, it requires much higher working capital and low ROC business, yes.
Yes. Cheese, we just started as a co-packing opportunity from one of the plants in Maharashtra -- Our cheese business is not aimed at HoReCa or QSR. We are looking at only consumer packs and consumer sales so that the point of working capital is taken care. And we are also not investing in our CapEx at this stage. We are utilizing the available surplus capacity from one of the manufacturers in Maharashtra. So we just entered a few months back, 6 months back into the market, just building the volumes and brand and distribution right now.
The next question is from the line of Aditya Kondawar from JST Investments.
I just got disconnected in between. I just wanted more flavor on the healthy value-added products that you are set that we go to launch. Any color on that will be helpful.
You wanted to know value-added products?
Yes, the healthy value-add product that you spoke about in the start, yes?
Yes. And so I can take the question. I think we have just clarified that already [indiscernible]. Having said that, I think what Sir or Srideep was alluding to is the fact that we are open-minded. We are in the process of exploring space [indiscernible] and be interesting adjacencies with the dairy space in food itself, and that's something that's still work-in-progress. It is sort of like a project that you're working on. As and when there are further updates or material updates, we will keep you posted.
[Operator Instructions] The next question is from the line of Shivan Sarvaiya from JHP Securities.
A couple of questions. The first 1 is on the Novandie JV. So are we looking at any adjacencies apart from yogurt in that JV?
So our current scope of JV according to our agreements, et cetera, covers frozen flavored yogurts, it also covers the European desserts and the company is already a market leader when it comes to that. And this also includes some drinkable yogurts. So there are products already in the pipeline to the margin into the market. So that after this financial year because we first want to stabilize in the yogurt space. We're seeing really good traction in MRF and e-com channels, and the idea is to also expand our business in the GP space within the markets that I mentioned earlier. So yes, there are other interesting products already covered in the scope of the cases that we are exploring and could be introduced in the next financial year.
Okay, okay. And in terms of the distribution, where are we at that map in terms of acquiring shelf space in the retail outlets apart from the e-commerce?
Yes. So as I mentioned, most of the sales today is coming from MRF stores, and the uptake has been very interesting. Impact in relatively newer markets of introductions such as Hyderabad, in very limited store -- with stores. I've been very specific about where we wanted to launch the product. We wanted to go slow and steady. It's been a quite positive response, like I mentioned. We'll come back to you with more details, perhaps, like I said, the time we need. But MRF and e-commerce is where we're selling more and [indiscernible] expansion as we go forward in the current quarter. Also, I need to keep in mind that the peak season is the summer season, which is 6 months away is when we do see maximum peak sales. And that's when we can really access or share the impact of the new products that we launched into the market in the last couple of months.
Sure. And ma'am, one question from a broad perspective, like when we look at the dairy industry in India, when the leader in India is a not-for-profit organization when majority of our competition is cooperative base and not for profit. So how do we look at competing with such players and maybe maintaining a healthy margin from a long-term perspective and from expanding our top line? So some idea on this would -- some thoughts on this would be very helpful because this industry is pretty much different from the others that we analysts or investors track. So your thoughts would be very helpful.
Yes. Yes, please go ahead, sir.
Yes, yes. In the year '92, when the government of India liberalized the dairy sector to private sector as part of economic reforms, 100% milk was in the hands of cooperatives. '92, '93, close to 400 companies have come in India as in response to the amendments to the milk and milk products regulatory order. So many private companies have entered. Since '93, '92 now, almost 3 decades passed after government allowed private sector to participate in the dairy sector. In 3 decades, 40% to 50% of milk shifted to private companies. Right now, the estimate is 49% of the milk in organized sector in India is handled by private companies and 51% by the cooperative sector. I'm sure this conveys the answer to you.
The next question is from the line of Siddharth Bhattacharya from Anvil Wealth Management.
Yes. I believe the distribution is a key pillar on which business like ours will see success. So I assume that in some areas we have so...[Technical Difficulty] Yes. So I believe distribution would be a key pillar on which success companies like our exists, so I've seen that we have done tie-ups with, let's say, New Mart in some geographies. So could you sort of help us understand that more in detail?
See, our success, our growth is highly dependent on the product and service. So we have been taking stance since beginning our sales the fresh product and pure products. That's why we have set up 18 plants for a smaller volume of 1.5 million liters. Every market, we have a processing plant. We procure milk directly from the farmers within 200 kilometers distance from that market. So today morning's milk reaches the consumer tomorrow morning as a short distance as possible. We don't ship the milk from Pune to Delhi, Ahmedabad to Hyderabad, Tirupati to Delhi like that. So which is a long distance, it's a perishable product. So what I'm trying to say is the product quality, which is fresh and pure, adulteration-free, we have 0 tolerance for any chemical adulteration, preservatives, et cetera, in our milk. So the quality and the timely delivery, 80% to 90% of milk goes to home delivery in our model through our distribution system. So very small quantities are sold in the outlets. So the harvest in time by 6:30 a.m., -- 6:00 a.m., milk has to be home, it will be delivered. So the support of quality and service, we are growing, and we continue to grow. The distribution certainly matters, and it helps. We have now registered or tied up with all the e-commerce channels in our market. There is no e-commerce channel, which doesn't sell our milk or milk products. there is no modern retail store, which doesn't sell our products. All the hyperstores, supermarkets, e-commerce channels are offering our products. So distribution is a strength and product quality and service is our fundamental success point -- including JioMart, then Udaan, et cetera.
I wanted to understand this aspect more from a value-added products perspective since with value-added product, you're increasing the shelf-life. So effectively [ reach ] would be a key thing to look back. So I wanted to understand distribution from that perspective.
Yes, yes. I mean there is no problem in that. In every market, we have a plant, and we deliver overnight to the warehouses of all these channels and they redistribute with their hyperlocals or their own distribution channels. And we have our own distribution to our Heritage exclusive partners. We have close to 860 exclusive Heritage partners operated by franchisees. We keep our products available in our own outlets. And we have close to 130,000 retail outlets where our product is made available through our distributors and agents, apart from all the modern retail format stores and all the e-commerce channels. And our delivery system is robust in terms of overnight deliveries. Even the product like Paneer, which has 21-day shelf life, we deliver every day because consumer wants yesterday-packed products. Product is available 15-day self-life also, they don't prefer. They want fresh. So we are able to deliver because of our decentralized manufacturing and factory locations.
Okay. So effectively, we don't see any returns on our value-added products ever?
Returns 0. We have no return policy. We just -- it's a [indiscernible] delivery policy.
Okay. And on the same lines, could you help us understand that we want to be at 40% value-added products in the next 3, 4 years. Where do you see that number trending next year, if you could help us with that?
Yes, we are able to add 3% to 4% incremental increase year-on-year. Certain years, like COVID year, we had a setback because there was no out-of-home consumption, minus that aberration, our increase year-on-year is 3% to 4% within the value-added products contribution.
I now hand the conference over to Dr. M. Sambasiva Rao for closing comments.
I request Brahmani to give the closing comments.
Thank you so much to all our valued shareholders for your feedback and all of your questions. I'm happy to say that despite really tough external conditions, beside COVID, we had a really heavy monsoon. We've seen some positive growth, double-digit growth in the second quarter of the current financial year. And this seemed, more importantly, primarily from volume growth as well as [indiscernible] B2C sales -- consumer sales, which is what the company has been focused on significantly. Given the fact that external factors are looking quite positive now, COVID cases are under control. We've all seen that the billion doses of vaccines, a number, a milestone has been reached in the country as 1 of our investors mentioned, schools with back to normal, work spaces that more or less back to normalize now. We definitely see demand coming back. And we foresee that this will help us in the rest of the quarter, especially on the back of the festive season of Dussehra, Diwali, et cetera. And we are hopeful that this demand will also continue into the summer of next year. Internally also with [indiscernible] as a team with the right people, resources and focus, especially to grow in value-added dairy products. In terms of procurement, we are entering the [ flood ] season. So we should be able to stabilize in terms of margins and continue a positive performance when it comes to bottom line as well. So thank you once again for joining us and hope all of you stay safe and wishing you a happy Diwali in advance. Thank you once again.
I would now request Mr. Hiral Keniya from Dickenson World to give us closing comments.
Thank you, everyone, for joining us today for this call. In case of any further questions, clarifications, suggestions or feedback, you can connect with Mr. Umakanta Barik, Company Secretary and Compliance Officer of Heritage Foods or else Dickenson World. Thanks a lot.
Thank you. Ladies and gentlemen, on behalf of Heritage Foods Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.