Heritage Foods Ltd
NSE:HERITGFOOD
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Heritage Foods Ltd
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Ladies and gentlemen, good day, and welcome to the Heritage Foods Q2 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded.
I now like to hand the conference over to Mr. Anuj Sonpal. Thank you, and over to you, sir.
Thank you. Good evening, everyone, 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'd like to thank you all for participating in the company's earnings call for the second quarter and first half of the financial year 2023.
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.
Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We firstly have with us Mrs. N Brahmani, Executive Director; Dr. M. Sambasiva Rao, President; Mr. Srideep Kesavan, Chief Executive Officer; Mr. A. Prabhakara Naidu, Chief Financial Officer; Mr. J. Samba Murthy, Chief Operating Officer; Mr. Upendra Pandey, CEO of Heritage Nutrivet Limited; and Mr. Umakanta Barik, Company Secretary and Compliance Officer.
Now without any further delay, I request Mr. Rao to start with his opening remarks. Thank you. And over to you, sir.
Thank you, Anuj. Good evening to everyone joining us today on this call. We are pleased to welcome you all to this earnings call for the second quarter and first half of the financial year 2023. The financial results and earnings presentation have already been uploaded on the exchanges, and I hope you had a chance to look at them by now.
Now let me take you through the financial performance of quarter 2 of current financial year. Consistent with our performance in the last many quarters, we have delivered yet another quarter of strong growth in consolidated revenue of 21.8% year-on-year to INR 816 crores, driven by healthy double-digit volume growth and higher net sales realizations.
EBITDA was INR 40 crores as against INR 65 crores during the corresponding period in the previous year. This decline in margins was mainly due to inflationary pressures, where raw material costs increased by 19% year-on-year during the resulting into historically high milk procurement prices. Additionally, freight cost, energy cost and also delayed onset of flush season, further dampened earnings resulting in EBITDA margins of 4.8%.
However, EBITDA margins improved by 192 basis points versus quarter 1 of this current financial year. PAT was INR 19 crores in this quarter. If you take the first half year of the financial year 2023, our consolidated revenue grew by 24.2% year-on-year to INR 1,637 crores. EBITDA was INR 64 crores as compared to INR 118 crores during the first half of last year, EBITDA margin stood at 3.9%, while PAT is INR 26 crores. The company has a strong balance sheet with a debt equity ratio of 0 to 0.01x and the cash and bank balance of INR 78 crores as on September 2022.
Now moving on to the operational performance for the quarter. The average milk procurement during quarter 2 was 1.46 million liters per day as compared to 1.27 million liters during quarter 2 of the last financial year. Average milk sales during quarter 2 stood at 1.12 million liters per day compared to 1.03 million liters per day in the quarter 2 of last year. The sale of curd during the current quarter was at 326 tonnes per day compared to 280 tonnes per day during the last year same quarter, registering a growth of 16.9% year-on-year.
During the quarter, the value-added products' revenue surged by 28.9% year-on-year to INR 2,186 million (sic) [ crores ]. During quarter 2, value-added products contribution to overall revenue increased to 27% vis-a-vis 25% in the quarter 2 of last year. To insulate the company against this market volatilities, our strategy and focus has been to consistently increase the share of value-added products, which now contribute to 30% of overall sales at the end of first half year from a mere 3% in 2007.
The company aims to increase this share further to 40% in the coming years, which will, over a period of time, bring stability in our margin profile. The company launched a new product during this quarter called Gluco Shakti, which is an instant whey-based energy drink.
With this, now we open the floor for the question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Resha Mehta from GreenEdge Wealth.
So congrats on a good set of numbers. It was good to see maintaining the quarterly revenue run rate of INR 800 crores sequentially and also the volume growth that we've seen. So my first question is on the marketing bit, right? So if we look at Amul, right? So it sources almost 90% of its milk from one state and is still able to deliver around INR 60,000 crores of revenues. So this perhaps also implies that marketing, distribution is also very important in a B2C business.
So -- and if I see our ad revenues are around almost 0% as a percentage of net sales. So considering that, now we have an internal marketing team, can you just flesh out your marketing approach be it in terms of ATL, BTL, the trade promotions, et cetera? That's the first question.
Resha, would you like to -- if you have any additional question, you could ask them and if we could answer together.
Yes. Okay. Sure. And the second is on the rights issue, right? So it's a very small amount. It's INR 23 crores. So what really is the objective here? And thirdly, on this particular quarter, just some data points, like what was the average milk procurement price and the selling price? And just some directional sense on how we are seeing the flush season panning out? That's it from my side.
Thank you, Resha, for the question -- questions rather. So the first question on marketing, you're right. Absolutely that it is -- because we are engaged in a B2C business, and hence, marketing is a very important aspect of engaging with consumers. At this point in time, like we have been discussing in previous many calls, our priority is to improve the product availability in the hands of the consumers. And that's what we have been focusing on in the last several quarters and which is what is driving the aggressive growth that we are seeing in our value-added products.
And this means getting the product accessible to a consumer. And if you are living in any of the major metro cities, you would be able to find our products on most of the e-commerce channels, commerce channels. We are also expanding our footprint across modern trade retail in addition to the traditional approach of aggressively expanding distribution through our product distributors and Heritage distribution centers.
And we are reaching a stage where we have sufficient scale or saturation in each of the markets that we are now embarking on above-the-line advertising. And these -- there is no one-size-fits-all strategy for us. It depends on the market. It depends on the channel. It depends on the occasion. Currently, we have a couple of campaigns that are on, for example, on -- because it's festive period, we have a very highly engaging digital campaign that is going on in ghee -- for ghee, because this is a period when ghee sales go up.
We have also relaunched or restaged our products, milk -- basically, the milk variants in the city of Chennai, where we are having a campaign which engages with the consumers, both above the line as well as below the line. So we have these campaigns going on all the time, but the scaling up of it and the timing of it and the scale of it will depend on the level of saturation that we reach in every city.
Secondly -- we can give you first the milk procurement prices and...
[indiscernible] prices. Hello. The milk procured -- average milk procurement price for the Q2, INR 39.17.
Sale price.
Selling price -- milk selling price for the quarter on average, INR 50.87.
Of course, these are average of variants -- different variants in different markets. And only that of milk. So the net realization of milk plus value-added products all put together would be higher, much higher.
Sure. Sure. Understand.
The question that you have raised about flush season, usually, the flush season should be starting around now. In some of the procurement fields, we are actually seeing the beginning of this. In certain other fields, we expect the first season to begin any time around Diwali or post that. At this point in time, we do not see much reason to have any worry about this.
Got it. And what would be the average -- the price hike that you all would have taken cumulatively in the quarter?
If you're asking about the milk procurement prices...
Liquid milk, yes.
Yes. So liquid milk prices have gone up by 14%, right?
18%.
Procurement prices. 14% of...
Sir, I'm asking about the realization. So you all would have taken some price hikes, right, during the quarter?
So net realization inclusive of value-added products have gone up by about 10.4%.
Okay. Okay.
So you had milk prices that went up by about 14% and realization that went up by about 10.4%. So we have passed on -- so it's not a very linear equation. What we should understand is that milk contributes only about 63%, 64% of our business and there are many value-added products as well. So the price increases have been at different levels for different products. But overall, we have not been able to pass on all the increase of cost to the consumer. And that probably explains the small difference in terms of the EBITDA and PBT variance for the dairy business compared to same period last year.
Right. Lastly, on the rights issue?
Yes, I'll respond to you. Objective is stated already in the notification. It is to raise funds for the business growth. We internally assessed our requirement is around INR 20 crores, INR 25 crores for this season. So we propose to raise that capital through the rights issue.
Okay. And just a follow up on the marketing bit. So your -- essentially, if you could just call out that annually. Is there some number that you all look at that, "Okay, ATL plus BTL should be an X percentage of net sales," or something of that sort?
Of course, we work on a budget. The specific budget number, we are targeting anywhere between 1.5% -- 1% to 1.5% of our revenue is what we invest in marketing. But this is -- it's not like we are committed to spending these monies. It depends on the reality on the ground. At this point in time, we believe that we are getting strong traction because of consumer demand. And we are cautious of spending marketing money that doesn't have immediate returns. I hope I've been able to answer that.
Yes, sure. I have more questions. I'll come back in the queue.
The next question is from the line of Sameer Gupta from India Infoline.
Season and the milk cycle. So I heard your comments on the previous participant's question. My question is that there are a few headwinds here. There's the lumpy skin disease which is going on, unseasonal rains. We don't know, I mean, if it's over, if it's going to spill over to the next week. So in this context, do you expect it to be a normal flush season? And when I say normal, not just the delay, but in terms of milk production also?
So do you have any intuition that there is going to be some impact on milk production? And in that case, we have seen that 2, 3 years back when there were unseasonal rains, it did affect our flush season and we had a year of subpar margins. So your thoughts on that?
Sure. Thank you. So see, unseasonal rains and weather vagaries are here to stay. I think that we are living in a VUCA world. And going forward, more and more we'll see these climate change events happening. So that's something that makes life very unpredictable. But we are now learning to build the business in this unpredictable world.
Specifically in terms of what is happening at the procurement level, I'll ask Mr. Samba Murthy, the Chief Operating Officer, to comment on that.
Yes. Now this milk production generally compared to last year to this quarter, there is a drop in the milk production basically because of milk cycle. Every 4, 5 years, we will see this cycle actually for production increase and decrease. But apart from that, we could see that because of the rains also it has got affected. And third point is on -- because of the rains also -- because this month actually, October, to be a no flush actually, so that is got delayed.
So then next is on the LSD. LSD also impacted particularly a few states in North and West. But that is -- that LSD disease is now under control. And now we could see that there are no new cases reported and it is under control. So now we are looking at that production will increase post Diwali or next month onwards. November onwards, there is going to be good production. It may not be that of last year. But currently, there will be improvement in the production. That's what we could foresee.
One more thing is that last time around we -- when there were unseasonal rains, we saw prices of cattle feed going through the roof. So isn't that a worry? I mean production might not get affected, but it will increase the milk procurement prices as in the farmers' cost will increase and that in turn will increase the procurement prices. So is there some insight on this?
Yes. Mr. Upendra, handling our animal feed subsidiary will respond to this.
Feed prices is already on a higher side in last couple of months because of the lean season from critical raw material point of view. November onwards, we see probability of decline in the price because the key harvesting season will start post-Diwali. So with the availability of raw materials, we will see definitely the prices should go down on the feed front.
And that would anyway help in the...
Help in the procurement.
Reducing the cost of production. Okay.
And no impact of these rains that we are seeing in October in this expectation of the decline in prices in November?
It should not impact much, sir. Price should go down.
Fair enough. That's very helpful, sir. Second question, and that's a follow-up to the previous participant's question again. So right issue of INR 23 crores. I understand you're raising it to cover the growth perspective. But sir, just in the first half, we have generated around INR 130 crores, INR 135 crores of free cash flow. We hardly have any debt on the books. So I mean, I still don't get the rationale to do this. I mean, there is enough money on the balance sheet. Even after considering that INR 25 crores, INR 30 crores will be going towards some kind of growth, why do a rights issue? Is it just another way of giving a bonus? I mean, your thoughts?
Yes. Sameer, we have not spent much money in the last financial year, if you recall, during the COVID year. We have spent only INR 36 crores on the CapEx during the last financial year. This financial year, already we have incurred INR 30 crores on the CapEx. And we have taken close to INR 125 crores of the projects for current financial year itself under CapEx. So if we want to maintain the same balance sheet strength and we are supplementing from the internal accruals and reserves, and this will help to meet the entire growth requirements. While the bonus of the shares to the shareholders existing, this will give additional benefit of capital also for the business to grow.
So this year is going to be a significantly high CapEx year and high growth year. You are already seeing the growth coming in. And we are building all this for the Mission INR 6,000 crores as we have been explaining earlier. This will help in that way.
A follow up, sir. We could have easily taken a INR 20 crore debt even if it was just about the amount. So why dilute equity?
Yes. You were not the managing director, right, to take a decision whether you take debt or equity.
I understand, sir. But just...
It's a call of the Board -- it's a call of the Board which way to raise money. And it is perfectly correct.
The next question is from the line of Mayur Gathani from Ohm Portfolio.
I just wanted to check on the rights issue, but you seem to have answered it. I still don't understand the fact that why do we need to dilute. And it was such a small fund raise. I mean there is enough cash flow that you will generate this year, next year and going forward. It just wasn't needed. That's only my view that I had to share.
Yes, I have already answered. It's a considered decision to raise capital for growth.
How much CapEx are you going to involve yourself in this year, sir -- this year and next year?
Sorry?
How much is the CapEx plan for this year and next year?
It will be INR 100 crores to INR 125 crores per annum for the next 3 years.
Okay. And where is this CapEx being put in?
In all the levels. We have been investing in the village level for setting up milk collection infrastructure. In each village when we set up one unit for milk collection, it will costs about INR 1 lakh. And a cluster of villages, the milk will come to a milk chilling facility, depending on the capacity of the milk chilling facilities. Suppose we put a 10K milk chilling facility in a cluster. It will cost us anywhere between INR 60 to INR 70 lakhs. And a cluster -- a few chilling centers will require, again, processing, packing capacities in the nearest packing stations. And we have to invest in the products making also as we are growing rapidly in the value-added product segment, back-end production capacity, cold store and the logistics investments.
In addition to this, in the front-end marketing, we have to put chillers, freezes for the market requirements. End-to-end from villages to the consumer, all along the value chain, we have to make investment. That is a model we have been following since inception. This is an integrated company from procurement from the farmer delivering to the consumer. So this is a trend for many years, except during the COVID period where our investments have come down in 1 financial year, that was last year.
Right. So these chilling centers or clusters where you invest in, are these new markets that you are tapping? Or are these the old ones and you're revamping the existing chilling centers? What is it?
There will be all the 3. One, replacement CapEx will be there wherever required depending on the aging and inefficiency of the machinery, are in the not only chilling, even in the processing stations, packing areas. We continue to do every year replacement CapEx, not only for the machinery, even utilities like generators, boilers, ETPs, et cetera.
Secondly, in the existing geographies, wherever there is a milk available -- see, we have to increase our milk from current 14 lakh, 15 lakh liters per day to 28, 29 lakh liters per day in the next 5 years to achieve our growth ambition. So to get this milk, we have to put chilling centers in the existing milk sheds as well also new milk sheds, which we are identifying in the same states.
Very rarely we go beyond these states. But adjoining areas of the existing states -- we are procuring milk from 8 states now. In these 8 states, there are multiple milk sheds where we are present, where we are absent also. And peripheral, fringe areas of these states, we can still capture milk from the neighboring states. There -- for milk shed, state is not the boundary. Milk availability is a boundary. We may step in to one of the broader areas of the neighboring states. So it includes existing milk sheds, new milk sheds in the same states, in the adjoining states of the present areas and replacement CapEx.
So from a top end of INR 2,700 crores in FY '22, we are looking to achieve a INR 6,000 crore top line in the next 5 years' time?
Sorry, can you repeat?
From a top line of INR 2,700 crores in FY '22, are you guiding that by the next 5 years' time, you will be at INR 6,000 crores because of these investments that you're making?
Yes. That is our mission. That is what we are foreseeing.
The next question is from the line of Dhruvesh Sanghvi from Prospero Tree.
Just wanted to understand how this collection and procurement networks work. So let's say, we identify a milk shed. Usually, in your experience in the states or at the milk sheds where you are, are there more than 1 or 2 players already collecting milk or -- and how has been the competition like? Is it always with the cooperatives or other players, other private companies?
And why I'm asking and wanted to understand is, over the last 30, 40 years, we have, of course, heard cooperative movement really doing very well. But if -- the leagues of Amul or Aavin or respective federations really now are looking at the Stage 3. where they will try to procure from other areas where they have been not doing it. How does this shape up for private companies like ours or anybody else? Some of your thoughts would be helpful.
Yes, certainly. See, the milk in India, certain cooperatives are more than 70 years old, 65 years old, 60 years old. They have been collecting milk in a manner of organizing the farmers in the villages under the cooperative act. They form cooperative unions at the village level, district level, state level under the cooperative act of the respective states and the farmers who supply milk to them will be members of that unions and they have rights to try to elect their organization members, et cetera.
While this was the case going on for the last 6, 7 decades in India, during the 1992 economic reform, the sector was opened up for the private companies. All private companies are all 30 years old who are handling milk, except a few who are handling some products earlier. So in the 3 decades of privatization of the sector, close to 500 companies have come and 250, 300 companies are operating actively in the country now. So which means in all the villages, where milks available in India, more than one player is operating.
Like cooperatives were definitely there because they are 6 decades old, and they were functioning under the cooperative law. And private companies have come 30 years back, and these are functioning on of the Companies Act. And everybody has freedom and rights to go anywhere to collect milk in any village.
So by experience, if you see, more than 4 or 5 players would be seen in the same village where milk is available. Besides cooperative union collecting milk. So in certain villages, where we have not yet entered, they are the potential villages for us. And why a farmer choose cooperative via farmer choose to a particular private company depends on the price paid, services rendered, assistance given in multiple forms of inputs and extension services and the relationship one builds with the farmers.
And we have been increasing from 20,000 liters in the year 1, 1993 when Heritage started its operations to 15 lakh liters now operating 11,000-odd villages in 8 states. That is our spread. And we can further spread from 11,000 villages to another 3,000, 4,000 villages in the same state, also in the fringe areas of our neighboring states.
And why a farmer come to us. We have a package of practices. We pay at par with the market prices to the farmer. We extend all support for getting credit from the banks, getting nutritious feed from our subsidiary company delivered at home. And we also have massive veterinary services for improving the cattle productivity. We have artificial insemination for improving the breed. We have health care for well-being of the animal and also have mobile clinics on run 24 hours, 365 days extending veterinary services.
We also have programs to ensure our farmers from accidental insurance. We also have support programs for ensuring their cattle so that they get relief in case of any incidents. The massive extension and input services we extend, besides paying the price to the farmers at par with market, we also ensure 100% power linkage for the milk, we never declare a milk holiday for our farmers, all through the year, whatever quantity they give in all the seasons, we pick up the milk with our denied marketing opportunity.
We are ensuring highly transparent and fair practices in valuing the milk of the farmers by deploying electronic weighing machines and making digital payments online on the pay day, and this is one company which respects punctuality in payment, which was the problem dairy farmers were facing for many decades in India. We ensured on payday payment happens through the bank accounts of the farmers for our suppliers. These are the reasons for farmers to stay with us and new farmers to join us.
Right. Sir, but one more point on this context is considering that -- considering a lot of companies who are doing this, but we still saw the private companies having a very low growth versus the league of Amul or Mother Dairy, who are been growing at 15%, 20% in procurement. So why would that happen if all of this is good with all the private companies in general?
There's some voice breaking in between. We could hear you…
[ Ravi ], we couldn't hear you. Are you saying that despite all of this, private companies are growing slower than cooperatives?
Yes. Yes. That's the broad line question, yes.
If you take the [indiscernible], in the 1993, 100% market share was with cooperatives.
I'm sorry to interrupt, but I'm more talking from a 4, 5 year angle. I understand from a 1990 angle, of course, there is a great leap that has been happening. But I'm more talking from an angle of 3 to 5 years. If I see, Amul doubled in procurement as well as in sales. I think Mother Dairy has done a very similar job. In that context, I was asking over the last 3 to 5 years?
That number is not correct. Actually, in fact, the share of cooperatives to private 60-40 were 5 years ago. Now it is 50-50. And anyway now here, the main point is that -- which means that privates have grown faster than cooperators. But anyway, see, we are not answering for all private industry or private companies. We are talking about Heritage. And I think we'll stick to that. And we have demonstrated that we are growing faster than many of the people around us, including cooperatives.
[Operator Instructions] We move to the next question from the line of Rohit Suresh from Samatva Investments.
Sir, my first question was on the lumpy skin disease. There was an article recently stating that around 30 districts in Telangana were impacted by the disease. So I just wanted to know, has there been any impact on our procurement in the last 1, 1.5 months? And just to add on that, I just wanted to know the efficacy of the vaccines that are being provided and how good is the vaccine? So your thoughts on that.
This is Samba Murthy. So this is news, but on the ground the -- those may cases are not reported and there is no impact on our procurement or anybody's procurements. And of course, vaccination is going on by the state government and everybody -- all are doing the vaccinations. But there is no much impact from LSD. Whatever article has come 2, 3 days back is not -- so that much is not there -- impact is there in the [indiscernible] on the ground.
Got it. Sir, and my second question would be recently in Bombay I have seen some of your products in the modern retail outlets. I would like to know what has been the feedback? And what steps are we taking in terms of marketing and brand push in the metro cities for your products? And any new products that you are planning to introduce because right now, I've only seen milk shakes, any other products through the modern retail that you plan to introduce in Bombay or in other metro cities?
Yes. So thank you very much that you have seen our products. So we hope that you see more and more and you buy more and more. Wherever we have launched, we have a very strong positive response. In fact, I should say that the primary driving force of market expansion for Heritage has always been the superior product quality compared to any other brand that is there in the market. So this is something that we can say with a lot of confidence. Blankly, I can say this that you pick any dairy product Heritage would naturally be the best in any of the markets that we operate in.
But apart from that, and we don't just stay with this belief, but we also constantly continuously tested. We have a very strong market research team which is -- which constantly engages with consumers in terms of like taking feedback on any given month, we are doing at least 2 or 3 consumer product tests, blind tasting. All these things are continuous processes that we keep doing, and we keep doing continuous improvement of our products as well. So there is a continuous process which keeps us ahead of others in terms of the quality of the product.
Secondly, in terms of the pipeline, we have a very well-established process called Heritage innovation framework. We call it HIF for short internally. And it's a process that guides our innovation pipeline. At any point in time, we have more than close to 2 dozen innovations that we have in pipeline in various stages from ideation to product development to testing validation or launch phase. So we have a good strong pipeline and you will see many products coming and hitting the market month after month, quarter-on-quarter.
Got it. Sir, just one last question in terms of the milk procurement that we make. I just wanted to know how much what percentage would be buffalo milk?
It keeps changing. You should say that it is roughly around 25 to 30 percentage of our procured milk would be bulk, but it changes. It varies with season because as you would know that the cow flush season does not correspond to the Buffalo flush season. So there are times when buffalo milk goes up and commit comes down, cow milk goes up and buffalo milk comes down. But on an average, you can say in a year, it will be about 75%, 25% will be the ratio.
The next question is from the line of Aditya [ Khairnar ]from [indiscernible].
Hello, sir. Am I audible?
Yes, please go ahead.
Sir, as the raw material prices are continuously increasing and it increased by 19% again in the previous year. So it results into high milk procurement price. As well as there is lumpy skin disease problem as well as the problem of second wave of COVID-19. And in October and November, the milk availability is going to be increased due to the festive seasons. So what should be the strategy? And what should be your take on this kind of volatile market situation conditions?
So see, the input prices, there is inflationary trend that has been continuing post COVID and it's been happening for some time, not just for milk, for other inputs such as fuel and other -- fuel and logistics costs as well. See, our strategy has been very, very clear. And I think we are sticking to that one. In the markets where we are, we are going deeper so that we are able to get more share of the basket of the consumer, right? So which means that if we have end number of consumers, selling to a same consumer more number of products is always cheaper for us. I hope you understand the economics of that, right?
So we have -- we are a company with 18 product categories, right from milk, we go into a cultural product, culture products of curd, lassi, butter milk and all of that up to ice creams. The idea is to increase the share of wallet or share of basket of our consumer, and that is that we have been doing very successfully in the last many quarters, which is what is driving our growth.
Secondly, we are consciously trying to shift our revenue towards value-added products, and from roughly around 25.5% or 26%, now we have grown to about 30.5% in the first half. That is a swing of about 4.5 percentage value-added products swing we have been able to achieve in this year, this year so far. And that's a trend that we are continuing. And if you recall, our many past many quarters, we have been growing value-added products upwards of 25%, 26%. This quarter, again, we have grown at 28%. That helps us in getting as in value-added products naturally are -- have doubled the gross margins compared to milk. So that helps us weather the storm. That's the second thing.
Third thing is that we continuously look for efficiencies. For example, with volume growth, despite fuel and logistics costs going up, our costs on a revenue basis has come down. The only reason is that we have been able to load our trucks much more better, the loadability and the efficiencies have gone up, and it continues to go up. So that's just one aspect. In every section -- segment, we are looking at efficiency gains, and we are getting them as we are gaining the volumes. So we are looking at factors that we can control to tie over whatever comes.
The next question is from the line of [ Disha Sheth ] from [indiscernible].
Hello? Sir, am I audible?
Yes, please. Go ahead.
Sir, I wanted to ask what is the price -- average selling price of curd per liter?
It's INR 56.
Pardon, sir? I cannot hear you.
INR 56 per kg.
INR 56. And what was that last year?
INR 52.24 -- INR 52.
Okay. Okay. And sir, as the flush season is coming post Diwali and almost started, do you see the milk prices coming down or the demand is very high, we don't expect a lowering of procurement prices. What is your view on that, please?
See, we hope it -- yes, we cannot put things into our future. But we have been in business for the last 30 years. Every year, post Diwali prices come down because till Diwali, there is some amount of milk, which farmers use for their own internal consumption purposes, there is a village level consumption, this goes up. Post Diwali, and the entire mill it comes and hits the market. And it's a simple equation of supply and demand and prices come down. And we are hopeful that this will happen again. And right at this point in time, whatever we are seeing in the villages, we don't see anything to the contrary. Now the question is how much will it come down? Will it come down by INR 2, INR 12, and that is something that we'll have to wait and watch.
And sir, over long term, what is a margin guidance, like today, H1 with improvement in value added, we have reached around a 4% average H1 margin -- EBITDA margin, 4% to 5%. What is a short term to medium term, what do we guide for?
See, we have been speaking about to stay around an 8 percentage EBITDA margin. And as we have spoken in the previous quarters also. Currently, we are seeing an unprecedented situation where milk prices have gone up by 14%, and it was not just one time. It was sequentially month-on-month it kept on going up. And I spoke about 14% price increase and the 10% market realization improvement. That's a gap of about 4%. And but we have had internal efficiencies improvement across both. But nevertheless, all of this has resulted in our EBITDA going down by about 3%. So that is what we are seeing in our quarterly results. But we are hopeful and confident that with some more price hardening in the market side and a little bit of correction on the procurement side, we can come back to what we have been delivering.
And sir...
Excuse me. This is the operator. Ma'am, may we request you to please rejoin the queue for follow-up questions.
Yes. Just last question from my side.
There are more participants waiting in the queue.
Yes, just last question. Sir, how much does curd contribute to our total sales -- value-added sales? Hello?
Yes. Was the question how much does curd contribute within value-added products?
Yes, within, within. Yes.
Roughly around 75% is the contribution of curd to value-added products.
Okay. And you plan to keep it same going forward?
See, we are growing everything. But as maybe you would have recalled in President's comments in the opening statement, curd grew at 16%, value-added products grew at 28%. So it's our effort to keep -- all our value-added products are equally profitable. In fact, ice creams, drinkables, curd, sweets, they're all on similar profitability. So it doesn't matter which one grows fast. We are trying to grow all our value-added products at the same pace.
We have the next question from the line of Rohan Kamat from Finterest Capital.
I am audible, sir?
Yes, please. Yes, please go ahead.
Sir, just one question was -- right now was, our expansion is focusing only on the southern market, right? Our existing market will be currently much deeper. We will be not getting into the north and western market, right. Sir, I want to know about - means -- about that curd market, sir?
Your voice is...
This is operator. Mr. Kamath, may we request you to please use the handset mode instead of the speaker because we're unable to hear you clearly.
Yes, sir. I am audible, sir?
Yes.
Sir, just one question was that right now our expansion -- we're focusing only on the southern market, right? Our existing market will be currently much deeper. We would not be getting into the north and western markets. Sir, I want to know the [indiscernible], sir.
Yes. We'll be operating within the same states. We are not having sales spread over 11 states in India. We'll be operating in the same 11 states going deeper into other towns and adjoining suburbs. We are not planning to enter any new state.
Yes, sir. Okay. Sir, I want to know about lumpy skin. I have one question regarding the upcoming flush season which had been talked about by you and your [ cooperator ] also. What you are seeing in the market? Is this -- is it going around the lumpy skin disease, which is affecting a lot of cattle and [indiscernible]. So in that how -- and impacting on an upcoming flush season. Do you think that would be the part of -- because of drop which you will see in the yield?
See, the voice is not so clear, but I'll try to attempt whatever I understood. Lumpy skin disease, fortunately, has not spread into the states where we are operating significantly. It is a sporadic incident. This disease is more prevalent in west and northwest of the country. There also, as earlier clarified by my colleague, the disease is under control now. The governments have started vaccination and the impact is getting reduced. So we don't see significant impact going forward on the production and availability of the milk as the LSD seems to be subsiding.
The next question is from the line of Amit Doshi from Care PMS.
Sir, you mentioned about that INR 100 crores and INR 125 crores of CapEx this year and, in fact, for every -- probably the next 2 to 3 years. So with reference to this one particular year of INR 125 crores, in terms of volume, what kind of growth can we see? And if you can give a rough breakup between, say, value-added product and others, that would be helpful?
Yes. As you know, the investments we made this year in the infrastructure do not give growth during the current year. Most of the projects will be completed towards the end of the year. And they are aimed at providing back-end processing support for the next financial year. In any year, whatever year we do, our investments begin and some projects will be over in the midyear, some projects will go to the end of the year, et cetera. And it's a continuous activity throughout the year. So this year growth, we are trying to maintain above 20% in terms of revenues. In terms of volumes, it varies for different product in different rates like for example, one product may be growing at 35%, one may be growing at 50%, one maybe growing at 10%. They are variable sizes and variable markets. But this is a trend of CapEx proposed to maintain the momentum in terms of growth. Otherwise, we will not be able to raise this rate of growth, or achieved our mission in the years to come. That's the context, I was saying.
Okay. But primarily towards the value-added product.
Milk also included, right? See, when I want to make many value-added product, I have to invest for milk in the village for collection center, milk for the chilling center, milk for the processing stations. So the value-added product is one part of processing of the milk. So investment continues from end to end. And the decision of selling milk, selling milk as product is taken in the fag-end of the production cycle. So production requires from milk also. So -- but there will be specialized investments for a particular product after the milk processing castration is completed. It will continue to be on both milk and value-added products.
Okay. Okay. And sir, this 28% growth in value-added product that has come, it is in, again, value terms. So what's that roughly in volume terms, a rough estimation is...
As we just said, our lead product is curd, which is giving 16%, right?
So curd 16% growth is separate. The value-added 28% is what you've said, right?
Yes.
So value-added product -- what is the price contribution and what is the volume contribution?
Overall, value-added products in terms of volumes grew at 19% for the quarter. Curd grow at 16%. So some of the other products grew much faster. As you can imagine, we can do the arithmetic, 75 percentage contribution is from curd. So curd contribution is dipping within the value-added products because it is growing slower than the rest of the value-added product category. But curd is still growing at 16% compared to overall growth of 11%.
Okay. And sir, you have mentioned about this -- the price -- the input milk procurement prices of around 14%. In the presentation, there is a mention of increasing raw material cost of 19%. So what is that extra 5% of?
That's the cost of raw material [indiscernible], right, which includes the weighted average of liquid milk as well as SMP, skim milk powder that we use for our manufacturing.
The next question is from the line of Nitin Awasthi from InCred.
I have one question. Do you think that the value of the company today -- reflected today is the fair value? Or do you think that the company is undervalued on the brochures given the fact that it has a brand, that it has -- the distribution that it has, the business heritage that it has quite literally?
That is anyway a perceptional issue. I think we should leave it to market.
No, why I asked that question is if you believe that it's highly undervalued or it is not fairly valued, why would you tend to dilute it even further at this rate?
We try to stay away from the subject at the management side.
Okay, sir. So the next question was, are the competitors -- sorry, not competitors, cooperatives increasing the price of milk procurement to somehow subsidize or pass on some benefit to the farmers because of the loss that they have had due to LSD?
We don't have LSD impact in our operational areas as I earlier clarified.
Okay. So even the cooperatives have no function of -- are increasing the prices to subsidize to the farmer?
Sorry?
Even the cooperatives in your area are not increasing the prices to subsidize for the effect of LSD you're saying?
See, milk procurement price is quite dynamic. And whatever prices that we have seen increase in the first half has happened without lumpy skin disease in the areas that we operate. So that's -- I don't think that there's a direct correlation between that.
In some areas like Rajasthan, Gujarat and all, there has been slightly more impact of lumpy skin disease, but those are not our primary procurement areas. So you can't put a one-to-one relation between the 2. It is -- the procurement prices have gone up because of general inflationary affect because of farm prices have gone up. And I think you're seeing this not just in dairy. There are -- it's happening in other agri commodities as well, so.
The next question is from the line of Shirish Pardeshi from Centrum Broking.
Just 2 quick questions. Any word you can say how the Gujarat market -- the recent entry has fared well? Or how it is having the issues or maybe challenges? And second, just -- I didn't find any word on Novandie in the presentation. I don't know. I joined a little late. So maybe if you can help me with the update?
It was mentioned in the presentation, but we can request [indiscernible] to respond to that.
Sure. This is Brahmani here, Executive Director. We've seen some very good traction in Novandie. I think the biggest, best news is that the products have been very positively accepted by the consumers in terms of quantity as well as sales. The products are being manufactured in our own processing facility close to Mumbai. And we have also been able to successfully launch the product of curd as well as drinkable yogurt as well as natural yogurts, which are [indiscernible] not just Mumbai, but Hyderabad, Bangalore, Goa, parts of Gujarat since the beginning. And we've seen very good traction across channels, be it modern trade, e-commerce, general trade, quick commerce, et cetera.
And I'm very happy to be saying that as of last quarter, we are also listed with the most relevant national chains in the markets where we are operating. We intend to see about 50% to 60% growth quarter-on-quarter, and we are already seeing the traction this month. And we are, again, going deeper into these markets and grow. And you're seeing that going forward as well, a lot of the costs, especially overhead cost, logistics cost, et cetera, are getting absorbed because of growth in volumes.
Sir, on the liquid part...
Sorry, go ahead, Mr. Pardeshi.
Hello?
Yes, go ahead, please.
No. My second question was how we have -- how the Gujarat market, where we have made the recent entry for the liquid milk market...
Gujarat, we have not entered. I don't know where you got this.
So we were -planning to get soon. So have we already entered or we are planning to still...
No, we haven't gone to Gujarat and we --just to clarify, we are in 11 states at this point of time, which primarily is Maharashtra. That is the extent of -- that's the closest probably market to Gujarat. But we have no plans of Gujarat. We are in Delhi and Haryana in the north, AP, Telagana, Karnataka, Tamil Nadu and all of that.
Thank you. Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Anuj Sonpal for his closing comments. Over to you, sir.
Yes. Thank you, everyone, for joining us today for this earnings call of Heritage Foods Limited for the Q2 FY '23 Earnings. In case you have any further questions, clarifications, suggestions or feedback, please feel free to contact either Mr. Umakanta Barik, Company Secretary and Compliance Officer of Heritage Foods, or us at Valorem Advisors. Wish you all a happy Diwali in advance. Thank you, everyone.
Thank you, Anuj. Thank you all.
Thank you.
Thank you so much.
Thank you, Ms. Brahmani. Ladies and gentlemen, on behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.