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 Limited Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dr. M. Sambasiva Rao, President, Heritage Foods Limited. Thank you, and over to you.
Good evening to all of you. Thank you for participating in Heritage Foods quarter 3 earnings call, and we welcome all the participants to interact freely. Any queries, any suggestions, feedback, we'll be happy to take and respond to you. I now take quarter 3 stand-alone performance of Heritage Foods. Net turnover for quarter 3 reported is INR 662 crores against INR 610 crores of quarter 3 previous year. That is 8.5% up. We have also achieved INR 36 crores at EBITDA level against INR 45.5 crores in the previous year same quarter. At PBT level, it is INR 19.78 crores against INR 30 crores of last year in the dairy, at company level, INR 19 crores versus INR 30 crores of previous year's quarter 3. PAT level, it is INR 14.57 crores versus INR 19.58 crores quarter 3 last year. When we compare quarter 3 results with quarter 2 of this financial year '19/'20, the turnover remained flat at INR 666 crores versus INR 662 crores this year, so it's almost same. In terms of EBITDA, we have shown some recovery, INR 36 crores this year versus INR 27 crores quarter 2 of this year. So there is a significant improvement in terms of margins in the quarter 3 compared to quarter 2, aided by the -- by a couple of facts. We have increased sales realizations in the quarter 2 in different months, in different markets for various products. The full benefit of price hikes done in quarter 2 has been accrued during quarter 3 that has shown that improvement. Secondly, our surplus fat accumulated is also lower due to drop in procurement by about 6% in this quarter. And the realizations of fat products is also higher than quarter 2. So the fat side performance is better, and sales realizations are better, which has helped us to recover part of the margins in the quarter 3 compared to quarter 2 of this year. At PBT level last quarter, that is quarter 2, was INR 9 crores, and quarter 3 is INR 19.78 crores in dairy. At the stand-alone level, with -- including RE, it is INR 19.09 crores in this quarter versus INR 10.36 crores in the second quarter. PAT level is more or less same. We have INR 14.57 crores in quarter 3 versus INR 14.04 crores in quarter 2 because of the lower rate of tax adopted and certain adjustments. If you take 9 months performance at stand-alone HFL level, the net turnover achieved is INR 2,038 crores against INR 1,857 crores in the previous financial year for 9 months. It is about 10% growth at 9-month level. EBITDA, there is a degrowth of 19%. Last year, it was INR 140 crores for 9 months. This year, it is INR 114 crores. PBT level, de-growth was 31.8%. It was INR 90 crores last year versus INR 61 crores this year 9 months in dairy. At stand-alone company level, it was INR 94 crores last year 9 months versus INR 63 crores this year 9 months. At consolidated level for quarter 3, our total turnover is INR 672 crores against INR 619 crores in the previous year quarter 3. It's showing 9% growth. At EBITDA level, consolidated, INR 34 crores this year quarter 3 versus INR 46 crores last year quarter 3. At PBT level, it is INR 16.17 crores versus INR 30.59 crores in last year's quarter 3. Nine months consolidated data. Net turnover is INR 2,073 crores against INR 1,880 crores the last year, which is 10% growth. EBITDA level, it is INR 107 crores achieved in this period versus INR 144 crores of the previous year 9 months. At PBT level, it is INR 53.57 crores in the 9 months of current year versus INR 96.58 crores in the last year 9 months. The overall Q3, the margins have been lower than the last financial year 9 months and last quarter 3 to this quarter. But quarter 2 to quarter 3, there is a significant improvement because of the transfer of the additional costs to the consumers to some extent. If you see the actual numbers, procurement cost increased by 12.5% during this quarter compared to quarter 3 of last year. The sales realizations overall increased by 8.5% compared to last year's same quarter. So we still absorbed close to 4% of the increased cost of milk into the margins. Milk procurement volumes and sale volumes, if you see, current year's procurement volume in quarter 3 is 13.56 lakh liters per day versus 14.5 lakh liters of the last year same quarter. And sale volumes, it is 11.27 lakh liters of milk versus 11.09 lakh liters of milk in the last year quarter 3. Whereas, value-added products growth is 15% in this quarter compared to quarter 3 of last year. That is INR 155 crores revenue versus INR 135 crores revenue of the last year same quarter. The contribution of value-added products increased from 22% last year to 23.5% this year. We go to the next item of CapEx. We have so far incurred INR 43 crores during the 9 months of the current financial year versus INR 103 crores of CapEx incurred in the full year of this last financial year. Capacities wise, currently, we have 20 lakh liters per day chilling capacity, 25.7 lakh liters of processing capacity, 17.08 lakh liters per day milk packing capacity. In addition to this, we have small capacities in the leased premises and copackers, about 1 lakh liters outside our company's assets. Coming to the long-term debt position. We have INR 188 crores as on 31st December in Heritage Foods and about INR 16 crores in subsidiary company, Heritage Nutrivet Limited. These are the basic facts of the quarter and some comparison elements I have tried to give you with quarter 2 of this year and quarter 3 of last year, 9 months of this year to 9 months of last year. Overall, milk procurement prices are not stable. They are still increasing in this quarter also. Quarter 4 also, we find the increase happening in different regions of the country and increase is much higher in the northern states like Punjab, Rajasthan, Haryana, where we are procuring milk from the farmers. We have been able to pass on significant increased cost to consumers, and some more cost is being passed on in this quarter. We have already done some price corrections in the month of January to recover the increased cost from the sales side. That's about the current scenario. And we are still looking at milk powder, SMP prices, skim milk powder prices, which are rising further. If there is any decision of the government on the industry representation for import of SMP, there can be some change in the market scenario. Otherwise, situation continues to be quite volatile and spiraling prices at both procurement side and sales side. Thank you very much for your patient hearing and now look forward to interact with you on any feedback, queries, suggestions. Thank you.
[Operator Instructions] The first question is from the line of SivaKumar from Unifi Capital.
Sir, we see that the difference in the selling price and the procurement price was about INR 5.92 in Q2. And it was almost stable in Q3 also at INR 5.95. So can -- when we say -- when you say that you're taking further hikes, what can we realistically expect in Q4? What can be the difference between the procurement price and selling price? Will it stay at the current levels? Or will it actually expand?
It is actually narrowing down. We have taken price hike one more for the sales. So the gap between procurement price hike and sale price hike is being reduced. Thereby, our realizations will be better and margins should be better.
Okay. So actually, the INR 5.95 is coming down. That could hurt margins, right?
INR 5.95, where are you picking from?
INR 42.49 minus INR 36.54.
Okay, that is procurement price versus sale price?
That's right. So last year, it was around INR 6.4 in Q3. That has dropped to INR 5.95 this Q3.
Yes, we are increasing sales price. I'm not able to see where you are. But we are increasing sale price of milk and milk products once again, and we have increased. So the -- this is last year's. Last year is INR 38.86 sale price. And this year is INR 42.49. Right, are we on the same page?
Yes, sir. Very much. Just looking at the difference between the selling price and the procurement pricing in each quarter. So that has actually kind of compressed in Q2 and Q3, which has hurt our margins. Sir, so I was waiting for your comments on that as to whether the price hikes which you have taken will again expand that difference?
The difference will come down between the procurement price and sales price. Are you comparing sale versus sale or procurement versus sales?
I'm comparing sale versus procurement.
INR 36 versus INR 42, he's...
We should not compare like that actually with the procurement price.
See, the procurement price increased by INR 4.07, quarter 3 to quarter 3. Sale price increased by INR 3.63.
Okay. Right.
There is a gap of INR 0.44 we couldn't recover.
So you're hopeful of recovering that in Q4?
Yes, that's right, by increasing the sale price.
Got it. Sir, in the -- any comments on the slowdown in value-added product growth? For 2 consecutive quarters, we see year-on-year growth coming down to about 15%.
Yes, this year was specifically climate oriented. If you recall, our rainfall season got extended to October. So because of the heavy rainfall, the value-added product offtakes have come down, but they are not the rainy season products, and the consumption comes down. And the winter season also, the temperatures have -- I mean, if -- you must have read, in Delhi area, the 100 years record was broken in terms of temperatures -- lower temperatures. So the winter was severe, and rainy season was extended and rainy season was also very high. So this seasonal impact was there in Q2 and Q3. There was no other factor that has created this lower state of growth. Now we are seeing already the temperatures have gone up. And again, weather forecast is showing the temperatures would be higher this year compared to last year in our -- Hyderabad already, it's 4 degrees higher than the average last year's temperatures. So the weather pattern is impacting the sale trends quarter-to-quarter.
Sir, one last question on the milk cycle, per se. You have been an observer of this entire industry for a long time. We see the procurement price increase -- this adverse increase as a one-off phenomenon. But do you think this can extend for a long period of time? Or do you think it's an aberration, and it should correct itself coming forward -- going forward?
Usually, these aberrations were felt once in 4, 5 years in the cycle. But this year, aberration is a bit deeper than earlier aberrations. The production fall, price hike, both are on exception, highly exceptional type. We don't see this kind of exceptions continuing. And in the earlier scenarios when such exceptions happened, either glut scenario or scarcity scenario, the government used to treat the Exim policy, export/import policy, either to encourage or discourage. Like, for example, last year, there was a heavy inflow of milk, glut of milk where many places farmers agitated. Milk -- cow milk prices particularly have fallen to INR 20, INR 21, even below INR 20 for a few days in states like Maharashtra. Then Maharashtra government, Gujarat government, central government intervened and provided support price locally and incentive for exports to the extent of 20% export incentive was offered last year. So the situation got corrected. Rather, more stocks went out of country, which led to very less opening stocks for the current year. So the last year's intervention is now proving to be counterproductive for the current year. So current year, again, representations are made. Discussions were held at various levels in the government and in the industry either to allow short-term imports or not. But finality has not come yet. If suppose a decision is taken to allow imports at a reduced duty or 0 duty, prices will pull up, and the demand for milk also will be depressed. So it brings normalcy faster. If it is not done, the situation may continue for a period of 1 or 2 quarters more like this. So we have to see the interventions of the government through Exim policy.
Right. And this situation, is it leading to a consolidation among the industry wherein the marginal players are finding it difficult to actually procure milk and supply?
That is related to the local loose milk suppliers and small chilling centers, bulk cooler owners only. At company's level, this may not have any impact.
The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.
Sir, firstly, just want to ask up in terms of the liquid procurement side of it, the procurement has seen a decline of almost about 6%. I think until now, we were at least seeing a procurement increase in the last few quarters. Any reason for this drop in procurement?
Yes. Thank you, Prashant. This is a point which I was trying to tell. There is overall drop in the production of milk in many, many areas attributed to the seasonal issues of the last season. Extended monsoon rains into October and heavy rainfall in certain states led to washing out of fodder crops, and fodder availability was low. And in addition to that, the feed prices have gone up by almost 30% to 35%. The contribution of feed also is an issue in terms of milk production. The green fodder was damaged due to rains. The feed prices have gone up, discouraging farmers to spend more money on the feed. And the lactation cycle also got shifted because of these rains. There was a delay in lactation cycle. And the production cycle got altered. So we have not felt the arrival of flush yet. And many areas, the -- even the state cooperatives, which used to get more milk, are now finding it difficult to get milk. I have seen today in the newspapers, our local state minister has asked for a review why they are getting lesser milk this year compared to last year? So it's not only us, many players in these geographies. I think except in the state of Gujarat, there is a overall drop in the production of milk. Thereby, the prices have gone up, still the procurement levels are not increasing.
Okay. Okay. So when you're talking about that -- your production is down, even talking about even north where you were -- and in the case of Maharashtra also where you were looking...
Yes. Maharashtra is the lowest in terms of production output this year. And the maximum price hike we have seen in Maharashtra, Punjab, Rajastan. These are the states where the -- Maharashtra price is INR 38 per liter of cow milk, procurement milk, which was INR 24, INR 23 last year in the same time. That kind of increase is there in prices because production has fallen drastically. And there is a severe competition from the powder plant companies who can pay more because their realizations are record high. Now they are realizing INR 320 a kg for milk powder, which was INR 180 to INR 190 last year same time. So the powder plants are absorbing more milk at a higher price. That was one of the reasons for drop in the procurement for liquid milk companies like us.
And the situation is changing right now, sir? Because like you said, there's been a delay in flush. Any of these actions you just told about...
Yes. We have seen some improvement in Andhra Pradesh. The procurement is increasing in Andhra Pradesh now because of -- this is all a buffalo milk region. Normally, the increase should have happened in November. But we see now increases happening in December end and January month. January, there is a good improvement in procurement in AP part of it. But Tamil Nadu, Karnataka, we have not seen anything. Maharashtra, of course, is quite low. This milk is increasing in Punjab, too.
So north, you're probably seeing an improvement but not seeing it up in the other regions, actually.
Yes. AP, Gujarat, Punjab, we are now seeing incremental volume increase week after week.
Okay, okay. So in likelihood, if this continues, the procurement -- sir, just wanted to ask you. If you look at it from the last 3, 4 quarters perspective, procurement targets have been way off versus whatever expectations are. Are we making any changes to our procurement targets going forward?
We are basically looking at balancing the sales volumes and procurement volumes. If we procure more milk and convert into powder, we're also saddled with the butter, which is not helpful to us. So because of the balancing of procurement sales, our impact -- adverse impact on the margins through butter sale is contained, so we're not changing anything. As much as we require, we are procuring. We are not procuring more than business requirements.
And last question from my end. One is, on the margin front, what's your outlook incrementally? And what was the last price hike which you took in milk, if you can just highlight that? That's about it from me.
In terms of margins, yes, as I explained earlier, we may recover another 1% at the -- 2% we may recover for the quarter 4. And overall year, we may reach around 6% at EBITDA level versus 7.3% last year. And price hike-wise, we have taken, I will request Mr. Murthy, our Dairy vertical head, to respond. He has more facts on hand on the price hikes.
We have increased the sales prices of milk and curd and other products from -- in January month onwards and 31st onwards. And we're also increasing in Karnataka from tomorrow onwards, from 1st onwards. Like that, all the parts of market areas, we have increased it now. And...
What's the quantum, sir?
What is that?
What is the quantum of price increase?
Yes, price is approximately around INR 2 per liter. And the volume will be around 13 lakh liters total.
Sorry, actually you have increased it to 13 lakh liter volumes?
Yes.
The next question is from the line of Aniruddha Joshi from ICICI Securities.
Sir, just one question. So do you see this problem -- is it structural and probably it may repeat? The lactation issue, et cetera, may repeat on a regular basis now because we had heard the similar comments since past 2 years. So do you see it being more of a structural issue?
It is an issue but rectifiable by using Exim policy. There is a remedial route available if that policy is used at right time for season depending on the year. Like one year, last year, government has used the Exim policy by offering exports incentive. But that rectified the last year's scenario. Here, same Exim policy can be used or foreign trade policy, it's called now, by importing at lower duty or 0 duty. So this balances. It's a country where the demand is increasing, production cycles are getting affected by the weather patterns. So to nullify the weather impact, we have to use the foreign trade policy for either export or import so instead of having it...
Yes. Sir, second question, sorry. So with higher palm oil prices as well as higher SMP prices, so do you see any impact on the ice cream business in Q4 because the raw material prices have gone up maximum for the ice cream business?
Yes. As far as Heritage is concerned, ice cream is a smaller component of overall revenue. It could be less than 0.5%. So it will not have much impact on the net turnovers or margins. But to address the increased raw material costs, we are all planning now to increase sale prices by close to 15% on the ice cream products from this week. And overall, industry is also, I think, moving towards increasing the sale prices to absorb these increased costs.
Okay. Sir, just last question from my side. If I had to look at all the price hikes which we have taken in this year, so there was a 5% to 6% price hike taken post the central elections. Then in January, you have taken another round of 5% to 6% price hike. And we are looking at 15-odd percent price hike now in ice creams. So is it correct?
Yes, correct.
[Operator Instructions] The next question is from the line of Sameer Gupta from India Infoline.
I joined a little late, so there might be a possibility that I'm repeating something or missed up -- might have missed something. Sir, if I look at the breakup of sales that you have given, the volume sales of milk, liquid milk, has increased by around 1.5%. And the liquid milk price that has increased is around 9%. So this translates to around a 10%-ish increase in your liquid milk sales. And your branded value products has increased by around 16%, but your total sales is only 9%. So what is it that has declined in your portfolio?
Fat products, butter, cream, ghee.
And what would be the reason for that, sir?
That is the reduction in the procurement of milk do not have the excess surplus fat. See what happens is, when we buy milk, we buy milk from farmers with a high fat content. Let us assume 7% is the fat content in the milk from buffalo. When we sell milk, some milk is sold at 3% fat called toned milk. Some milk is sold at 4.5% fat, standardized milk. Some milk is sold at double toned milk at 2.5% -- 1.5% fat. Some milk is sold at slim milk with 0 fat. So in all the milk variants, we accumulate the surplus butter. The surplus butter quantity is lower this year and whatever margins or sales changes are because of this.
And one more question, sir. So milk procurement is down 6.5%. And there is a liquid milk sales of 1.5%. So you've probably used SMP from your stocks to manage this kind of a growth. Would that understanding be correct, sir?
Perfect.
The next question is from the line of Sagarika Mukherjee from Elara Capital.
Sir, if I got it right, you said that your liquid milk procurement realizations have gone up by 2% sequentially from third quarter, which would mean somewhere like around INR 44.5. Is that number right from INR 42.49?
INR 42.49 is high. It's not INR 42.49.
Selling price.
Selling price.
Milk sale price.
Yes, in quarter 2 alone. It is -- yes, it's a cumulative increase. We have been increasing from the quarter 1 itself in the month of May since we started. Cumulative increase is INR 42.49.
Right. Which is, in your third quarter, the realization of your liquid milk sales, right?
Yes, correct.
Yes, correct.
And sir from that, you have further increased INR 2 in January?
INR 2 means our realization will be a little lower. Yes, average if I take, INR 2.
Right. And sir, your average procurement price in third quarter was INR 36.5. Could you tell me what was the procurement price range in January? Or what do you see it to be around till, I think, the next flush season, which will again start in August, September?
Yes, we will have to see. I mean, as I was explaining to you, this price line will depend on the import of milk -- milk powder. If no import happens, there may be another spell of increase of procurement prices. If the import happens, there may be some stability or cool-off. Next is, the availability of milk is also improving in certain states. That might also play a role in the price movement in the coming months. How long we can sustain the growth, whether, again, the higher temperatures come -- in the coming months may impact to the production availability, so we have to see month-on-month and evaluate very carefully as this year being a very volatile year.
Right, and many different factors. But then sir, from the guidance that you're giving, let's say, fourth quarter, we were doing slightly better margins. And then for the year, we'll probably do 6 -- the improvement in the margins. So just wanted to understand then your difference or the gross spread between your liquid milk sales and procurement, which is currently standing at INR 6 a liter, the difference between the realization and procurement. Does that improve in the fourth quarter? Like from INR 36.5 procurement price, what is the run rate in January, let's say?
My earlier response was for a longer span of time, you asked, up to August or so. But for this quarter, we have almost come -- one month is over and we're 2 months. And we have done the price hikes in the last one week, and some more will happen tomorrow, day after. So we are hoping to recover another INR 0.5, INR 1 in the coming couple of months, hoping the procurement side prices remain stable.
So somewhere around INR 37 is where your procurement price is now?
Yes, right.
Somewhere around that. All right.
[Operator Instructions] The next question is from the line of [ Arun Vaid ] from Bank of Baroda.
As per news reports, Amul has opposed this plan of lowering the duty on SMP. So do you think this will be accepted by the government in that case?
See, there are views and counterviews on this. The overall -- Government of India usually gets guidance from NDDB, which is a sectoral body. NDDB deals with national dairy development. Whereas, Amul, Nandini, Aavin, Vijaya, these are all the brands of the state-run states. Where they have cooperatives for each state, each state has a brand. Every brand has its own view. The cooperatives view is one, particularly led by Amul because it's the largest volume player in the country. They have given a view. And there are private companies which are handling almost equal quantity of milk in the country. If NDDB takes a view that cooperatives are handling 50% of the volume and private companies are handling 50% in the organized sector, and both are presenting different views, different views are based on different rationale. For example, when Government of Gujarat offered INR 50 per kg of SMP exported last year, it was only restricted to Amul. It was not given to private companies or any other body. So you are not on a level playing field between a cooperative like Amul and private companies like us. So the views of different companies come from their own workings, their own objectives. So they have -- whenever they want, they go to -- like, you take Nandini in Karnataka, Government of Karnataka is offering INR 6 per liter support price to the farmers. So when a private company purchases milk in Karnataka, we have to pay farmer X price. When a cooperative like Nandini procures, they pay X minus INR 6. The INR 6 come from the state government to the farmer. So they will say don't increase. Don't import the powder because they are getting milk with the support of the state government or Gujarat, Amul is getting support of state government for exporting their surplus stocks. So in this scenario, National Dairy Development Board will evaluate both the views. One argument is based on the government support, which they get from time to time. Another argument is based on their own effort. We are to take funds from the bank to meet the cost, and we are to find our solutions. So NDDB is expected to take a balanced view, rational view to meet the consumers' demand and the nation's interests. So let us see what guidance they give to Government of India and what Government of India will do. This is not first time. This happened several times in the last 2 decades. Divergent views are presented to the government. Government takes a view on assessing the situation.
Sir, in case government accepts their view, then in that case, do you think the procurement prices will go up much more from here, from the INR 37-odd right now?
Most likely, both consumer prices and procurement prices will increase hand-in-hand.
So it will be pass-through if that happens?
Yes, may not be fully -- like, whatever we also do, when procurement prices go up, we won't be passing on the increased cost very next day. There's a lag time to look at the end of the month, end of the week, payment cycles, et cetera. Secondly, when procurement price goes up by INR 4 a liter, we won't be passing on entire INR 4 in one go. We will take INR 2 this month and INR 2 next month. There's a time lag. There is a spread. So during that period, price usually comes under pressure for a while. And again, restored after 2, 3 months of time. So these kind of things are happening. And we are very cautious not to burden consumer on one go, like a INR 40 milk, we can't sell at INR 45 in one go. We'll be spreading it. So we have our own method of passing on in a reasonable way to the consumers, which we have been doing last 9 months.
The next question is from the line of Nitesh Jain from Birla Mutual Fund.
This is Nitesh over here. Sir -- am I audible please?
Yes, Nitesh. Please go ahead.
Yes. Sir, couple -- 2 questions from my side. Number one is the example which you gave of the Nandini dairy in Karnataka that the government is subsidizing them. I guess a similar thing is there in your core market also, like in Andhra Pradesh, the state government is subsidizing some of the dairy cooperatives. So basically, my question is like, how big is that pie in the overall -- I mean, Andhra market? Is it significant, say, whatever the market is? I mean is it 5%, 10% of the market? Or it's like very miniscule?
See Andhra Pradesh milk procurement in a normal period is around 60 lakh liters per day. From the cooperative -- state cooperative federation contribution and that was around 3 lakh liters.
Okay. So this -- basically this 3 lakh liters is being subsidized by the government?
Yes, that is the volume of cooperative.
Yes. And the balance 55 lakh remains on a level playing field, essentially?
Yes. Not all. There are some other cooperatives called Visakha cooperative, Vijaya cooperative, Vijayawada, Sangam Dairy, then Balaji Dairy, et cetera. There are a number of other cooperatives. They are not cooperatives as of now. They started as cooperatives when the movement started. During the course of time, they moved out of Cooperative Act and got into producer companies, and they are now functioning under Companies Act without government nominating directors, without government appointing managing directors. These are done by the companies themselves. They are not yet classified as cooperatives. So they will have around 13 lakh, 12 lakh liters of milk. And Cooperative Federation, which is under the state -- AP state federation is around 3 lakh liters. So 13 lakh plus 3 lakh will be their share. The rest of it is private companies in different names.
Okay, got it. And sir, secondly, basically, I heard the entire call and looks like that this year's seasonal problem is more acute compared to, say, past cycles. So do you think that, given the situation, assuming nothing happens on the Exim side, like no change in duty structure and all that, you think that this is going to be a long-lasting thing? Or you still believe that, 6 months down the line, the problem gets solved and the milk product -- basically, this question is all about milk production outlook for the country as a whole. What do you think?
If you take the lactation cycles in India, typically, in the month of October is cows and buffaloes calving, and milking starts in October. It will be increasing day by day till January. October, November, December, January are the months where we get the best of the volumes. And slowly, the volumes start declining from February, March. And they decline severely in the summer, May, June, July months, August month. So again, from September, October, new lactation cycle begins, and milk flow increases. It's a cycle of one year, 6 months of good year -- 6 months of good milk, 6 months of low milk. That is how it behaves. So if situation continues to be like this, the pressure continues till August, September months. And October is the natural beginning of the next lactation cycle where things should be normal. So we have a 9-month -- 8-month journey to meet the next flush, which begins in October.
Yes. So basically, the thing is, we are right there in the winter. Like, I mean, the winter is not over, and the situation is like that the milk price has gone up by 30%, even in the winter itself. Then going by that, maybe in some peak summer months, there could be like crazy increase in prices or possibility of that, right?
That is what we -- all industry represented through India Dairy -- Indian Dairy Association of all the companies. And CII also approached government, and ice cream manufacturers approached. Biscuits and chocolates, I think, they approached. Every manufacturer approached government to review this current situation and take a view on the imports, which maybe this -- all must be busy in the budget exercise. Let us hope, during the budget, after the budget, this gets attention and some resolution.
Sure, sure. And then lastly, can you comment on the SMP inventory in -- I mean, with the local dairy companies or some of the cooperatives? How is it? Is it heavy? Or is it, I mean, at the average level, or it's already been stored at a very high level, would you have any idea?
It is, of course -- we don't have authentic numbers to...
Yes, yes. Just the -- your, I mean, understanding of it.
Pulse of the market is, it's on the lower side. The inventory on the lower side, which normally, by this time of the year, it should be on the higher side. But this year, it is on the lower side. Because we started here with almost nil stocks because of the last year's export incentive policy, this year started on a low note and continues to be lower. And even many of them are not offering for sale bigger volumes because they don't have it.
The next question is from the line of [ Rupen Masalia from RN Associates ].
I have a couple of questions. One is in the status of a proposed JV for yogurt, like at what stage we are in? Like initially, I think we were expecting to start commercial production from Q1 of FY '21. So just wanted update on that?
Yes, this is Brahmani here. I'll comment on that. So basically, we're looking at a slight delay in the launch of the product primarily because of the aggressive monsoons that happened in Maharashtra, specifically in the Mumbai area. So the construction of the project was a little delayed because of that. But we are confident we'll be able to launch the product in Q1 of next financial year. Around June, July is the time that we're looking at, which coincides with the summer season, the peak season in the Maharashtra area and surrounding markets. And now construction is going on in very good progress. The critical team is in place. We have a general manager also for the project. The go-to-market strategy is under finalization. So we're looking forward to the launch anywhere in the first quarter of the next financial year.
Okay, okay. And then currently, curd accounts for lion's share of value-added dairy products revenue, that is approximately 80%. So probably in next couple of years, probably in 3 years time, where do you see the overall mix for value-added dairy products?
As you probably know, curd definitely contributes towards major part, and we've seen growth year-on-year, healthy growth. And we're also seeing growth in other categories of value-added products, such as flavored milk, paneer, other fermented products, such as lassi, butter milk, et cetera. And there is a huge opportunity in ice cream as well and frozen desserts. So definitely, curd will be a major share because it's a quintessential Indian product. It's a big part of our culture. And moving from unorganized to organized is something that we're seeing happening rapidly. So it will continue to be anywhere between 75% to 80% of our value-added product portfolio. However, what we're seeing is that value-added product itself as revenue contribution is increasing significantly.
Okay, okay. And last question. Any update on the stake of FRL? I think we currently hold approximately 3.75% stake in Future Retail, and the lock-in is going to come to an end by the end of this fiscal. So any decision at the Board level?
The Board is considering several options. You're right. We are close to the expiry of the lock-in period. There are several options, obviously, on the table. And I think a lot of it also depends on the outcomes of the upcoming budget session. So we are really waiting for that to happen as well before the Board decides on an option. And we'll communicate the same as soon as something much clearer.
The next question is from the line of Nitin Gosar from Invesco Mutual Fund.
Just taking over from the previous participant's question on the Future Retail stake. I believe the intent was to sell it off, right? There is no deviation from that?
At this point, we're not able to comment on it. Again, the Board needs to decide. There are several options. There are options of either what you mentioned or we might think at that point in time that it might be more beneficial to still stay on. It depends on the price also. So the options are still on the table. And I think a more concrete decision will be taken by the Board in the upcoming quarters.
Okay. And our future CapEx program, I think it's INR 500 crore kind of CapEx program that you highlighted, and funding was supposed to happen from internal accruals largely. Would this stake sale help us in funding those CapEx programs?
So the CapEx vision that we had going forward was about INR 100-odd crores every year. And this will continue to be there irrespective of stake sale or not. Our internal accruals, along with our debt component, will be able to comfortably fund this at the margins that we're looking at.
Okay. One more question on the macro level. Last time, previous year, when we were going through a flush season, the outlook was that there are a lot of local players who pop up during the flush season because they happen to procure at a lower price point and they can sell it in the market. What happens during this kind of time period when the flush season all of a sudden turns up into a deficit kind of season? How does local market behave? What happens to the organized players? Can you please throw some light on this, sir?
Usually, during this kind of scenario, they abandon their activities temporarily and wait for the change of the season for next year. And the consumers who are depending on them will turn to the organized brands.
And does the organized brand act more maturely in terms of ensuring the price arbitrage between the local player and the branded player stays so that consumer, once he gets recruited to the branded player, doesn't go away very easily?
Sorry, could you repeat?
I was just trying to understand. These are kind of opportunities which help you to recruit more consumer to the brand. So does organized guys behave in more maturely in terms of ensuring that the price gap between the local guys versus the branded guys stays so that the consumer, once recruited with a branded player, doesn't immediately move towards the local guy whenever there is a flush season?
Now the organized people are not in a position to look at them. We are looking at our own procurement price and sale price realization because procurement prices have been spiraling. So -- and unorganized loose milk suppliers vanish. So there's no need to compare with them. And consumers have no choice today. That is why, in spite of this kind of rash increase, they have continued to buy. This is very unheard of kind of price hike. In 9 months, we are taking 10% hike, close to 10%, 11% hike in 9 months' time, not even 9 months, maybe 8 months. So that kind of increase happened during this year because of the raw milk price and the milk powder price. So we are struggling to cope up with our own procurement costs and satisfy both farmer and consumer. Unorganized player is not under the radar even now.
Okay, okay. And when was the last time when such a steep price hike was taken by the sector?
This is the first time at least in last 2 decades.
So this is kind of unprecedented situation that we are into right now?
Yes, correct.
The next question is from the line of Nitesh Jain from Birla Mutual Fund.
Sorry for coming back again. Just one last thing. Can you explain some -- yes, sir, some more details on the...
Please go ahead. No problem.
Yes. Am I audible, sir?
Got disconnected? Operator may check.
Sir, Nitesh is connected.
Am I audible now? Hello.
Yes, we are able to hear you. Please go ahead.
Okay. Great. Sir, one last thing is, this INR 100 crore CapEx every year, which you do, can you give some more details like what exactly you're spending on, what kind of CapEx program you are running every year?
Usually CapEx has 4 components. One component is village-level milk collection center infrastructure. For every village, we spend approximately INR 1 lakh -- INR 90,000 to INR 1 lakh to give milk to analyzer, range scale, cans, et cetera, for village. And for -- second investment happens in the chilling centers. The chilling centers are 3 types: chilling centers, bulk coolers, mini-chilling centers, rapid milk centers -- chilling centers, like that there are -- depending on the size and technology, we have different types of chilling facilities. Typically, a 10,000-liter chilling center may cost anywhere between INR 30 lakhs to INR 40 lakhs investment. So we have to create 1 lakh, 2 lakh liters of capacity at the chilling level year-on-year to cope up with our asking rate for the next year. And the third place where money is spent is the packing stations where milk is processed, packed into different types, like toned milk, double-toned milk, full cream milk, standardized milk, and products that are also manufactured like curd or flavored milk or paneer, et cetera. So this infrastructure gets expanded in the existing plant or in the new plants, where we are creating additional capacity. This is capacity expansion and cold storage facilities in the processing and packing stations. And fourth one is replacement CapEx. The -- every year, some equipment need to be replaced, generators, transformers, pasteurizers, chillers, packing machines of the yesteryears, which are getting old and inefficient, taking more maintenance cost and downtimes. They'll be replaced year-on-year. Some CapEx is earmarked for replacement CapEx. These are the 4 areas where money is spent. And beyond this, we have to provide certain infrastructure in the front... [Technical Difficulty]
Ladies and gentlemen, the line for the management is disconnected. Please stay connected while we reconnect them back. Ladies and gentlemen, the line for the management is reconnected. You may go ahead, sir.
Sorry, we got disconnected somewhere.
Yes, we were discussing the CapEx, which you explained.
Yes. So I hope you've got the feel of it, village level, chilling center level, market level and the back end.
Sure, sir. I just missed one point, is, how much it costs for 10,000 tonnes of chilling...
10,000 liters of chilling center, it depends on location. It's around INR 30 lakhs. You can take average.
Okay. And sir lastly, on the milk selling side. What is the current geographic, I mean, mix for us, like how much is Andhra, Tamil Nadu and Karnataka broadly?
We have around 30% from Andhra and Telangana each. And about 12% -- 11%, 12% from Karnataka, Tamil Nadu each. Then rest is split between Maharashtra, Punjab, Haryana, Delhi, Orissa, Kerala, smaller volumes. They account for another -- balance of it. The 60% plus 20% -- 85%, another 15%, we can group all other states.
Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Dr. M. Sambasiva Rao for closing comments.
Thank you very much for very active interest and participation in our company's developments. And we look forward to be in touch with you during the course of the time and will come back with the annual results later. Thank you very much. Thank you, all.
Thank you. 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. .