Heritage Foods Ltd
NSE:HERITGFOOD
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Heritage Foods Ltd
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Ladies and gentlemen, good day, and welcome to Heritage Foods Limited Q3 FY '21 Earnings Conference Call.[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dr. M. Sambasiva Rao from Heritage Foods Limited.Thank you, and over to you, Mr. Rao.
Good evening, all the participants. Thank you for joining this call in spite of the preoccupation with the national budget today. I start with quarter 3 stand-alone results, which are anyway uploaded already on our website and published.The net turnover, we have achieved INR 588 crores, which is 11% lower than last financial year's quarter 3, which was INR 662 crores. In terms of EBITDA, we have achieved INR 76 crores against INR 36 crores of the last year's same period. Profit before taxes, core business level, INR 61 crores versus INR 19 crores of last year. PAT of core business is INR 46 crores versus INR 15 crores of last year.Now I take up 9 months' performance of stand-alone HFL. Net turnover is INR 1,801 crores versus INR 2,038 crores of the last year's 9 months. EBITDA, INR 215 crores during the current year versus INR 114 crores of the previous year 9 months. Core business PBT, INR 168 crores versus INR 63 crores of last year. PAT, INR 125 crores at core business level versus INR 50 crores last year.Now I would like to explain quarter 3 performance versus preceding quarter, that is quarter 2, on a stand-alone basis. Net turnover is almost same, INR 588 crores versus INR 593 crores is a marginal drop. EBITDA, INR 76 crores versus INR 86 crores of the quarter 2. PBT core business, INR 61 crores versus INR 71 crores. PAT core business, INR 46 crores versus INR 52 crores of quarter 2.Now I would like to compare -- I would like to present quarter 3 consolidated level, including Heritage Foods, both the divisions of dairy, renewable energy, and Heritage Nutrivet Limited, which is a 100% subsidiary, conducting feed business, and Heritage Farmers Welfare Trust where activities are almost negligible.Net turnover for quarter 3 at consolidated level is INR 605 crores, a 10% drop compared to previous year same quarter, INR 672 crores. EBITDA, INR 78 crores during this year quarter 3 compared to INR 34 crores of the previous year quarter 3. Core business PBT, INR 61 crores versus INR 19 crores. PAT core business level, INR 46 crores versus INR 12 crores of last year.If we look at 9 months performance of the -- at consolidated level, net turnover is INR 1,854 crores, a 10.6% drop against INR 2,073 crores. EBITDA for 9 months at consolidated level, INR 224 crores versus INR 107 crores last year 9 months. At PBT level -- PBT at consolidated level is INR 170 crores versus INR 53 crores. PAT continuing business, INR 125 crores versus INR 41 crores. At consolidated level, if you look at quarter 3 performance versus quarter 2 performance in the preceding quarter. Net turnover, INR 605 crores versus INR 610 crores. There is a minor drop. EBITDA level, INR 78 crores versus INR 89 crores. PBT, INR 41 crores versus INR 22 crores, consolidated, after adjusting fair values. PAT, continuing operations, INR 26 crores versus INR 2.7 crores, higher impact of adjustments in the quarter 2.So overall, the profitability of dairy has improved mainly because of the decrease in raw material cost compared to last year quarter 3 and better selling prices of milk and value-added products compared to quarter 3 of last year.Now look at the volumes performance, procurement of milk from the farmers is 11.71 lakh liters per day during this quarter compared to 13.56 lakh liters per day during the last year same quarter. Milk sale volumes, 9.72 lakh liters versus 11.27 lakh liters.Value-added products contribution is 23.12% during this year's quarter 3 and 23.52% during the last year's quarter 3. Our production capacities, if we see now, chilling capacity is 20,46,000 liters per day. Processing capacity is 24.2 lakh liters per day. Packing capacity of milk is 15.35 lakh liters per day.Coming to the CapEx investments, we have so far done INR 47 crores in 9 months of this financial year in the HFL, about INR 47 lakhs in the HNL, which is 100% subsidiary.Coming to the long-term debt. As of 31st December, 2020, our debt stands at INR 115 crores. And there is no utilization of working capital limits during this quarter as on 31st December. This is broadly the outlook of performance of this quarter 3.Now I open it for discussion. I request all the participants to make their suggestions, seek clarifications and give feedbacks. Thank you very much once again for participating on a precious day while everybody is busy with the analytics on the budget. Thank you.
[Operator Instructions] The first question is from the line of Sameer Gupta from IIFL.
2 questions from my side. So I'll just place them 1 by 1. So first is that despite this being a flush quarter, our milk procurement is down sequentially.And I understand we had scaled down on our operations in Punjab, but why, from versus 2Q in a quarter where milk production is at peak, are we procuring less? And what does it really mean towards our scaling up of our procurement operations in adjoining states like Maharashtra?And as a corollary to that, sequentially, the procurement price is up, again, in a flush quarter where there is high supply of milk. And my understanding was that sequentially, we should see some addition. So just wanted some understanding on what exactly is happening out there?
Thank you, Mr. Sameer. The procurement point of view, there are 2 aspects: one, last year, there was significant quantity purchased from the bulk suppliers because of the scarcity. And this year, we are not procuring bulk quantity from any suppliers like last year as the demand is yet to pick up. So we are procuring what is required for our markets in various territories.So secondly is about the market itself, as you were saying, as you must have noticed, the production season is yet to start. The real flushes has not yet to come, and the milk prices also have gone up. That itself indicates there is availability issue in the market, but as of now, whatever milk is required for conducting our market operations, we are able to procure, and we'll be scaling up along with the increase in the sales volumes.
Understood, sir. That's very helpful. Just a second question from my side. So our revenue target of INR 6,000 crores by FY '24, I see that, that hasn't really changed, and this is now going to require a CAGR of 20% and with us really not going all out in increasing our procurement operations, rather, we are also scaling down some of our previous acquisitions that we have done, so what exactly is our roadmap? I mean just some thought on strategy on your end as to how we are going to achieve this INR 6,000 crores by FY '24?
Yes. As you know, the COVID has impacted heavily during this year and the scarcity impacted during the last year. We will have to recast the time frame while keeping our eye on the INR 6,000 crore target without any distraction. We'll be doing it in course of time, and we'll update you.
Anything on your procurement, sir? I mean, scaling up of procurement, anything on your strategy on that front? I know this is a COVID year and demand has been hit.
I will come back, I will come back. It's a bit premature now to discuss on that topic. Let things become normal. We are -- as I said, we don't take our eye on the targets. It remains the same, but time frames have to be readjusted. We'll recalibrate the planning.
The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.
Sir, just to take forward Sameer's question, sorry for again repeating this if it is -- but just understanding on the milk procurement part again, sir.So while if we look at it on a Y-o-Y basis, while you said that last year, you had procured higher from bulk suppliers, if you look at it last year also, in Q2 also, that number was higher. But in this period, sequentially, there's a further drop in terms of your milk procurement. So if it was 12 lakh liters procured, it has actually come down to about 11.7 lakh liters. So just wanted to understand, is there any other one-off element apart from the bulk supplies which you don't do? And also I want to ask you, incrementally, I mean, should we be at least expecting improvement in our procurement from here on?
Yes, Prashant. Certainly, it is a demand-driven procurement. We can calibrate our procurement volumes as soon as we require. Currently, we are going hand-in-hand with sales.Sales demand is reviving now as academic institutions are opening in most of the states across the country. And COVID vaccine is also visible. The fear factor has come down in absence of kind of positive cases and the death rates coming down.So we do believe, soon, the demand will become normal with the summer setting in, then we'll accelerate the procurement also. If we procure more now, it again becomes surplus for conversion into butter and milk powder at this stage. So we are also carefully moving forward on the requirement basis.
So can we at least assume now that the demand is kind of now improving? Because just to kind of ask you 1 point because if I look at, let's say, the other listed companies' reported numbers, they have seen a sequential improvement in their demand.I do understand the states are different, but just understanding the same in our case. Our sales performance in terms of sequentially is largely flattish. I mean, it's not really changed in that sense.So I just wanted to understand that with the hearing about the overall Horeca channel kind of picking up and generally, things opening up in post COVID, isn't there a case that your demand on a month-on-month basis is improving? I mean, can you at least give some sense that was December better than November or was November better than October? Any trends on that, that will actually be helpful.
Yes. Of course, quarter 3 was a different scenario for us. October, November, we had 1 of the 3 cyclonic weather conditions. And if you all recall, what happened was in Hyderabad, we were under water for 10 days, 12 days in most of the -- most parts of the city. So weather was not favorable in October, November. So we couldn't move up our demand. And come December, the temperatures were unusually low. So all the 3 months, they were almost stagnant. Now post Pongal season, the temperatures have started changing. And from this -- today, many educational institutions are opening.So we see gradually demand moving up day on day and week after week in this quarter, but not in the quarter 3. Quarter 3 was subject to several external weather factors and things like that.
Sure. And my last question is, sir, in terms of -- you just said that procurement prices have also kind of slightly kind of come up maybe it's still the -- the flush season is still on, I believe. But if you look at it from what we had actually kept in our previous months in terms of the milk, which is converted to powder and probably kept, how much of that is -- would be there with us from an inventory perspective? And how much could that help us in a rising price regime?The reason I'm asking this is because, sir, if you look at our margin trajectory, we've actually seen very good margin in the last couple of quarters -- in the last 3 quarters, I've been actually seeing record margins for us than in the past. Just wanting to understand that -- can we actually look at a higher band of margin in a normalized year? Just wanted to understand that logic.
It's a bit complex issue you have raised. As far as milk powder stocks are concerned, whatever we have manufactured during this year by utilizing the surplus milk and whatever we procured also from other areas, these inventories are more or less enough till August. So whatever price increase will happen from now for the milk powder will be a beneficial scenario for us in terms of margins. So we have secured adequate stocks for the next 6, 7 months' time.And the margin structure is highly dependent on the procurement prices of milk. And right now, there is a rising trend. And there is a deficit production and procurement has not picked up. So if it is only a delayed flush and procurement moves up in this month, then price level may be same, and we would be able to get benefit in the margins. It is something we have to watch in February, March in terms of milk production, milk availability, milk prices to forecast the margins, which we don't wish to do at this stage without clarity on the production side.
No. But sir, the reason I'm asking this is because if you look at our -- I mean, you said that our inventory is there for the next 6 to 7 months, so that's probably covered. But like you also said, procurement is something which we'll have to keep doing. And now the procurement will happen at a higher price. So does it mean that it will offset the benefit of inventory which we had, that is what I was to trying to understand. And maybe that is why your longer-term target of an 8% margin, which you said, we'll probably be around those levels as well.
The share of milk powder is not so significant to offset the milk procurement prices. It would help to some extent, it won't offset totally. We don't use so much milk powder to milk ratio, right?
What will be the quantum, sir, if you may help us with that?
Yes. We'll share with you. I mean, this is a forum where certain information we have to hold for the commercial benefit of the company.
The next question is from the line of SivaKumar. K from Unifi Capital.
Sir, can you dwell upon the Horeca demand? Is it coming back in Q4?
Logically, it should come back, Mr. SivaKumar. It is visible. It is moving back, but not to the full-scale yet as we have seen in a normal year, but things are improving week after week, day after day.
Got it, sir. Sir, and can you give us a sense of the debt levels and the cash levels post the sale of Future Retail shares? And what will be the use of cash now?
Yes. I request CFO to address this question.
Debt level is actually as of 31st December is INR 114 crores. INR 114 crores long-term debt is -- INR 114.86 crores is long-term debt as on 31st December. So we have not utilized any working capital in this. As on 31st December, there is a negative working capital of INR 30.63 crores, so...
And the cash level, sir?
One second, exactly.
Yes. Would you like to supplement, Brahmani, something?
Yes, yes. So this is Brahmani here. What I wanted to also mention is that after having disposed shares from FRL and Praxis, the total realization was INR 135.88 crores. And most of the proceeds are being used towards retiring long-term debt. And as Mr. CFO has mentioned, debt levels have come down to INR 114.86 crores as of Q3.
On a stand-alone basis, cash and cash -- bank balances as on 31st December is INR 59.91 crores.
Got it. Sir, since you also asked for suggestions at the beginning of the call, I was of the view that this year has been a great year for Heritage. And we know that the business is a business which throws up cash with a very respectable ROE on an yearly basis. I was of the view that since we got this lump sum from the Future Retail shares and also we have accumulated cash from some supernormal profits that we accumulated this year, why are we not considering a small buyback, say, even to the extent of 15% of the net-worth, say, a INR 69 crore, INR 65 crore buyback, which you will shave off 5% of the equity out there, and which will also take away the weak hands, which are leading to this continuous undervaluation, sir? So as a concerned shareholder, I was just trying to think whether the Board at any point of time has considered this proposal of a buyback, which has been a very normal corporate finance activity being done in the Indian capital markets.
Mr. SivaKumar, yes, thank you for this suggestion. We've definitely noted your suggestion on the buyback. Board has mandated us to first retire debt. And based on resource availability, this is something we will certainly consider and certainly get back to the Board. So thank you for your suggestion.
The next question is from the line of Aniruddha Joshi from ICICI Securities.
So what was the CapEx that we have done till now? And what is the guidance for FY '22? Now considering we have scaled down operations in some of the geographies and in general, there is some decline in milk procurement, so do you see any need to incur any CapEx for FY '22?
Thank you, Aniruddha. Yes, there will be certain requirements to balance the growth requirement of certain pockets. Certain areas, we have increasing demand and inadequate procurement infrastructure. In such areas we may have to do and some modernization and automation requirements, some infrastructure requirements for IT. And replacement CapEx, certain equipments which need to be replaced, some de-bottlenecking.There will be definitely some CapEx requirements for the next financial year. But it will not be like a normal year where we were spending INR 100 crores plus in the last few years. It might be half of it or closer to that or even lesser. We are evaluating the requirements. We go by on the -- we go by the need basis. Certainly, as you said, it will not be like a normal year's requirement. It will be toned down significantly.
So the CapEx incurred so far for the 9 months of the current financial year is at INR 47.1 crores.
Okay. INR 47.1 crores. And can we expect around INR 50 odd crores CapEx guidance for FY '22?
Yes, it will be. It will be closer to INR 100 crores kind of thing because we have initiated a number of projects in the last -- before the COVID and the projects have -- some of them have been completed, some of them are under completion.We have created an important back-end infrastructure for curd making, about 50,000 kgs a day in Hyderabad area and 50,000 kgs in AP state already. Another 1 lakh liters plant is getting ready in Maharashtra for meeting the market requirements.There is significant infrastructure projects being completed during this year. They consume normal CapEx, which was there like last year's. Subsequent year, next year would be lower than this.
Okay. Okay. Sure. And, so sir, last question from my side. Now despite [Audio Gap] current state-wise revenue breakup. So AP plus Telangana still will be upwards of 60% or is that thinking correct?
Yes, it will be around 60%, 62%.
Okay. And Maharashtra, Tamil Nadu, Karnataka, each of the states will be around 10%. Is that....
Yes. Yes, right. There will be some fluctuation month-to-month, quarter-to-quarter. It will be in that range.
The next question is from the line of Shradha Sheth from Edelweiss Financial Service.
So I just wanted to understand that Amul entering Andhra Pradesh, and we have already seen AP-Amul Paala Velluva initiative having started in December. So -- and we are seeing the aggression only moving up where the Chief Minister is asking to be spread across almost all 13 districts. So how do we see the implication of this for us with AP being a major region for us?
Yes, Shradha, I think you are more worried about the public policies.
Just, I mean, more on the competitive intensity because now it's only getting more -- now it's for real, and they've started it happening on ground. So how do we see the implication across?
We -- Heritage co-exists with number of competitors in all the markets. There's 1 more competitor who is coexisting with Heritage in Maharashtra, Telangana, Punjab, Rajasthan, Haryana, is also coexisting in another state called Andhra Pradesh. That's the first thing.We are not having monopoly in any state, and Amul is not the first time competing with Heritage in AP. And Andhra Pradesh is having -- is ranked as fifth largest milk producing state in India. So there is a massive milk availability in the state. And as per the unconfirmed statistics available with industry, close to 65 lakh liters to 70 lakh liters is the procurement happening in the state on a daily basis by cooperatives and private companies.In the 65 lakh, 70 lakh liters, we may be getting 5 lakh, 5.5 lakh liters. So how much Amul can procure in Andhra Pradesh? 60 lakh liters, 70 lakh liters? How much competition they can create for existing players, I leave it to you, but they are also operating in multiple states outside Gujarat. This will be 1 of their states, additional states outside Gujarat.So how much money, how much effort, how much time Amul will pay for this state or is it just a media hype being registered in your mind, I leave it to you. And we are comfortable. In the last few months, our volumes have grown up, grown in those districts and in the state as well. Post Amul's entry, we have gained volumes.
So do we see any expectation from the farmers in terms of...
I suggest this discussion is not very healthy, talking about competitor by name. I have given enough whatever is required. I do hope you'll appreciate and leave it there.
No, sir, I mean, it's a very state-specific subject. So...
There are so many political discussions happening. I don't want this call to become a political call. It's an investors call for company's performance. I have gone a bit out of the way to explain the scenario context. We are comfortable. We are getting our volumes.Our farmers are with us. We have long-standing relationships. There's a value proposition for the farmers to be with Heritage. Beyond milk price, we do a lot of activities for their well-being, for their income increase, for the productivity improvement of the animals, for enhancing the herd size of the animals, for insuring the farmer, for insuring the animal, there's lot [Audio Gap] we have been doing for decades that helps us to retain our farmers and our volumes.
The next question is from the line of Nitin Gosar from Invesco Mutual Fund.
Sir, I just wanted to understand, in recent times, we have pulled out of a couple of states. What's your thought process? A, is it more to do with the demand? Or is it more to do with supply challenges that we are facing? And B, if we were to see it from interest perspective, are those states not able to scale up, so we wanted to pull out. Additional time or resource allocation was not making sense. If you can help us understand the thesis or the understanding...
We pulled out of Punjab and Rajasthan last year, just before the lockdown. One reason in Punjab was unviable distances in terms of operations. So the procurement is happening in certain areas, our sales are happening in certain areas.This was the inherited scenario from acquisition of the Reliance Dairy. We tried to operate -- optimize those operations but we -- at the end of couple of years, we realized the logistics cost and the sale areas and procurement areas are not coming to terms.The distance matters in the perishability aspect on the cost management of the product movement. So that was 1 of the influencing reasons, major influencer for scaling down the operations in that state, Punjab.And Rajasthan, we were depending on a third-party co-packer, which was also the arrangement we inherited from the previous company. The third-party packing solutions were not coming out well. We were not comfortable in handling in a third-party plant from the quality perspective.We do not operate in any co-manufacturing facilities for the milk, except in that case, it happened. There also, we couldn't get things under control. We have to withdraw from there. So if we have own operations, perhaps we would have continued there also. So it was not in question of sales procurement. It's more a viability issue.
Got it. Got it. So incrementally, those states are -- those states may still continue to remain on your radar but not right away?
Right now, we have shrunk the area of operations to Delhi and Haryana and adjoining parts of Delhi, in Uttar Pradesh, that Noida and all that areas. We are trying to optimize on our existing own plant in Haryana on the outskirts of the Delhi. So we have significant capacity available and potential is there.Milk procurement also should happen as per our policy from the nearest areas to maintain the freshness to the consumer as close as possible. So we have been stabilizing in that area. Once we establish volumes with reference to existing plant and existing markets, maybe a couple of years, it will take, then we can take a view whether strengthen the infrastructure to serve the same markets or get into additional market. That's a call we have to take in the years to come.
Got it. Got it. So a theoretical question. You said the packaging capacity is 15 lakh liter per day, 15.3 lakh. And right now, our liquid milk sales is around 9.7 lakh or approximately 1 million. So should we consider this as the capacity like-for-like to compare, like we'll be operating 10 lakh out of 15 lakh today?
So these are all mismatches in the sales and the infrastructure created. So for example, we have created a 1 lakh liter UHT plant, you don't get 1 lakh liters every month, every day. UHT milk fluctuates from season to season and time to time. So similarly, in a particular market, we have 2 lakh liter plant, but sale is only 1,50,000 liters. That will accommodate future operational requirements. So each -- because we are operating in multiple locations, close to 17 locations, plants are there. Each plant will have 50,000, 20,000, 30,000 surplus to meet the incremental increase.And the previous -- peak seasons will be there in a year where you go to 12 lakh liters, 12.5 lakh liters also. Then it will come down in the flush season. So it meets the seasonal cyclical nature of the business and mismatches to the existing sales and the plant capacities, some cushion for the accommodate -- cushion for accommodating the growth. And in a particular plant, let's say, we have reached 90%, 95% capacity, we'll immediately add a 50,000 liter expansion. To utilize that 50,000 liter expanded capacity, it will take a couple of years again. So it won't be -- if it is a single plant, single location, we can optimize to 90%, 95%, but in multiple locations and smaller capacities, these additionalities will remain. And we engage manpower, and we utilize the power, steam, water, et cetera, as per the needs, this will not create any operational costs, et cetera.
Right, right. Very comprehensive, sir. This was helpful. One last question. [Audio Gap] have been following this company for years now, and we have seen the kind of different approach you had to the business. But standing at where we are today, what is the top agenda on Heritage's mind? Is it the growth or is it sustaining the existing market share? What comes first now from next 5 years perspective?
It's a balanced mix of all. We do not dilute bottom line for the sake of growth. We do not dilute growth for the sake of bottom line. We take a call quarter-to-quarter in a balanced manner so that our growth is healthy.
Yes. And did you mention that by fourth quarter or first quarter, you will be coming up with the revised plan or the outlook [Technical Difficulty]?
I did not put time frame, but now that distress is behind us, which was caused by COVID and demand is getting normal, once operations are all normal, everything looks good, we will have sessions to look forward the strategies and time frames to deliver our targeted revenue. In course of the coming year, we will come back to you.
The next question is from the line of Sameer Gupta from India Infoline.
Apologies for harping on the same point again. Sir, my understanding is that demand was not optimum this quarter because of weather and unusual patterns. But sir, more fundamentally, our procurement, as you said, is more calibrated towards demand, but my understanding was that we have a policy of no milk holidays and we don't turn down our dairy farmers whoever come to give the milk to us. And this has been a USP of the company in getting that loyal dairy farmer base, which do not -- as you said, that whenever competition comes, we have enough incentives given to the dairy farmers. So doesn't this calibrated approach raise questions or doubts on future sustainability of this loyal dairy farmer database?
No. There are 2 elements in what I said. One is demand based scaling up. Second is accepting milk -- what you said about accepting milk from our farmers.So last year, because of the scarcity, we had to depend on certain bulk milk sourcing. This year, we don't have such kind of volumes in bulk milk sourcing. So comparatively, it looks lower than last year. But actually, if you see, own milk procurement today, it is better than last year. That is 1 aspect.Second is, this year, flush has not set in fully even now validated by increasing prices. Normally, in January, February, milk prices will not go up. They'll be stable from December. So now the prices are moving up is only testifying the fall in production.If production is better and our farmers are delivering better milk, we would never say no, and that's the policy, and that will be the policy. This fluctuations in procurement is a reflection on fluctuations in the production, not on our policy.
Got it, sir. Just 1 follow-up on this. How much of the milk is procured by third parties? And how much of it is procured directly by us?
Typically, 95% will be our own milk, 5% to 4% will be bulk sourced milk, again, to balance the requirement. In a particular area, in a season, our procurement would be less than the sales. We'll supplement in that area with the bulk milk, maybe 5,000 or 50,000 or 20,000 shortfall instead of moving from long distance. I give an example, let us say, in Bangalore area, I have 20,000 liter surplus production than the sale. But in Visakhapatnam area, it is reverse. Still, we don't prefer to transport milk from Bangalore to Visakhapatnam. One, perishability; second, time-lapse to transport; then the cost. Instead of that, we prefer to buy from somebody who is a reliable, quality certified partner there as a business relationship, business associate, 20,000 liters in Visakhapatnam and meet the sales demand of Visakhapatnam in that season.This will not remain same every year. In a following year, these equations could be exactly the opposite. Bangalore area milk sale is higher, procurement is lower and Visakhapatnam area is reversed. So again, we won't move milk from Visakhapatnam to Bangalore. We try to supplement in Bangalore in that year.It's a highly fluctuating demand-supply management we do on a daily basis, weekly basis, and it's not stable. It's not like cement, steel, I can move from 1 end to other end. So in this scenario, 5%, 6% of milk in a season would be coming from other sources. And it cannot be same every year. It cannot be same in same region.Therefore, I won't give direct responses to this. It's a part of managing the business efficiently in terms of logistics, in terms of quality, certainly, without saying no to our farmer associated with the company. If our farmers have excess milk for any reason, or our farmers give more milk, which we cannot use, we still take it and convert into powder, butter and hold it for the season. If our power plant is not capable of handling, it's already full, we hire third-party powder plant and take our milk there and convert it. We have done umpteen number of times, where 1 tanker, 2 tanker, 5 tanker surplus is there on a day, we move it to some other company's powder plant and get it converted and take the product to us. We have those contract arrangements with most of...[Technical Difficulty]
Ladies and gentlemen, please stay connected. The line for the speaker has dropped. Ladies and gentlemen, please stay connected while we rejoin the management back to the call.Ladies and gentlemen, sorry for the long hold. We have the line for the management connected back to the call. Sir, you may go ahead.
Yes. I've almost completed. I was asking whether the response was useful and adequate or you want more elaboration.
Perfect, sir. Perfect. Absolutely perfect. This is something that I wanted to clarify.
The next question is from the line of Vikrant Kashyap from Kedia Securities.
I have just 1 question. We have seen a lot of volatility in our profitability in recent past. Since we are saying the distress is behind us, and we are seeing a recovery in recent weeks, so do we expect some stability in our profitability?
Could you repeat, please, the last part?
Do we expect stability in our profitability going forward?
Stability is a function of multiple factors, right? One is milk procurement prices, milk availability, sale prices, demand revival, international prices, whether Government of India export import policies, state government's support prices. So there are multiple factors influence the dairy business in the country. And it has become quite competitive. So we always try to bring certain -- as I earlier explained, a balanced growth between -- balanced approach between growth and profitability. So both the levers are utilized in an appropriate manner, when to press which way. So we'd always try to and love to achieve that balanced growth. But certain years, some factors are out of our control.As I said, most of the factors are beyond our control. So we will try to utilize the experience, knowledge available and do certain exercise and deliver these numbers. And this year's numbers are -- because raw material prices were low, they're much better than last year. But suppose coming year, the price is stable, profitability will be stable.If prices are fluctuating, profitability also fluctuates. It's a reaction scenario. And this is an essential commodity. Governments do intervene when the price trend is in a unidirectional way, whichever way they can.
Right, sir. So can we assume that this quarter's performance, we can sustain and improve from here?
We are constrained from this futuristic statements. So...
Okay, sir. No issue. Any update on Novandie, how it's progressing?
We will deliver and show you what we can deliver.
Yes. Yes, sir. Hope for the best. And any update on Novandie facility, how it's going?
Yes. So happy news is that the facility is complete, more or less complete. And the soft launch of the products also was done in retail in the past week for 1 set of products, which is set yogurt and the final trials for the other set of products, which is stirred yogurt is under completion. So mid of February, we'll have an official launch once the products are being sent out to the market already.
Okay. So from February or, say, March onwards, we can see our products available in the sales?
Surely, definitely. [Technical Difficulty] activity around this.
The next question is from the line of Ronak from Awriga Capital Advisors.Due to no response, we move on to the next participant. The next question is from the line of [ RamaKrishna V ] from Equity Intelligence India.
Sir, I have a couple of questions. One is on this what is the bulk buying in Maharashtra and Delhi, Haryana, where you have a plant? And where -- how much is farm sourcing from the farmers?
There is no bulk buying in those territories, what you mentioned.
There is no bulk buying?
No.
Okay. Sir, if this -- now the -- what percentage is the cash and carry business of ours? And once that Horeca comes back, will that change?
See, ours is 100% cash and carry business, except in case of modern trade, like Reliance or More, Spencers, if these organized retails have terms of trade agreements signed with all the brands, we give 20 days, 30 days kind of credit supplies to these modern trade channels where our sales will be around 8%, 9% coming from this channel, modern trade channel. That is the only channel where we have credit supplies for 20 to 30 days depending on agreements with them. The rest of the product sale is cash and carry basis.
The next question is from the line of Rajesh Ranganathan from Doric Capital.
[Technical Difficulty].
Rajesh, sorry to interrupt you, but you're not audible.
Your voice is not clear, Rajesh.
Sir, your voice is not clear.
[Technical Difficulty] but not very clear.
May we request you to talk near the handset?
Are you able to hear me?
A little better. Sir, may I request you to come back in the question queue?The next question is from the line of Ronak from Awriga Capital Advisors.
Hello? Is it working now?
Please go ahead.
Yes. Sir, I had a couple of questions. One was on the spreads. So currently our spreads are at around INR 11. So how do you see these spreads going forward? Will they revert back to INR 5, INR 6, which is our long-term average?
It depends on the several factors I have been explaining till now, procurement prices of milk, availability of the milk, sale prices of products, demand revival, contribution of value-added products to the overall revenue. There are multiple factors which we [Technical Difficulty] how it moves. There is nothing certain or predictable today to [Technical Difficulty] keeps changing on week on week, month-on-month.
Ronak, are you there?
Echo is also coming from his side.
Ronak, can you hear us?
Yes, yes.
Go ahead.
Sir, just a small bookkeeping question. So going forward, this fair value movement will go away, right?
Which one?
The fair value movement in the P&L? It will go away, right?
Fair value movement, maybe this will be there till this quarter, accounting requirements. The next year, it won't be there.
And sir, what about this discontinued business? So what businesses will be in this line item?
This is related to Heritage Farmers Welfare Trust. We used to conduct all the activities for the farmers welfare through a welfare trust. But now the instrument of spending has been shifted to company's Procurement & Inputs Division. So this Trust activities have been discontinued. This will get discontinued this year.Another 1 is Employees' Welfare Trust is there, which also got discontinued, where they used to contribute from company employees for the welfare activities, that trust and Farmers Welfare Trust, these are the 2 trusts, which are moving out of the activities, were very insignificant in terms of values now.
Ladies and gentlemen, that was the last question for today. I will...
Is Rajesh coming? I think his call, we couldn't hear, Mr. Rajesh from Doric Capital.
No, sir. I don't see him in the question queue.
Okay. Right.
Sir, would you like to make any closing comments?
Thank you very much once again for participating actively in our quarterly earnings call and giving certain suggestions and seeking some information, and we will continue to update you once in a quarter like this. Till then, thank you very much.
Thank you very much. On behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.