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 Q3 and 9M FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hiral Keniya from Dickenson World. Thank you, and over to you, sir.
Thank you, Aman. Good evening, everyone. I welcome you all to the earnings call of Heritage Foods Limited for Q3 and 9 months FY '22. Today, we have with us the management represented by Ms. N. Brahmani, Executive Director; Dr. M. Sambasiva Rao, President; Mr. A. Prabhakara Naidu, Chief Financial Officer; Mr. Srideep M. Kesavan, Chief Executive Officer; Mr. J. Samba Murthy, Chief Operating Officer; Mr. Umakanta Barik, Company Secretary and Compliance Officer. Before we get started, I would like to remind you that the remarks today might include forward-looking statements and actual results might differ materially from those contemplated by forward-looking statements. Any statement that we make on this call today is based on our assumptions as on the date and we have no obligations to update this statement as a result of new information or future events. I would now invite Dr. M. Sambasiva Rao from Heritage Foods to make his opening remarks. Thank you. Over to you, sir.
Thank you, Christian. A very good evening to each one of you who join the call today to discuss financial and operating performance of quarter 3 and first 9 months of the current financial year. The results presentation has already been uploaded on the exchanges and on our website, and some of you must have got a chance to look at it. Now I'll give an overview of the financial and operational highlights of quarter 3 and first 9 months of the year. Consolidated revenue for quarter 3 grew by 10% year-on-year at INR 6,670 million with the increase in sale of milk and value-added products. EBITDA during quarter 3 stood at INR 392 million as compared to INR 773 million in previous year quarter 3. EBITDA margin stood at 5.9% as against 12.8% in quarter 3 last year, on account of mainly higher raw material costs. During the quarter, tax stood at $208 million. Let me now take you through 9 months numbers. Consolidated revenue for 9 months grew by 7% year-on-year at INR 19.854 million on account of, again, higher sale of milk and valuated products. EBITDA during 9 months stood at INR 1,550 million as compared to INR 2,204 million in 9 months of last year. EBITDA margin stood at 7.8% during 9 months of current year. Tax during 9 months stood at INR 839 million. Our wholly-owned subsidiary Heritage New drive sales stood at [ INR 236.7 million ] in quarter 3 as against INR 297.4 million during the last year same quarter. EBITDA stood at INR 11 million in the current quarter as against INR 29 million during the previous year. PBT during the current quarter is INR 0.3 million versus INR 20 million during the last year. The company has a strong balance sheet with debt-free status and cash and bank balance of INR 662 million as of 31st December 2021. Now moving on to the volume performance. The average milk procurement during quarter 3 was at 1.2 million liters per day as compared to 1.1 million liters in the quarter 3 of last year. Average milk sales during the current quarter was 1.04 million liters per day compared to [ 0.97 million ] liters per day in the last year's same quarter. Third sales during the quarter 3 was at 271 metric tonnes per day compared to 231 metric tonnes per day during the last year, registering a growth of 17% year-on-year despite the extended monsoon season along with several cyclones in our markets. During the quarter, value-added product revenues surged by 21% year-on-year to INR 1,647 million. During this quarter, value-added products contribution of the overall revenue also increased to 25% versus 23% of the last year's same quarter. Despite the challenging business environment and extended monsoon season, Heritage Foods continued to grow and expand its value-added product portfolio. The company has strengthened its balance sheet by achieving debt restructures backed by a heavy cash balance. The company launched several products across categories such as new platforms of frozen dessert in various levers and easy to digest fresh milk in select markets during this quarter. Now the floor is open for any questions and answers. If you have any queries or feedback post this call, you may please contact us at Dickenson World, which is our Investor Relations agency. Thank you very much.
[Operator Instructions] First question is from the line of Aniruddha Joshi from ICICI Securities.
Sir, in terms of the profitability margins, we have seen -- there is a sharp traction in profitability margin of the dairy business as well as the animal feed business. So -- and in fact, we have seen margin traction is higher than even the margin correction reported by some of the years in South India, too. So any -- is there any one-off or something like that? Or it's a normal business protection? And we have also seen some of the peers have raised prices now post December. So how do you see the prices happening in the sector and for H2?
Yes, Mr. Joshi. Thank you. It is true. Margin dropped mainly because of the milk procurement prices at the font gates have increased significantly over the previous year. And during the quarter, we haven't passed on to consumers as it was a winter quarter. Usually, the sales will be on lower side of the year. Now in this quarter, we started passing on in most of the markets to restore the margins to a better level. In terms of cattle feed, the margins dropped mainly because of the raw material prices increased. They are also now trying to pass on the prices -- price increase to the consumers in this month and [indiscernible]. Exciting overall industry trend, quarter 3 was high raw material prices and quarter 4, the consumer price hikes are now going on.
Okay. So has it also raised prices and means in spite of the season, obviously, the order plus selling base also. But in spite of flush season, is there an increase in milk procurement prices on a Q-o-Q is good?
Can you repeat? We have increased -- we have started increasing the sale prices to consumers. The second part you are saying about the flush season, I couldn't get it fully.
There is a flush season. But in spite of flush season, there is a price hike happening on a Q-o-Q basis for credit resumption. So do you see that probably the milk prices, the cycle has turned, and after a period of lower procurement prices for a period of 2 years. Now the prices are expected to go -- so will it be a resumption to make?
So it was more a correction issue during this quarter 3. Previous year, the prices went really low because of the COVID impact. Now they started getting corrected and coming to the normal levels.
Okay. So, sir, the margin drop in Q3 is more of a one-off we can say? Or say it is a structural issue in terms of milk procured or higher procurement prices now?
No, there is no structural issue. It's a lag between the increase in procurement prices and sale prices. the lag is getting corrected now as the season is changing into favorable season of sales.
Okay. Okay. Sir, and last question. Can you decide the performance of some of the products that we had in like LV or even the cheese in retail packs that we had introduced? And even we did some rates of paneer also. So overall, how is the performance as well as the performance of the product launched in JV with [indiscernible]? Yes. That's it from my side.
Sure. Mr. Srideep, the CEO, will take this question.
Yes. I'll address the questions regarding the products launched in the dairy business. And as far as the JV with Novinda is concerned, I request our Executive Director to comment on this. So as far as the data business is concerned, a little bit of that in the opening statement that the growth momentum that we are seeing in value-added products is consolidating this increase. This quarter, we have seen 21 percentage growth in value-added products, and that has been the primary driver of growth for us, not just in our core markets, particularly in our emerging markets, whether it's Mumbai, Delhi, et cetera. And these growths have been as designed by us primarily led by the 5 categories that are of focus for us. When I say category, these are category clusters, I call them, occurred driven primarily by card, consolidated and faster growth we have had in this quarter. We have had significant growth across other categories of focus such as cheese, beverages as well as ice cream. We have had a setback in terms of volumes in few weeks of the quarter due to internal data. You must have read about repeated cyclone attack in the eastern coast of the country. Had it not been for that, our growth would have been even much stronger. The strategies that we are put in place for driving growth and value-added products is actually paying results we can speak about that so.
Thank you. This is Brahmani here. I'll take the question onthe JV. Despite many headwinds in the past 3 quarters since the launch of our Star as well as Jenaida, we've seen some good traction in our products. We've seen that especially as yogurt across all flavors have been very positively accepted across markets. We've also launched newer variants of volume drivers going forward. So that natural plan robust. We've also launched the product beyond the cities that we were present across Maharashtra and Gujarat, in Hyderabad as well as the value market more recently. And we're seeing some good sales in these markets as well. In fact, I'm happy to say that the contribution has increased to 35% of the overall sales in a very short period of time. So we really started about the progress that we've made in the last couple of quarters despite many external challenges, especially in Mumbai market where the intensity of lockdowns was quite high. In terms of channels, we've actually done pretty well in modern retail from our stores, which contribute about 60% of our sales today, but we are also seeing some good traction in GT, especially in Maharashtra market and now in Hyderabad and Karnataka as well. And going forward, we're just entering the season for yogurts and fermented products. And we are quite excited about the growth momentum that we're seeing going forward. And mainly, growth will come on the back of diversifying our channel mix that is continuing to grow in modern retail format stores and growing much faster in general trade stores as well and thus improving naturalization as we see more and more higher margin products and volume type of products, which as natural to grow. And of course, with scale comes cost optimization, and we're really excited about this. We are also involving our consumers in several engagement activities in stores as well as online. And those campaigns to influencers and tests have gone through quite positively. And we will also drive growth through increasing our throughput through existing channels as well as billing frequencies. So we're really excited about the quarters to come, and both partners are very excited about the season to come.
The next question is from the line of Binoy Jariwala from Sunidhi Securities and Finance.
Could you help me with the selling price per liter...[Audio Gap]
[indiscernible] per liter of milk. Milk, of course, is sold in multiple variants, cow milk and full cream milk, and [indiscernible] milk. There are multiple variants of well, but we can try to give you an average realization.
For this quarter, Q3 selling price per liter is [ 46% to 71% ] average.
Understood. And how would be the average milk procurement price?
Procurement also we have our milk, we have Buffalo milk, different percentage of fat and total solids, but we try to give you average.
Average procurement side of [ INR 38, 30 paisa].
INR 38, 30 paisa, okay. Understood. Sir, this gross margin spread, that is the average realization on milk sales realization on milk less the procurement price. That spread has narrowed on a Y-o-Y and a sequential basis. What do you think about [ 8 or 8.5 deals ] per liter? What is the steady state spread that we should redundantly target? Hello?
Yes, we'll let you understand the gross margin level as it has other elements of cost in the [indiscernible]...
Gross margin for this quarter is 21.02%. So in 9 months of 22% as of now, 22.41%.
No, I understand the gross margin percentage. I'm not asking that. I'm trying to understand what would be the steady state -- what would be the steady state spread that we aim typically over the milk procurement price? Do we look at INR 10, INR 9, INR 8, INR 12? What is the kind of number that we generally work with in our budgeting?
So here -- this is Srideep here. I'm trying to address this question from our -- from the strategic point of view on how we look at the business. The 2 numbers that you read out are selling only part of the story because the milk realization of 46 is actually mix, which contributes to 70% of our realizations. The balance realization comes from about [ 26% ] as of value-added products and [ 4% to 4% ] plus VAP, et cetera. So as far as we are concerned, we look at consolidated realization from our products and more and more our value-added product contraction goes up, the naturalization that we have from our business increases. Second, even in terms of milk, the price that our CFO read out is actually only in equipment that we procure from our farmers. In addition to that, as with the seasonality and availability, we always have -- we use [indiscernible] from our stocks, which also needs to be considered. Because it is such a dynamic number, it is the reason why we look at EBITDA. And as far as EBITDA and gross margins, these are 2 numbers that we always track, is concerned, I think we have been historically advising that our target is to remain in the 7.5% to 8% EBITDA margin level, plus or minus 1%. This quarter has been an exception in that sense. Our EBITDA margin has dropped by over a percentage from where we would have wanted it to be. And that is purely because as was asked by the previous investor, procurement prices during flush season went up contrary to what idea in flush season prices should have come down. But in this flush season has gone up beginning last year. And our inability to pass on the prices to the consumer at that immediate moment because of continuous implement better and the longer winter season is the only reason why we have seen. And now that we have passed on the prices, we have taken price increase starting first week of January across our market, hardly 1 or 2 markets remain for us. In most of our markets across all the product categories, we have taken price increase and the EBITDA level should come back to order the same 7.5% to 8% that we spoke for.
Fair enough. So this price increase that you have taken beginning January, what is the quantum of this price increase?
In various product market to market, approximately, you can say INR 2 per liter kind of.
INR 2 per liter on the liquid milk, right, sir?
On average. Some products can do more some less.
Fair enough. Fair enough. Okay. Sir, just wanted to understand your view on the milk procurement, how does it look the supply? How does it look going forward? And the -- especially on a price point of view. So we've seen a steep jump in the farm gate prices. Now do we think that will settle down? Or do you see continued inflation into it? Especially given that we've -- there have been torrential rains in south of India, so has that disturbed recycled by any chance?
Yes. We have to watch our transit a very, very fluctuating situation. It is flush season where prices have gone up. And summer months, definitely, there will be fall in the production and there's a fall in the production, demand increases and prices are bound to go up further.
Our next question is from the line of Bhargav Buddhadev from Kotak.
My first question is what would be the percentage share of your overall value-added product business? And what would be the second biggest category in the value-added product business and how much contribution it would be?
I think I'll get the second part of the question. For percentage has occurred on value-added products. And what are the next important second improve right?
Yes, yes, which is the next biggest product in the value-added category and how much is the revenue contribution?
So see, the third actually, the contribution is increasing every quarter. Currently, it stands at about 20% to 21% of the contribution that we have in terms of revenues. And the second biggest in terms of revenues for us would be as far as the product contribution is consumed. We are also seeing aggressive growth in paneer. That will be a third category that is important for us.
Okay. So now that we've launched many product categories in the value-added side. From here on, what would be your strategy? Would it be to sort of increase the acceptance of these products in the market and that's how we will take our value-added up? Or we would also be looking at sort of coming up with more new product launches in the coming years?
So see, I think we have reiterated that our growth strategy depends on growing the share of value-added products in our portfolio. I wouldn't want to put a number to it, but you will see significant growth in the share and contribution of value-added products quarter-on-quarter. And this is 1 line item, 1 metric that we will continue to report as well. As far as our growth strategies are concerned, primarily, we are driven by our growth algorithm, which is very simple to put is based on driving availability as well as demand. Here, I'm oversimplifying it for the sake of explaining. As far as availability is concerned, at this point in time, we have multiple strategies in enhancing our ability or increasing our availability of our value-add product categories across markets. Our primary go-to-market strategy has been through our main distribution channels, but we are aggressively building other channels of distribution. For example, now we have 300-plus strong distributor network which is building our product reach to a club [indiscernible] and stand-alone modern trade in addition to the strong channel that we have in terms of monitored e-commerce. So that network is only growing month-on-month, which is enhancing the growth of our product reach. In addition to that, we are aggressively expanding the presence of our neighborhood distribution stores. And you will see this expanding in most of our noncore markets, our growth strategy will be based on expanding the network of our notable distribution stores. And at the same time, we are also strengthening the relationship with our customer partners in terms of whether it is our national as well as regional partners in terms of modern trade accounts. We are expanding our presence in e-commerce and aggressively growing in good commerce. E-commerce has been a channel which is seeing very fast growth, and we are significantly focusing on that to drive our growth. So that's on the availability side. And on the demand side, you will see going forward, more and more consumer-centric work coming from our side, not just in terms of product design, where we are getting our products even more sharper and closer to our consumer needs. We are working on several projects which will increase our penetration across consumption occasions through the day. While earlier we were serving 2 locations, we are looking at opportunities how we can serve 4 locations through the day for the consumers. We are looking at innovations, which will cater to consumer needs more sharply, and that starts with understanding consumer needs in terms of several studies they are doing with our consumers and understanding their needs in these occasions. And eventually, finally, a science-based approach in creating products that meet these demands in these occasions at the most affordable price. So that's on the demand side and on the availability side. So this algorithm of driving both demand as well as availability is going to be the primary driver for our growth in our value-added products.
And in terms of bank spend, are we looking to significantly up the brand spend because the brand spend as of now is sort of fairly low, right, as a percentage of revenue?
Yes. Sorry. Yes. Yes. So see, primarily, the demand, I spoke at a very high level in terms of consumer needs and product design. But of course, all of this is built on the back of active communications, reaching on the consumer and connecting with them in a more meaningful fashion, and that starts and ends with the brand. And as far as our master plan is concerned, it's something that has very high equity. We are, at this point in time, also working on developing some brands for some of the categories that we are building. So definitely, there is going to be increased investment as far as connecting to the consumers and marketing is concerned.
And lastly, is there any target in the next 3 years? How much contribution you are targeting from this value-added product segment?
So currently, we are at 25%. In fact, for the quarter we [indiscernible] internally, we are looking at anything upwards of certified to a percentage as a contribution that we should have in the next 3 years. In fact, at this point in time, we are concluding our 3-year plans and strategies and numbers. And we are looking at the range of value-added products transition growing up to about [ 40% ].
The next question is from the line of Sameer Gupta from IIFL.
Sir, my question is more on the strategic front. So during the previous quarter, we saw a press release from the company stating that you want to foray into nondairy FMCG. So if you can elaborate a little more on this, what kind of products are you looking at? Are we also thinking at creating new brands? What exactly are right to win in a nondairy space on these aspects, if you could elaborate?
Sure. The launch of those products are still a couple of months, right? So I'll not be able to give very specifics about exactly what the nature of the product that we are going to launch. I hope you will appreciate that. But broadly, if I tell, we are not -- we are -- this venture is purely in line with expanding our business within the scope of the vision laid out for the organization, which is narrating every home and our consumers with fresh and healthy products and employing our farmers. So the products that we have created will help us achieve this vision even more strongly, both on the consumer side in terms of offering healthy and nutritious products. at the same time, strengthening and deepening our relationships with the farmers in the regions where we are procuring our dairy. As far as the core drivers of this business is concerned, we have picked up -- we are looking at categories and product segments which will help to broaden our business. But at the same time, that help us leverage our relationships with the existing customers, so we are not getting any categories. We are not going to get into any product segment which will be required us to create new customer segments. Secondly, we are looking at a business which helps us leverage the synergies in our supply chain even better whether it is in the procurement side or the sales and supply side. The third thing is, strategically, you spoke about the right to win. As far as the right to win is concerned, they are looking at categories and segments that allow us complementarity to our current portfolio of dairy nutrition. That gives us -- I spoke about very specifically building occasions through the day. So earlier, while we were with milk, liquid milk, we are just focusing on morning occasion. But with Dairy Foods, we are now opening multiple segments of the day. And some of the new products that we are looking at might offer complementarity for those new occasions, and we'll be stronger in those locations, whether it is in terms of building out our channels, building out our consumer reach. So that's primarily the strategy. But as far as growth numbers and absolute revenues are concerned for the next for say 2 or 3 years, I should say that it will be predominantly dominated by dairy.
Understood, sir. That's clear. So basically, this is not going to be a meaningful contribution in the next 3 years. And maybe it is going to be incremental in our efforts to build our growth?
That is right, sir.
Okay. And won't get a lot of capital also in terms of branding, communication, building a new route to market, et cetera.
Yes. And I should also be -- I think we had spoken about this earlier as well. We are looking at an asset-light model for this business. We are not looking at any capital investment. We are building this business through a network of third-party manufacturers with which we will have a strategic partnership. And yes, so from that point of view, there will not be too much of capital allocations for this business.
And margins also won't be dilutive to the existing business?
No, absolutely not. In fact, in terms of gross margins, I can only expect this business to contribute more.
Got it. Sir, the second question back to dairy. So you mentioned [ INR 38 ] in procurement price. While I understand this is like more of a correction that you mentioned. But I have seen INR 38 milk procurement price for the past several years for Heritage. So what has changed? Is it more of a Buffalo milk mix, something structural that has happened here? Are we paying more because of increasing competition? What exactly is happening here?
[indiscernible] it was there. The Buffalo mix is what is increasing. The [indiscernible] is available at INR 38 offering, INR 45, INR 47, INR 48. This is no different from any year.
Got it, sir. So any particular reason why the Buffalo milk mix is increasing because my sense is that the excess fat, we are selling at a very low margin. And that is the reason why our gross margins have declined this quarter.
No, no. There is -- again, there is no increase in share of Buffalo milk, more or less same like last 4 years.
But then INR 38, sir, the last whatever years I look at the milk prices have been in the range of INR 30 to INR 35 to INR 38 especially in a flush quarter seems very high. So is it just broad inflation that is catching up on milk also as a category? Or is there something structurally changing in terms of competition and hence paying more to the farmers?
None of that. It's all correction only.
The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.
If you could comment on the growth in the HoReCa segment in our key markets, what trends are we seeing currently? What is the contribution of HoReCa versus, say, 2 years ago?
The contribution in HoReCa business is insignificant. In fact, we will not do any [indiscernible] for -- we do not have -- it's a very -- we might be through the retail segment, we are distributors monthly selling into smaller restaurants and all advertisements as institutional sales, which is not at all of any significance costs.
Okay. Okay. And a couple of quarters, we had laid out a plan and a vision we want to become INR 6,000 crore sales company directionally. And then there was lockdown and we didn't have visibility. So is it fair to say next 4 years, assuming we get there with the focus on value-added products and at a steady state 8% EBITDA margin, we can do a INR 500 crore EBITDA. Is that the direction what we are working on? And is there enough visibility, confidence in the current scenario or this gets deferred and still inside drawing board?
Yes. So it gives me -- actually, I have great confidence that the time line can be made. I really see no reason why in 4 years, we cannot achieve that milestone. We had a setback and not just at the industry and several other to go it, but that's notwithstanding. The foundational work that we have done in the last several quarters is going to help us accelerate the momentum going forward. And you should be able to see that in the next many quarters.
Okay. So next 4 years, so by FY '26, we seem to be confident of achieving that as a direction.
It's only that's what we are working on.
Okay. And you've always maintained more like a 7.5% and 8% EBITDA is kind of a steady state margin. Obviously, that goes up or down depending on the procurement price and product prices of dairy. With the focus now on value-added products, how does that directionally change with scale? Because you're already saying we are at 25%. So is it fair to assume this can be directionally better if we achieve that scale over a period of time with value-added products?
Would you like to -- yes. So I think that -- I request Brahmani on that. We have expenses to fill this growth. So during the growth period, the additional incremental gains we want to use to invest the growth. And maybe after that stability, 2026, then you can harvest the gains of this effort, not during the growth phase itself.
And this is Brahmani here. I would like to add and repeat what Mr. Srideep has said earlier that most of this growth will come from consumer-centric razor sharp approach, which means that we will have to spend on certain resources internally, be it people, be it marketing, as mentioned by one of our participants in the past, et cetera. So I think the change in focus from just being a small company to being a consumer-focused FMCG sort of approach will lead us to maintaining probably the same margins. Whether we strive to -- as we start to look at higher value-added products, we will also look at better margins, but realistically speaking in the future at least, we could be [indiscernible].
Right, right. And in our endeavor to become a whole day consumption kind of a play for the consumer these products, which are still in the pipeline, should happen, say, by the value of this year, the next 12 months, how are we looking at new products to increase our wallet share from consumers?
Yes. So this is Srideep here. So we have -- you must have observed is that we have been launching products in every quarter. In every quarter, we have some new news. And the idea is we are not like saving launch for a day, and we look at the good launch of our products. So we have a good strong pipeline, and some of the new products that we'll be working on will start shipping in next quarter, in fact, in quarter 4. And there will be some in quarter 1 of next financial year as the sector. So there will be continuous new product launches that we see.
The next question is from the line of Sandy Mehta from Value Investment Principals.
As a [indiscernible], I'm just saying that I'm a little concerned that in your presentation for the quarter as well as your prepared comments, there was no explanation of why the earnings and the margins were down. So your presentation for the quarter, you talked about the highlights, the positive but with margins down quite substantially, earnings down, there was no explanation of why that was over a temporary. I think you've answered a lot of those questions on the call. My question to you is you are a net cash company right now. You're generating a lot of free cash flow. What about dividends? It doesn't seem like there's a lot of CapEx requirements. Can we expect -- as the cash piles up, generating the free cash flow, can we expect higher dividends going forward?
I can take the question. This is Brahmani. So as you must have noticed, the -- closing the cash and cash equivalents was about INR 65 crores-ish. What I want to clarify here is that about 80% of back cash is required from the payments in the first week of the following month itself towards our farmers and in the form of incentives and [indiscernible] for employees. So we already define up from [ 15% to 20% ] of that, which is available because also required for other working capital requirements, also including purchase of some commodities, such as powder, et cetera. Coming to the question on dividend policy, which is already up on our debt side. there is very clear policy and the Board takes a decision on that, depending on what the results are required for growth and sustainment of the business, and that is something that from time to time, and recommend.
The dividend policy earlier the company had debt, but now that you are in a net cash position, I understand that there are working capital requirements. But I presume that cash increased. So is it -- will the Board at some point, is it likely to increase the payout ratio? What is the CEO's ties?
[indiscernible] and we'll keep you posted as and when we have some decision or thoughts on about it.
Okay. I think [indiscernible] dividend has been announced, keeping that in view
Our next question is from the line of from [indiscernible] from Anvil Wealth Management.
You quoted [indiscernible] so the trend of cases there or this is corrected back to around [indiscernible]?And second question I wanted to ask at origin of 6,000 over the next 4 years, and it's 40% value add, which requires us of 24%. And on value-added products, which is just 25% right now. It will be [ 22% ] compounded growth VAP. In your view, is that achievable in the next 4 years as it requires a very high growth rate. And currently, we are growing at around [ 12% to 15% ].
Yes. On the procurement prices, yes, it was more correction, as I explained earlier. And during this quarter, we would have typically higher share of Buffalo milk compared cow milk, as this is seasonal.
The growth of Value-added products going forward, you're right, the growth in value-added products needs to be high. And we've seen high growth north of 30% in the past, barring the last 1.5 to 2 years because of external factors. And we are confident we will be able to achieve those growth from our star product which is good and also from a more diversified set of value-added products such as drinkables, dairy foods, et cetera.
On the procurement side, sorry, I didn't get the 30 should correct to 35% level. Is that what you mean in Q4 onwards? Hello?
Yes. Very clear.
It is...
Yes, go ahead.
Yes. So cost in rupees per liter should correct to INR 35 per liter for Q4. Is that what you mean?
No, no, no. It was actually driven and moved up during the quarter 3. It moved up further in the summer. But in the future, there will be some change in the ratio of buffalo cow. In summer months, cow milk ration will increase, buffalo milk will come down. So that would lead to some amount of correction again.
Our next question is from the line of Shirish Pardeshi from Centrum Capital.
Two questions. The first question is on top of my mind, two parts before I did ask the question on one DJV. I hope by now you have some idea how this business looks like next 2 to 3 years. And quick feedback, the products what has gone into Gujarat and Maharashtra market. What is the learning? What is the size and scale, which you can expect or if you can share some commercials around that business now?
Sure. This is Brahmani here. I sort of explained just in length in the beginning, but happy to go through it again. So as you know, the products have been launched during the sort peak of the second wave of COVID in the Maharashtra area. But we've seen some very good traction, especially in [indiscernible]. And you've seen that all limes have done well. I'm also happy to mention that we've expanded our range of studio gets into plain natural syrup in bigger pack sizes is led existed back use. We've also launched our products across newer markets and in Delhi, Hyderabad as well as Bangalore and we've seen very good traction within a very short period of time. We are present across key modern-format stores. We also due the product across e-commerce channels, any comment clears. And now we're going through the growth phase of just improving our distribution across these players, but also a gentle which will lead to better margins, better growth going forward. And that's what we are really looking forward to. And just ending the summer season, we believe that the season will be an actual measure of I've seen, and we are quite excited about the season as well as next FY as partners in the JV.
That's helpful. Just wanted to understand, what is the quarter run rate we are expecting in the next 2 to 3 quarters?
Can you repeat, please? It's a bit blurry.
I'm asking, sir, what is the quarter revenue run rate we are expecting after 2 quarters?
Yes. I think I can share that we are able to increase our revenues by 2.5 to 3x in the next couple of quarters to come, especially because like I said, we're entering the season, and we're looking forward to growth in these new markets is there.
Understood. My second and last question is on, in between, we were addressing that we are trying to enter into a new product categories and efficacy. Just more curious to look around what are the adjacencies that you're looking? Is it related to dairy or it is nondairy completely value chain, which we are developing. And more importantly, if you are getting into nondairy, how are you going to build the distribution channel? And then moderate is one of the common partners which is very helpful, but building a different channel will take time. So that's the question which I have.
So thank you for that question. Some parts of this question we had already addressed. I'll repeat that just for the benefit of clarifying. We will have innovations both on the dairy side as well as on the nondairy side. In fact, I had mentioned that in terms of growth numbers, in terms of absolute revenue additions in the next couple of years or the foreseeable future, bulk of it will come from dairy. So it is not that renovations are going to happen only in nondairy foods, but it will happen significantly in dairy foods as well.And in the dairy side of the business, we have looked at category clusters where we have an advantage to serve our consumers as far as nutrition is concerned. And that makes a business sense for us in terms of profitability. And these, if I can largely fluster them, would be good opportunities in terms of dairy based food opportunities, like whether it is cow milk, many other subsegments that make part of this, creating more locations for consumers through the day. The other large dairy segment in which there is a category as you will see a lot of innovation from us is in the beverage space, and beverages at this point in time, most of the companies have traditional dairy beverages, whereas we may be looking at science-based new innovative beverage formats going forward. So in this -- and likewise, and we are looking at other categories like ice cream pointer and all that, but bulk of our dairy growth will come from full locations as well as drinkable. Similarly, in the nondairy base, I spoke to you about categories, which create complementarity as far as our dairy business is concerned, both in terms of things like this as well as consumer occasions. So we do not see any challenge at this point in time in building out that business. I mentioned about 300-odd distributors that we have very recently appointed and aggressively growing that number in terms of getting us a reach of distribution to grow the channel, stand-alone modern trade, national market rate regions. These are the same channels which will sell our dairy products as well as the food -- complementary food products that we're trying to enter. So we will have -- I really do not see any challenge at all in that being additional burden on us. In fact, we are very particular that we do not want to create anything that requires any unique or special investment of ours.
[Operator Instructions] The next question Sameer Gupta is from the line of -- from IIFL.
Just another question from me. If you could help me with your current geographical mix in terms of Hyderabad, rest of AP and Telangana, Northern India, rest of India, any other geographies which is gaining importance in the current?
We have a wide footprint. In fact, we are present with sales offices in the country. And in fact, beyond much more -- many more number of states through modern trade channel networks to wholesale partners. And this is primarily spread across Telangana, Andhra Pradesh, Taman, Karnataka, Kerala, Maharastha, Delhi, Haryana, Punjab. So it's -- we have quite a spread out market as well as our product presence distribution is concerned.
My question was more on the revenue mix, sir, like how much does it come from Hyderabad today, rest of AP and Telangana, northern India, rest of India, any other market, which is of prominence in?
Sameer, we'll share with you on one to one. This is becoming an issue for us.
We have the next question from the line of Seda Patara from Angul Wealth Management.
Sir, I wanted to ask about the competitive intensity on -- so in terms of milk procurement, how has that trend emerged post this COVID phase?
During the second wave -- sorry, first today on second wave, there was an issue for farmers to sell their milk. Not many takers were there, so those who are organized companies like ours picked up all the milk our farmers have, and it has created a surplus scenario, and we had to convert the milk into powder and hold. That was the first wave, second wave. But the third wave, this came in with less impact on the movement of people or movement of goods and markets. So therefore, there is no issue in terms of procurement. Our marketing challenges for the farmers now in this third wave. So all the players unorganized cooperative, everyone is active and procuring well. And most of the SMB stocks got exported during -- before the commencement of the flush season. So there is a demand for milk powder also continuingly growing. Therefore, currently, there is no issue in terms of farmers for selling their milk availability and good. Competition is also good.
Okay. Okay. So just an associated question. So could it be that there could be increased competition in terms of offering better prices for raw milk in the coming quarters by your competitors and the operators?
We will also offer not only competitor. We are also increasing farmer price last 2 months, 3 months. Every month, we have been increasing price to farmers. There was a lag in passing on that increase to consumers. That is also happening now, so the coming months seeing the overall scenario as the lactation comes down naturally from animal by March. And from April, summer, September will increase production will fall. Demand will increase. Prices will also increase. There's a natural phenomena all will follow, including us.
And you are not seeing any challenge in passing on the prices. It's not affecting demand for your products, right?
There is a delay in passing on, as Srideep explained. We had gone through the year cyclones in November, extended into December. There was colder winter and omicron hit in between. So that there was some delay in passing on the increased cost, but now the season is changing. The temporary sales are changing, rents are over. So passing on started and it will be complete by end of January or so in all the rest of the markets also.
And it may absorb easily if I conclude.
Sorry?
It is being absorbed easily by the consumers. As in, there is no falling volumes for you to increase prices, right?
We have not -- sorry, it's not easily absorbing. What did you do when petrol prices went up from INR 70 to INR 110. Did you not buy petrol?
Correct. Correct. Correct. Got that.
Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Dr. M. Sambasiva Rao for closing comments. Thank you, and over to you.
Brahmani, would you like to conclude?
Sure. Thank you so much to our valuable participants for all your discussions and questions. And I'd like to reiterate that despite our external conditions of monsoon, political or extended rainfall as well as the onset of the so-called third wave of COVID, we've been able to show some interesting growth, especially on the back of growth of value-added products. We, as a company, as Heritage Foods and management stay committed to our stakeholders and our regions of delivering fresh and healthy products to our consumers on a daily basis and empowering our farmers. And this is coming through a specific consumer-centric approach, as mentioned during our call and also by tightening our relationship with the farmers that we've had over the past 3 decades. During the last 1.5 to 2 years, we continue to do extend service activities and rollout loaning subsidized catalyzed insurance for animals, et cetera. And we haven't stopped doing all these empowerment activities with our farmers. In fact, we've also launched an app called Vets App, which now has 80,000 plus unique registered users. We are always open to answering questions and if you have any.
Thank you very much. We thank everyone for joining us today for this call. In case of any further questions, clarification, suggestion or feedback, you can connect with Mr. Umakanta Barik, Company Secretary and Compliance Officer. [Foreign Language] Ladies and gentlemen, on behalf of Heritage Foods Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you. Thank you very much.