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 Group's Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the floor over to Mr. Hiral Keniya. Thank you, and over to you, sir.
Thank you, Tanvi. Good evening, everyone. I welcome you all to the earnings call of Heritage Foods Limited for Q4 and FY '21. Today, we have with us the management represented by Dr. M. Sambasiva Rao, President; Mrs. N Brahmani, Executive Director; Mr. Umakanta Barik, Company Secretary and Compliance Officer; Mr. A. Prabhakar Naidu, Chief Financial Officer; Mr. J. Samba Murthy, Chief Operating Officer. Before we get started, I would like to remind you that the remarks today might include forward-looking statements, and actual results may differ materially from those contemplated by forward-looking statements. Any statements we make on this call today is based on our assumption as on to 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, and over to you, sir.
Thank you, Mr. Hiral. Very good evening to everyone. I, once again, welcome you all to this earnings call of Heritage Foods to discuss the performance of quarter 4 and financial year '21. I do hope all of you are safe and healthy during this challenging period. The results presentation has been uploaded on the exchanges and we had an opportunity to look at it by now. Before taking you all through the financial and operational highlights for the quarter and for the full year, I would like to apprise everyone that based on the improved profitability for the year. The Board of Directors has recommended a final dividend of 100%. That is a dividend of INR 5 per equity share as a reward to our esteemed shareholders. Heritage Foods, as you know, is amongst India's leading value-added and branded dairy products companies, and it enjoys a strong brand affinity with its consumers. Heritage Foods' milk and value-added products such as paneer, curd, flavored milk, lassi, ice creams, among others, are consumed by more than 1.5 million households in 11 states across India and especially known for its products, purity, authenticity, quality and freshness. The company enjoys long-term relationships with more than 3 lakh farmers and has a wide distribution network comprising of more than 6,000 distributor agents. Company has 18 state-of-the-art milk processing factories with a processing capacity of 2.7 million liters per day. Heritage through its wholly owned subsidiary called, Heritage Nutrivet Limited has a significant presence in the cattle feed business and serves all our farmers across 8 states. Demand for nutritionally balanced compound feed is expected to register a 7% CNGR during next 5 years. The company is happy to announce appointment of Mr. Viney Vatal as CEO of Heritage Nutrivet, which is a step towards Heritage's increased focus towards the capital feed and nutrition business. He has over 2 decades of experience in business leadership roles and has expertise in managing business operations across markets and compares with a key focus on profitability by ensuring optimal and right utilization of resources. Now I'll take up the financial and operational highlights of the financial year 2021 followed by the quarter 4 performance of Heritage Foods. Consolidated revenue for the financial year '21 was at INR 24,731 million, as compared to INR 27,259 million in FY '20. The company was able to achieve EBITDA of INR 2,712 million as compared to INR 1,354 million in FY '20, registering a significant growth of 100% year-on-year. But just I would like to mention, this year, we have moved our numbers in the millions. Earlier, we used to mention about crores. I do hope you'll take note of this change. Aided by lower raw material costs, EBITDA margin improved up to 11% as against 5% in FY '20. The company reported a net profit of INR 1,483 million as compared to a loss of and INR 1,694 million in FY '20 because that was including the investment-related numbers. The adjusted EBITDA, excluding other income and finance costs stood at INR 2,669 million in the FY '21, registering a growth of 107%. EBITDA margin expanded by 608 basis points to 10.8% as against 4.7% in FY -- previous financial year. The adjusted PAT, excluding exceptional items, gains due to changes in fair value of derivative liabilities and fair value loss of FVTPL securities and P&L from discontinued operations stood at INR 1,531 million in FY '21, growing exponentially by 221% year-on-year. Coming to consolidated data. Consolidated revenue for quarter 4 was at INR 6,194 million as compared to INR 6,526 million in Q4 of FY '20. EBITDA was at INR 470 million as compared to INR 277 million in quarter 4 of the previous year, registering a growth of 70% year-on-year. EBITDA margin improved by 334 basis points to 7.6% as against 4.3% in Q4 of FY '20 on account of, again, lower raw material costs. The company reported a net profit of INR 244 million as compared to a loss of and INR 2,099 million in Q4. Overall, the profitability of dairy has improved mainly because of the decrease in raw material costs and better selling prices of milk and value-added products compared to previous financial year. The adjusted EBITDA stood at INR 455 million in quarter 4, registering a growth of 70% year-on-year. EBITDA margin expanded by 325 basis points. The adjusted PAT stood at INR 244 million, growing by 240% year-on-year. Coming to Heritage Nutrivet, our wholly owned subsidiary. It's also adding meaningful contributions now. During FY '21, the sales grew by 17% year-on-year to INR 1,215 million. EBITDA grew quite well by 1.8x to $135 million. EBITDA margin expanded by 646 basis points year-on-year to 11.1% in FY '21. PAT stood at INR 72 million with a PAT margin -- PAT margin expanding by 593 basis points year-on-year to 5.9% during the year. On the balance sheet front, our long-term debt is now at INR 469 million as of March 31, 2021. Debt equity ratio stood at 0.1:1. The company having a cash and bank balance of INR 218 million as of March 31, 2021. Improved operating performance and healthy balance sheet helped in achieving ROC of 32.6% and ROE of 28.9% of the FY '21. Now moving on to volume performance. The average milk procurement during quarter 4 was 1.2 million per day -- liters per day as compared to 1.3 million liters per day in Q4 of previous year. Average milk sales during Q4 was 1 million liters per day compared to 1.1 million during the Q4 of last year. Curd sales during Q4 was at 278 metric tons per day as compared to 294 metric tons in the previous quarter -- quarter 4 of previous year. The company continued with the efforts of enhancing value-added products portfolio, and I'm happy to inform you that the company launched during this quarter for cheese several variants, Mozzarella and processed and fresh cream in tetra pack packets and cold coffee and also expanded its ice cream variants.Revenue from value-added products was at INR 1,608 million contribute -- and contributed 26.6% to the overall revenue in the quarter 4. For the year 2021, it contributed INR 5,825 million, which is 24.2% of the annual dairy revenue as against 27% during the previous year. The VAP have clocked a CAGR of 5.8% during '17 and '21. The VAP consumption declined in '21 due to the drop in out-of-home consumption in view of the COVID pandemic and its regulations. However, the demand for value-added products is expected to bounce back in the days to come. The company's growth mantra is to empower farmers and build a strong product portfolio through its consumer-centric approach. Heritage aspires to be a nationally recognized brand for healthy and fresh products with a focus on efficient capital management and maximizing shareholder value. Now we'll open the floor for the question-and-answer session. Request all the members to give their feedback or raise any queries. And post this call, if you have any more issues or information required, you may reach out directly to Dickenson World which is now our investment relation agency. Thank you very much for your patience and giving this opportunity.
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Aniruddha Joshi from ICIC Securities.
Yes. Hello, sir. Congrats for a good set of results. Sir, 2, 3 questions. One, how do you see the impact in Tamil Nadu with Aavin cutting prices by INR 3 per liter. So I guess we also generate around 10% revenues from Tamil Nadu. So what will be the impact on pricing power over there. Also, secondly, milk recurrent prices, which were increasing now probably have again come down. So if the milk recurrent prices again start increasing, then how will we see the pricing power and the margins, particularly in Tamil Nadu? Second, impact, in terms of Novandie how is the sales? I agree there has been lockdown in Maharashtra as soon as the launch happened, but still any initial feedback that you can share on Novandie? And third now company has almost net cash balance sheet. So any thoughts on buyback considering the valuation also? Yes. That's it from my side.
Coming to your last question on Tamil Nadu sale price issue. We don't see a significant impact as of now. We have taken certain strategic decisions to pass on the part of the gains from the procurement price drop to consumers. But as and when possible, we will be able to recoup that. That's not going to make a big dent into our margins. We have multiple variants of milk in Tamil Nadu, full cream milk, standardized milk, toned milk, double toned milk, family milk, et cetera. We'll be pricing differently on different variants and try to regain our volumes as well as margins as situation improves currently because of the rigorous implementation of the curfew-related regulations, the trading window for the shops is very minimum, and we are facing certain impact on the volumes, but things should be normal as soon as the regulations are liberalized. Procurement prices. Yes, as you said, it's gone up towards the quarter 4 as the situation was looking normal, either sales volumes or procurement volumes, prices. Dairy sector is moving upwards, moving towards a normal scenario, but wave 2 of COVID has again brought down the situation to last year's conditions with procurement volumes and procurement prices or sale volumes. Everything is reflecting like previous year quarter 1 as of today. But as situation normalizes, industry will look forward to have the normal operations. We are not very sure whether it takes 1 month or 3 months. But the nation is predicting, as you all must have heard, the peak is now over in the month of May. We crossed 4 lakhs cases a day, and now it is now 2.5 lakhs -- around 2.5 lakhs. So it may slowly come down by June and with vaccination around, so it might be under control. Wave 3 is predicted in October again. So we are all watching day-to-day developments of the pandemic and control measures and readjusting ourselves to the new situation week-on-week and trying to cope up with the operations and bring back the normalcy into the business. I request our Executive Director, Ms. Brahmani, to take the question on Novandie and buyback.
Sure. So when it comes to our operations of our JV business. We had commissioned our operations in the Mumbai market through our own facility only in the month of March and now to be more specific in the end of March. So we -- as you all know, the Mumbai market has been hit hard by a second wave of COVID. So while we are selling our products, we are doing it in a very limited way through limited retailers. We are waiting for the situation to get better. Sir had mentioned situation seemingly is getting better, and we will rollout our full-fledged expansion plan in the Mumbai market and in the other markets where we were also expecting to launch our product in the next couple of weeks or months, so this includes potentially the Hyderabad market and several other markets. That is the status of Novandie. Now coming to buyback, the Board has not yet taken any conclusive decision on the same. However, as mentioned earlier, given the fact that a significant part of the term loan has been prepaid or repaid. And given the fact that we are sitting on about INR 58 crores of term loan as of March 31, 2021, the Board had decided to recommend a 100% dividend to the shareholders.
The next question is from the line of Rajesh Ranganathan from Doric Capital.
Thanks for the opportunity. And I just wanted to get your sense, when we look at the numbers reported by Hatsun, in terms of their sales growth for the March quarter, and also their sequential decline, they also had a sequential decline in margins. But in both places, their performance was much better than ours. So can you help us understand what is the difference between from the performance of the 2 companies?
Yes. Mr. Rajesh, you have put me in a very difficulty to talk about competition, but I will try to restrict myself to heritage business. We are focusing mostly on B2C consumer business. We are not having much of the bulk transactions. Secondly, we have also preserved certain stocks of fact during the month of March, anticipating good sales in the summer months. We could -- we did not sell a significant quantity of the fat stocks. We carried forward into the current financial year. We would be consuming them during this period. So had we disposed all the stocks, maybe we would have shown the kind of rate of growth you are expecting. Coming to Heritage, that is the stand. But coming to competition, maybe we can see how to understand their business separately.
Okay. And that is helpful. And obviously, the pandemic creates issues in terms of our growth execution because everything is somewhat in a standstill. But from a point of view of -- new opportunities, Novandie is one of them. And one of the other areas you were focusing on was ice cream in terms of you had planned a big relaunch you started that last year. Could you give us an update on where we are with our ice cream strategy?
Of course, you must have noticed ice cream was a washout last year with the COVID pandemic. No sale outside the home. Very, very meager sales have happened. This year also, we were regaining our traction. We're regaining the volumes towards the quarter 4 compared to the quarter 1. Almost -- I think we doubled -- more than doubled our sales in the quarter 4. While the momentum was picking up, again, the wave 2 hit us, again, now the volumes are on a lower side because of the restrictions. Though ice cream is part of the dairy industry, but the government regulations do not recognize ice cream as part of essential commodities like milk and other dairy products. So the movement is an issue. Point-of-sale are closed, point of consumption is an impulse consumption. It doesn't happen outside all the malls, shops, everything is shut. So it's only home consumption. Ice cream is not the most home-consumed item. So ice creams business is in doldrums, the last year and continues to be this year also. And we have very small contribution coming from ice cream as part of our top line. So it doesn't so much on us. But companies who depend heavily on ice cream would have difficulties during this summer, too.
But it's something which we want to grow in our business. And so could you help us understand the strategy in terms of we've relaunched with a new brand. And so what kind of positioning are we looking at? And I know it's -- we don't have much sales to show for it, but from a point of view of preparation, where are we in the business?
Yes. We are, of course, we have upgraded our infrastructure in the back end in terms of manufacturing extruded products also in-house. Earlier, we used to outsource extruded products. Now we have upgraded our infrastructure, created additional -- more than 100,000 liter storage capacity, the cold rooms, geared up for the distribution planning. We put around close to 1,000 new outlets got added to our -- our product in terms of retail outlets. All that is ready, but market is shut. So this is perhaps the right product, but season is not cooperating with us in terms of external factors. And till, let's say, April, May, June, this is a quarter for ice cream business and to some extent, in July in some parts of the country. Beyond that, ice cream business will not be a significant volume. So in essence, most of the ice cream season is going through this pandemic-related regulations, curfews, lockdowns in various parts. I don't see much benefit of focusing on ice cream during the current financial year, except for gearing up for the next summer commencing from March 2022 onwards.
Okay. And one of the areas where we have seen in other countries, they've managed to register excess growth is on immunity related drinks, haldi milk, for instance, in India or in other markets, ginger milk. So we've also launched many products in this area last year. How is the performance of those right now?
Not really significant. We tried to place the products, but offtakes were quite low, not only for us in general. I think that's a product which is not purchased and consumed. It's more of a home remedy. People believe making those golden milk at home and consuming more than purchasing and consuming. So we didn't see much traction on immunity milk, too.
Okay. Final question from me before I let go. In terms of our online efforts, last year, we had benefited from it, and we are also putting more effort into. Could you help describe our efforts online, both in terms of brand building and in terms of e-commerce?
Sure. I request Brahmani to respond to this.
Yes. So e-com growth, and in fact, UIA channel growth has been looking very positive for us. And as rightly mentioned, more consumers are buying online, myself included. And they're looking for not just milk cord and value-added products. And hence, strategically, we see this channel as being very important. We've seen a significant growth in sales, both in terms of volumes as well as revenues through this channel. In fact, talking about volumes, we've grown about 46% year-on-year through just e-comm channel FY '20 to FY '21. In terms of sales, it was over 65% because of a strong product mix through e-commerce. Similarly, we've also seen a lot of traction when it comes to MRF. So MRF plus e-comm sales put together in relatively newer change and significant change where we've started growing. We've seen -- so this includes BigBasket, Super, Reliance and some of the other local but very significant brick-and-motor MRF stores. We've seen an overall growth of over 15% year-on-year. So these 2 channels of MRF and e-comm are looking very positive for us, for milk, value-added products not just curd, but other products such as ghee, paneer, et cetera.
Would you able -- would you also be able to comment on what are brand-building efforts online? And would you also be able to say what -- say, within a channel, say BigBasket in Bangalore or BigBasket in Hyderabad, what would be our market share compared to competition? And how does that compared to our offline market share?
So online volumes are definitely much lower than what it is offline. Since the efforts have been quite recent. But in terms of branding, we've been spending a lot more time and resources on social media and digital media marketing. So if you look at our Facebook page and Instagram pages, et cetera, YouTube page, there's been a lot of new content, which is engaging. We've been using a lot of influence on marketing. A lot of this content not just on our own platform, the third party platform, e-commerce platforms, et cetera. And as a result of that, we've seen a lot of engagement also from consumers, especially new age consumers. And it's very relevant in the context of value added products launch as well as R&D going forward and growth. In the past year, obviously, because of COVID, we didn't spend too much. We wanted to be much more efficient when it came to marketing. We spent about 0.3% of our revenues on marketing, especially digital again. But this year, in order to improve and ramp up our growth and sales, we're looking at about 0.8% to 1% spend on marketing. And this will also be primarily focused on newer -- on new-age digital channels, e-commerce, et cetera?
Thank you so much. I'll go back in the queue. And if there is -- because there are a couple of more questions, but it is -- and I'll come back later.
[Operator Instructions] The next question is from the line of Ramakrishnan B. From Equity Intelligence.
Good set of -- congratulation for the good set of numbers. See, we have seen very volatile margins between 4% to 11%, 12%. So with the value-added product is increasing? And what are the other strategies wherein which you can have a stable margin? And what kind of a stable margin you are expecting going forward?
It's a very difficult question because milk prices are heavily dependent on multiple external factors, including weather, the public policies of state government, central government, foreign trade policy of central government, where the duties are adjusted very frequently. Sometimes it is duty-free import. Sometimes it is incentivized export. Sometimes exports are banned. It will have impact on the pricing in the domestic market. Similarly, global availability surplus demand scenario and global demand. Economic conditions are diplomatic relations. The number of global factors, government factors within India and weather, they are influencing the availability as well as the price trends apart from the current pandemic scenario last year and this year also. It's not an easy scenario to say we have a stable margin on particular levels. But going by the performance of the company and the sector, we can say 8%, 7.5% to 8.5% of EBITDA margins can be kind of right steady state margins. Whether we achieve that or not is dependent on multiple factors as already listed. But that is a threshold factors the sector can deliver in except certain companies where the contribution of value-added products is quite high. Or in certain years, they get an advantage due to the windfall games that happened for various reasons like suddenly, milk powder prices crashed to INR 130 last year April, and it went up -- it was INR 330 in one month before. 2020 March, kg milk powder was INR 330. And April, May 2020, it fell -- fallen down to INR 130, INR 140. That kind of fluctuations are windfall games. They might put certain companies for a period in advantage, certain companies in a disadvantage. So there are multiple factors to say, why it is 4, why it is 11, and it is -- much of it is external. Very less, 80% of the sales realization goes to farmer as a raw material price. Remaining 20%, you have logistics, you have power, manpower, packaging, depreciation, finance cost and margin. So the efficiency factor cannot influence so much of the margins. It is more of the raw material side. With greater focus on value-added products, yes, if our contribution increases like this, we have been making efforts, our value-added contribution to the total revenue was 3% 15 years back. Now we -- last year, we went up to 27%, and we were trying to move it up to 40% over a period of 5 years. But the COVID came in the way. And again, out of the -- out-of-home consumption has fallen. And our contribution has come down to 24% for full year of 2021. Whereas, again, it was picking up towards the third quarter and fourth quarter, it reached 26%, 26.5% by quarter 4. We thought we'll reach 30% soon. Again, wave 2 has come and impacted us. So if these external factors are under control, we can move up to 40% in next 3, 4 years or 5 years and improve our margins. That's the way forward, I would see. But this is all subject to external factors which are not very clear in terms of predictability.
The next question is from the line of Nitin Gosar from Invesco.
A couple of questions. If I were to look at the past history, the way business has behaved until 2018. And if I were to see the business between 2018 to '21, I think recent factors have been disappointing versus the past history in terms of growth. Incrementally, how should we see this business to shape up? What are the challenges which we have witnessed in last 3 years? Is it more to do with sourcing, execution? Or is it that the resources got spreaded across various states, we were not prepared for those kind of turning out our resources at that point of time. The track record shows a bit of -- somewhere, something has not been as per the expectation. And we have been talking about the volume numbers like milk sales for a couple of quarters now. If I were to reflect back on the numbers, in last 4 years, it has not been able to cross 10 lakh liters per day on a sustainable basis. The moment it [indiscernible] demand led hits line and again it starts to fall off. There are certain external factors that we do acknowledge and agree over the past 1, 2 years that we have seen. But what is there -- what company can bring on table and can ensure that the growth rate comes back? And certainly, the external factors are there to challenge you. But internally, what all we can do from here on?
In terms of volumetric growth, if you see, we have exited certain markets as part of our rationalization exercise in Punjab, Rajasthan and parts of Maharashtra, Madhya Pradesh, which was there when we acquired the Reliance Dairy business. So that has also impacted in terms of volume. Second factor was scarcity of milk in the year 2019, '20, that has also impacted. The prices were very high and milk scarcity was there. And subsequently -- I mean, I was referring to year on year '18, '19, '20, because '20 was well-known -- 2021 is pandemic impact. '19/'20 was scarcity impact. And '18/'19 was rationalization and withdrawal of certain operations from certain markets. So that's about the past 3 years. And coming to the activities, we have now created additional infrastructure. For example, 1 lakh liter greenfield plant has been completed towards the end of March '21 on Mumbai Surat Road, which has capacity to supply milk, curd, buttermilk to Mumbai market. We are also trying to add other value-added products to the same plant at the earliest. We have also created infrastructure of 50,000 kgs per day occurred in Hyderabad market. A plant -- new plant has been constructed in Hyderabad. And another 50,000 kgs per day curd-making plant near Visakhapatnam was added. So this year itself, we have added 1 lakh liters milk packing capacity and another 1 lakh kgs of third packing production impacting capacity in these 2 strong markets. So the additional infrastructure should help us in building the volume during the current year. But current year is again subject to the pandemic impacts right now, so we couldn't take advantage of those infrastructures created. So we are geared up fully internally in terms of infrastructure, in terms of team and technology, making pure and fresh product to the consumers with the same commitment on quality. So we should be able to take off once the external market conditions improving.
So sir, the second question was on Nutrivet business. This business has been growing at 15%, 16% ranges for last 5 years. We are trying to bring in new talent who will drive the business from here on. Why a 7% growth outlook for next 5 years in that kind of business, where we are deferring additional resources as well?
7% was sectoral growth I have mentioned in my opening remarks, not company growth.
7% for the Nutrivet business, right, sir? Outlook right?
No, no. Cattle feed business outlook for the country was projected by the sector. That's not our company growth. I was referring to sectoral growth.
The next question is from the line of Prashant Kutty from Sundaram Mutul Fund.
Firstly, I just want to have a clarification first. Don't take this as a question. The liquid realization and the liquid milk procurement prices, that has been missing. If you could probably share that data? You've always shared that in the past.
Liquid milk realization and the procurement price. Yes, we will share it right now, maybe towards the end of call.
So a couple of questions from my end, sir. Firstly, just to the previous participant's question in terms of the volume trajectory, like you highlighted that there were - there has been last 3 years, some or the other impact that happened either internally or externally.Just wanting to draw some reference over here to a lot of other categories or where most of these categories have kind of come back to normalcy or even gone beyond normalcy, I'm just kind of drawing references at a national level. But if you look at categories like tea and all of them as well, even they have kind of seen fair bit of volume increase. I'm presuming that large part of the country does have milk tea. I'm just trying to understand that why are we probably still falling short in terms of our liquid milk sales volume numbers, whereas we are actually seeing in-home consumption is probably superseding, maybe even the out-of-home consumption as well.Just wanted to pick your thoughts, what part of the demand has not yet come back to you? Or is this a...
Yes, yes. Prashant, I understand, we are not catering to entire nation, we are gathering to certain select urban markets. Let me explain to you. If you take the case of Hyderabad, where we have -- or Bangalore, a lot of people have returned to home because the schools were closed and IT companies have begin work from home. Most of them used to consume here in the city of Bangalore or Hyderabad, they have returned to home. Their consumption of milk is met by the local farmers who are producing milk in the village.And urban consumption has fallen to the extent, whereas if you take tea, they consume tea in urban area, rural area produced the same brands. So it's not comparable because people have moved back to their rural areas.Second, they didn't come back even after situation normalized because schools have not open. And they vacated their apartments and houses on lease and left them. There's no compulsion for them to come back to City. If I have 1 lakh people in Hyderabad who left this high-end workforce, in office kind of situation, they would have taken 4 cups of beverage per day, 4 lakh cups of coffee or tea. That kind of consumption vanished.Schools have been closed. The markets are closed. So the milk is related product where it is available in elsewhere. Where they went, the milk is available locally. Earlier, we used to get the milk to city. Now they went their place where milk is available. So there's a big difference with milk and other commodities.
So you're trying to say that...
That is workforce-- workforce migration. A lot of construction sites have been closed. And most of the people in our markets have left where we are operating to their states like Orissa, Bihar, or Chhattisgarh, Jharkhand for areas from where they come and stay here to work. That force has gone back for a long time. They came -- again, they are returning. So the markets where we operate are urban areas where population is dense. And this population is getting back to roots.So we will not carry the pack there and sell, whereas they get local supply themselves. So this is something you have to understand why the milk sales go down during this kind of situations, maybe the some other process foods may not go down because they have the supply chain there, and they are established for the rural areas also.We are not established for rural areas. Rural area is our procurement center, urban area is our sales center. Whereas for processed foods, both areas are tail points, and they have established network. Ours is a perishable product. There's is long shelf life, ambient temperature. How do you compare tea with milk, though they are consumed together.
Understood. Sure. Sir, second question is on the margin. So you just said that obviously, procurement kind of went up a bit sequentially as well. So if you look at right now, our gross funds are probably closer to the levels what we probably had around 2000 -- start of 2019. So safe to say, again, that these spreads which you were enjoying in the last 2, 3 quarters, of about INR 11 to INR 12 that would have now come back to the INR 6 -- INR 6, INR 7 level. Is that a fair assumption because procurement would have gone up a lot?
Yes, yes. Current quarter scenario, we'll explain later, not now.
Okay. Okay. Sure. And I'll just wait for your...
Yes, Prashant, just a moment, we have the answer you have asked for net realization and procurement price. And Mr. Prabhakara will explain.
Milk sales realization for the quarter 4 of 2021 is INR 46.21. Milk procurement cost per liter for the same quarter is INR 37.25.
Okay. This has been almost a INR 3 increase.
The next question is from the line of Vikrant Kashyap from Kedia Securities.
Good evening, sir, and congrats on very good performance during this challenging period. Sir, referring to one of your comments in last quarter on our revenue target of INR 6,000 crores by '24, had mentioned that due to COVID impact we'll have to recast the time frame and will update on it. So any comment on that, sir?
Yes. I'm just thinking what to say.
Yes. I think the idea...
I understand the COVID challenges are still there. It's tough time to ask this question again. But I'm without any options because you just mentioned that if COVID is not there, in 3, 4, 5 years, our VAP will be 40% that you were targeting earlier. In that sense I thought to ask this question.
Sorry, can you repeat the last part?
Last part, when today, in the earlier remarks, you said that VAP sales could be 40% in 3, 4, 5 years if COVID is not there. So in that context, I thought to ask you the question on revenue target of INR 6,000 crores. So how long we are deferring it where do -- because you are going for CapEx plans as it was...
So we initially decided to put 2024 as the time frame to achieve that, so we -- last to last financial year. And this financial year is also in difficulties as of now. So we are yet to see whether we put 2025 or '26, when we can reach that number is subject to the scenario that comes out of this current wave 2 and expected wave 3. Therefore, we are just looking forward to settle down from the current struggle and fight, what happens in the market, then regroup our thoughts and put some time frame on that. It's not done yet. So that much I can say today.But we are surely having the target of INR 6,000 crores in mind yet to readjust the time frame, whether it is 2024 looks out of feasibility as of now, whether it requires 1 year or 2 years or what kind of time frame is required. We'll go with the time and see as the situation becomes normal.
Okay, sir.
I would like to add 2 points to that. Having said that, we are working in that direction. Of course, it's been a tough year. But if you look at our performance in Q3, Q4 versus Q1 of the last financial year, we've shown a growth in volumes of several products. So Q4 versus Q3 itself, you've seen revenue numbers, we've grown in milk, we've grown in curd; ice cream; buttermilk; other value-added products, such as flavored milk and ghee, et cetera. So the idea and the efforts are towards growing in terms of volumes, not just in milk, but also in value-added products. And these are going in that direction till the second wave hit. So we are hoping that we come out of it very soon and go back on the same trajectory. Secondly, I think there was a point on CapEx, where there was a point made that we're spreading the same. As of last financial year, we spent about INR 88 crores on daily CapEx. But this year, of course, since we build a lot of capacity, 130 metric tons of curd capacity and 1.3 lakh liters per day in terms of milk packing capacity, we will be much more conservative in terms of CapEx spend this particular year. It will be lower than 50% than what we spent in the previous year. And this will be mostly towards front-end freezers, chillers, some IT initiatives, some initiatives of upgrading and replacing our equipment and processing facilities and procurement facilities, et cetera. So to that extent, our spend will decrease this year.
Yes. Got your point ma'am. But ma'am one thing on the previous calls, we had also speak about growing our presence in existing market. Say from urban area in Hyderabad to Tier 2, Tier 3 or maybe lower town and some adjacent areas. So are we working on that? Do your other plan is on track?
Yes, yes, we're strengthening our position in our core markets as well. Especially, if you look at the numbers, we've seen, a revenue growth in the Telengana market year-on-year despite an overall revenue decrease. In parts of AP also we've seen increase in revenues. So that continues to be there in terms of focus, this come from milk as well as value-added products. And in other markets, which are in a difficult situation that obviously, we'll continue to focus on revenues through existing as well as new trends.
Any product launches planned for 2022?
Would you like to take this?
Yes. Yes, certainly. Yes. I will request our COO to take that question.
Yes. We have launched actually, during last financial year, A2 milk, probiotic curd, immunity milk, cold coffee, high aroma tea, milkshake, fresh cream, cheese in different variants and added a few new variants in ice-cream also. So that we have launched in last financial year.
Yes, any plans for new launches for '22?
We are also working on certain products to launch, paneer tikka, spicy butter, shrikhand and amrakhand, particularly for Mumbai market. And badam milk with real badam, and I would like to say, nut pieces. So these 4 products are under trials so that we're going to launch it coming quarter.
The next question is from the line of Sameer Gupta from IIFL.
I hope every one of you is staying safe and healthy. Taking on the -- from -- and this question was asked in some form previously. So sorry if I'm dwelling on this again. But since FY '18, we acquired Reliance Dairy, our milk procurement has been almost flat, and I understand there have been many one-off events in this period. But at least in the near future, also, I understand that things are going to be uncertain. So in this context, can I ask what are our new procurement related plans?I know you have elaborated on the greenfield projects, but this is -- question is more specific to our procurement efforts. And what different are we going to do in the next 2, 3 years versus what we have done in the last 2, 3 years, so that procurement increases? And any target -- do you have any medium-term target that we have on procurement side? That will be my first question, sir.
Yes. Procurement is not a issue. We have been procuring the volumes which are required for markets. We have expanded our physical infrastructure in certain states, even during 2021. Almost 85,000 liters, additional chilling capacity infrastructure has been created, and we have been continuously giving the assurance of 100% forward marketing linkage to the farmers without any single day break of milk holidays, et cetera.That is one of our USPs to farmers. And we continue to offer our help to farmers to improve their income in various measures. We organized bank credit and NBFC credit to the farmers with ease of delivery of the credit. Almost INR 125 crores was delivered during the last financial year. And this year, we are planning to do INR 150 crores towards the credit linkage to the farmers. Similarly feed, as you have heard, Heritage Nutrivet is supplying high-quality feed at a very reasonable price at door steps.We don't expect farmers to come and pick up the feed anywhere. We are going to village with milk vehicles every day. And milk vehicles goes healthy, it carries feed bags and delivers in the vintage. Farmers have an advantage of buying small quantities, more frequently delivered at home in the village on credit, the recovery is done through the milk bills so that kind of input supply in terms of feed or vitamins or micronutrients, our medicines are delivered by us to the farmers. So this approach is now further being strengthened by remote veterinary services. During next month, we are going -- we are already on a pilot model. Next month, we are going to launch exclusive app for the farmers to avail services of veterinarians across the states where we are operating. We have a panel of veterinary doctors who can guide them remotely by taking the WhatsApp pictures on the -- or pick photographs on the app itself, the farmer can take animal's picture and post it. We recommend -- our panel will recommend medical -- veterinary treatment or nutrition guidance or the reproduction guidance, arrange the insemination tie up from the nearby centers. So the entire veterinary service for improving the productivity of the animal and improving the volume of the farmer, both ways production and productivity improvement through veterinary remote services through an app -- dedicated app being launched from the next month. So we continue our efforts for improving animal health, animal reproduction, animal productivity, thereby, income of farmer goes up without further investments. And we also help them to invest in more animals. So that overall milk quantity will increase and income will increase. So both the ways, productivity improvement, production improvement helps and we supply all the inputs and conduct extension programs. So the kind of service with our farmers that is what is helping us in building volumes. If we want to build another 1 lakh liters, we just have to invest in our infrastructure and expand our services to the farmers. We can achieve that volume. That's not an issue at all.
Got it, sir. And this process is easily replicable in markets that we are not strong in also, let's say, you want to expand into Maharashtra? It's just about finding the correct demand center, and then you can set up the procurement. Is that understanding correct?
Perfect.
Okay. That answers my question, sir. And the second question is, sir, our employee costs, I am seeing that they've seen a CAGR of 13%, grown at annual CAGR, 13% over FY '18 to '21 and especially in the sense that this period has seen a flattish performance on sales. So what really has constituted this kind of increase?And going forward, what is the outlook here? Are we done with any kind of senior hiring plans and now we can expect some moderation and operating leverage on this number?
See it's more of a streamlining issue internally. Earlier years, we had the cost of certain field force was added into other line of accounts in the sales or marketing operations, et cetera. For the proper accountability and the productivity measurement, we shifted all the expenses on people into HR account. That looks like inflated, but that is regrouping of the expenditure items into HR. And secondly, we have also spent additional amount during the last pandemic in terms of special allowances to ensure people are safe, and they have been given additional food facility or these precautions. Much of it is given on -- the HR front is got added. So this is something which we are trying to make internal regrouping of the accounting, plus additional manpower got added with the new plants and new chilling centers added during this period. We have created -- yes. We have also added 1 new plant in Maharashtra. We have also added some 10 new chilling centers in different areas, the new man power got added. And there is a performance incentive eligibility, which has come because of higher performance that also we have a component of fixed pay. We have a component of variable pay. Like each employee gets let's say, 2021, 1 month pay extra, instead of 12 months, we get 13 months pay because of the performance in terms of the overall company. So that additional incentives, additional performance pays also have been shared.
The next question is from the line of Sagarika Mukherjee from Elara Capital.
Sir, actually, if you could just give me some color in terms of your state wise performance like AP, Telangana, Karnataka, or Tamil Nadu and Maharashtra.
It is broadly same as it was in the earlier months. There is no big change. And we are not giving very, very detailed numbers because of the competition disadvantage we have been seeing on that front.
Sure. Understood. But you would say that all the markets, all the brands might have -- might not have changed, but all the markets have equally declined or sort of -- or is it like some market is especially...
That we'll take care.
Right. Right. Sir, secondly, in terms of your mozzarella cheese plants that you have, I always thought that Heritage wanted to remain in fresh dairy products and value added, but definitely fresh dairy products, et cetera, because they are more light around the working capital side. So in terms of your entry into mozzarella cheese, if you could just maybe give some color on your plans, CapEx, where do you want to place? Is it more B2B, B2C venture or is related to the PLI scheme?
Sure, sure. This is a very small initiatives, small component of our revenue of value-added products. We have not invested in CapEx. It's a co -- contract manufacturing being done from one of the existing players who have surplus capacities. So there is no commitment on CapEx now or in the coming few years also.Secondly, coming to working capital concerns, it's a small quantity, so it will not influence our working capital management. And thirdly, this has been initiated because our basket is not full. And then some consumer comes to Heritage exclusive parlor, they are getting disappointed that you don't have cheese, and I have to go to some other store for buying it. Our online orders also, someone takes heritage touch app and places orders on 1 or 2 products and looks for cheese, it is not there. So to minimize the consumer disappointment and also learn more about the cheese operations, we have resorted to a co-packing model and introduced recently. And next one, it is not B2B at all, if we always B2C. So our focus is to satisfy, delight our consumers first. So this is a basket filler and range management to see our consumers have served properly with all the range of products. All these years, we were missing cheese. So we wanted to cover that gap also.
Right. And sir, just if I could comment for the last question. Sir, we distribute our products to 1.3 lakh retail outlets today. We -- at the INR 6,000 crore revenue, what's the network size that we are looking at and where all we are planning to add the network?
Yes. It will be in the same markets where we are operating. We are not looking at new states. But within the same state, same markets, we will go, as it was referred earlier, Tier 1, Tier 2 cities also. To -- it's a deeper penetration in the existing markets. And maybe we have to double our outlet coverage. But most of these value-added product sales, as Brahmani, earlier explained, growing significantly through modern trade, either e-commerce or brick-and-mortar stores. So that reduces pressure on network, we can focus more on the high dense networks and formats.
The next question is from the line of Shirish Pardeshi from Centrum Capital.
My -- I have 2 questions. The first question, you mentioned that 8.5%, 7.5% EBITDA margin. In your thought, if we need to reach, say, 10% EBITDA margin, what kind of value-add component you think we can take? Or is that 27% is the [indiscernible] to get about 8%, 8.5%? Or we need to have more contribution from value add?
May be at a stable stage, once we achieve 40%, 45% of revenue from value-added products, we can look at that. But while the category is growing, there will be spends on marketing, there will be spends on promotions, et cetera. During the growth phase, that benefit will may not accrue to the business. After you achieve certain level of volumes and then we can expect that additional 100 basis points or 150 basis points addition to EBITDA. But that's why we are not giving you that a clear number, this is what it is. We have to keep the bottom line in view and also ensure healthy growth.Both top line, bottom line, in a balancing manner, we have achieved. So we will keep both in size and build the businesses in future. With an aspiration of reaching for 65% of value-added product contribution to the overall revenue of the dairy.
I got it. What I wanted to ask, I mean, if I do the quick math, rather than achieving, INR 6,000 crores, you will surprise double-digit EBITDA margin very quick. That's what a good understanding?
I leave it to your imagination at this stage.
Okay. My last question is for Brahmani. I do and really thank you for giving a good slide on Novandie. My sincere congratulations, finally the plant is up and running. I have 2 questions. I mean one follow-up. And the main question is that how much CapEx you have done on Novandie business? And how much is further which can happen in the next 2 years? And the follow-up is that now we have 2 products which has gone into the market, what else can happen in next 3 years? And if you can give some revenue color what can come from Novandie JV?
Sure. Thank you for the question. So when it comes to the plant, of the JV, we've spent about INR 34 crores in CapEx funded by both partners as well as a component of debt. That facility is actually equipped to be able to manufacture not just food and flavored yogurts, but also fermented drinks which are all a part of our scope of products in the agreement between both the companies.In fact, we'd be able to add many other products also. By minor additions of equipment within the product, we'll be able to double the capacity of the plant also from 10 tonnes per day to 20 tonnes per day by this minor addition of equipment -- packing equipment, et cetera.So it's a highly flexible plant that can double in terms of capacity and into which we can also add other products, which are part of the scope of the JV agreement between both the companies. So as of now, we would like to focus on these set of products because the range of products is many. We have fruit and flavored yogurt of many different kinds, drinkable, scoopable, et cetera, within which we can also look at interesting variants such as probiotic and several other different types. It also includes European desserts for which the market is really big, for instance, Novandie or Andros as a company, the parent company is a market leader when it comes to as an Italian desserts in the European market. So that's going to be our focus in the near future when it comes to the specific JV. However, having said that, very opportunistically, if we come across any interesting collaborative opportunities either in terms of technology or in terms of start off, we are happy to look at it. But for now, we are generally focused on our current set of our scope of products and scale it up.
Any color on the revenue within next 3, 4, 5 years?
Yes. The idea is to build a formidable business out of it. I think it's too early for me to share this, not only being an unlisted company, might have some issues with sharing numbers. But we are looking at some healthy revenue numbers through this one plant itself. And that's why we've chosen the Mumbai market and other adjoining markets. We also believe that yogurt is the lowest hanging fruit when it comes to any western products to be introduced in the Indian market and very close to our existing portfolio of Indian products such as curd and other fermented products.
The next question is the last question that we would be taking due to time constraint, which is from the line of [ Pankaj Prasoon ], HNI.
So my question is on the Nutrivet side. So we have more than 3 lakhs farmers in our city. And if I do a simple math of INR 20,000 per farmer per annum, which makes to INR 600 crores, which is a low-hanging fruit till now, and we had not harvested. So what is the reason that we could not convert it to the revenue? And what strategy going forward? As you have mentioned in your slide that the -- this cattle feed business will grow to 7% CAGR by 2026. So can you tell me -- throw light on what could be the size of the market by 2026? And what is the current? And what kind of EBITDA margin you make right now? And what you are aspiring to? And I would like to know what kind of the asset turnover ratio here. And what are the CapEx plan for this vertical since Mr. Viney Vatal appear to be very capable person who has -- he was CEO with Godrej Agrovet. So where do you see this business going to reach in next 5 years?
So I can give -- go ahead, sir.
Mr. Pankaj, yes, we have a large pool of farmers who are in need of compound feed. And we also discovered this quite late. We have built 2 plants of 6,000 tonnes per month capacity each. We have started utilizing our network, delivering our feed to our farmers last 4 years. So we are ramping up our distribution network, utilizing the capacities created. And they have a logistics limitations. We are operating in multiple states. Plants are only in 2 point -- 2 places. So we may have to look at production tie-ups in different markets to scale up and also reach out to all the farmers to utilize our products. So we are on the job of reaching out to our -- first our suppliers. And also supplying to the other farmers through a general trade network of distributors, dealers being appointed in various milk sheds, that activity is going on. Now with the new CEO, Mr. Viney Vatal, as you said, is quite experienced. We are looking to finalize our strategy. He joined only 6 weeks back. So we will be working out on a long-term plan, medium-term plan, how to expand our capacities with less CapEx going forward and utilize the existing plants more productively with higher capacity utilization, reach out to as many farmers as possible who are spread over in 12,000 villages.Currently, our farmer base is spread over 12,000 plus villages. So reaching out to all those farmers with proper logistics planning is another issue keeping the consumption quantities being very low at the moment. Most of the farmers are heavily dependent on the low-cost feed, not really compounded feed. It only adds to the feed benefit of the -- nutritional benefit of the cattle. So we are working on various options, details and finalizing our way forward program for the next 5 years. Maybe in the coming months, quarters, once we are more geared up, we would be apprising you all in course of time.
Sir, still some questions remain unanswered. So I asked that what is the market size of this animal feed business currently? And what will be 2026? And what kind of EBITDA margin...
We will share with you in personal. We are already quite late on the call. We have 2 other calls waiting. So I request you to be patient. We will be coming out with clear information, and there's a lot of time to share.
Sir, just one thing that what will be the asset turnover ratio in this business?
In the Nutrivet business?
Yes, yes, yes.
It could be 3x right now.
Okay. And at the peak, what it will be?
Peak will be 5x.
Because I see that the this cattle market itself is more than INR 1 lakh crore per annum. So we are lacking much behind in this.
Yes, the feed value is very low. So the asset versus revenue. If you are selling ghee, it's a INR 500 kg, INR 400 kg realization. Feed is INR 15, INR 20 kg realization. So it won't be comparable with the high-value products. It's a very low value product.
I will answer this because ghee we are using in a [Foreign Language] in a spoon, and this we are giving in kg...
Okay. We will -- let us hold on this topic. We will take up next time.
Due to time constraint, that was the last question. I now hand the conference over to Dr. M. Sambasiva for closing comments.
Thank you very much for actively participating in today's call. In spite of the challenging times outside with pandemic prevailing. I once again, thank you, and wish you all a safe stay at home during this lockdown and curfew periods. Thank you.
Thank you. I now invite Mr. Hiral Keniya for closing comments from Dickenson World.
Thank you, everyone, for joining us today for this call. In case of further questions, clarification, suggestions or feedback, you can connect with Mr. Umakanta Barik, Company Secretary and Compliance Officer, Heritage Foods or us, Dickenson World. Thank you very much.
On behalf of Heritage Foods Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.