Heritage Foods (NSE:HERITGFOOD) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Heritage Foods Q2 and H1 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this call is being recorded. I would now like to hand the conference over to miss Dia Kaswa. Thank you, and over to you, ma'am. Thank you. Good afternoon, everyone. I am Dia Kaswa, and it's my pleasure to welcome you all on behalf of Heritage Foods Limited. Thank you for joining us today for the second quarter and first half of financial year twenty seven earnings call. This call is being hosted by Go India adviser.

0:51 Please note that today's discussion may include certain forward looking statements. Therefore, they must be viewed in conjunction with the risks that the company faces. Today on the call, we are joined by missus executive director, doctor m m whole time director, missus CEO, mister CFO, mister J Samba Murti, COO, doctor Mohan, CEO, Heritage Limited, and mister Company Secretary and compliance officer. I now invite doctor Rao to present the company's business outlook and performance. After which, we will open the floor for q and a. Over to you, sir. Thank you, Ria. Good morning, everyone. Thank you for joining us today.

1:39 Before we begin the call, I would like to extend my warmest wishes to all of you and your families on vacation of the festive season. I hope this special time brings happiness, prosperity, and good health to everyone. Heritage Foods delivered a strong performance in quarter two of this financial year, sustaining revenue growth despite an inflationary environment marked by rising milk procurement costs and supply side constraints. Consolidated revenue grew 19% year on year to 13,196 million in quarter two, taking H1 revenue to INR 26,577 million, up 18%.

2:32 While elevated procurement costs continue to weigh on profitability, EBITDA stood at INR $740,000,000 with a margin of 5.6%, and profit after tax was INR $3.00 9,000,000. Encouragingly, EBITDA margin improved by 98 basis points sequentially over Q1 of this financial year, reflecting a recovery in operating performance and amid sustained cost pressures. Our integrated farm to consumer model underpins our ability to ensure reliable milk availability, strengthen farmer relationships and respond to evolving consumer preferences.

3:20 During the quarter, we continued to build on this foundation through a stronger procurement network, expansion of our value added products portfolio, and investments in premium and nutrition led categories. A strong and resilient procurement network remains fundamental to our business. During Q2, milk procurement volumes increased 7% year on year to 17.28 lakh liters per day, while h one procurement volumes grew 4% to 17 lakh 69,000 liters per day. This growth, despite monsoon related supply constraints, reflects our sustained efforts to deepen our village level procurement network and strengthen farmer engagement.

4:12 At the same time, milk procurement inflation remains elevated across the country. Our average landed milk procurement cost increased 11% year on year to 47.73 rupees per liter in quarter two, driven by sustained demand, limited improvement in milk arrivals, and higher feed and fodder costs. These pressures continue to weigh on near term profitability across the dairy industry, making procurement efficiency and calibrated pricing critical. On the consumer side, our core milk business continued to demonstrate strength of the Heritage brand and sustained consumer trust. Milk sales volumes increased 2% year on year to 12.35 lakh liters per day in q two, while average selling prices improved 6% to 60 rupees 34 paisa per liter.

5:11 For H1, milk sales volume grew at 1% to 11.99 lakh liters per day, while average selling prices increased 5% to 59.54 rupees per liter. Our focus remains on balancing volume growth with calibrated pricing while protecting the strength of our consumer franchise. The evolution of our business mix continues to be an important driver of Heritage's growth. Value added products remain a key growth engine with revenue, excluding ghee and butter, increasing 32% year on year to INR 4,510 million in Q2 and thirty six percent to 10,146 million in H1 of this year.

6:04 Consequently, VAP contribution increased to 35.4% of revenue in Q2 from 31.3% in the corresponding quarter last year and to 39.6% in H1 from 33.7% in H1 of last year. Growth was broad based across categories led by lassi, buttermilk, ice cream, paneer, and curd. Volumes grew 89% in lassi, 56% in buttermilk, 44% in ice cream, 21% in paneer, and 15 in curd during the quarter. We also achieved important scale milestones with daily curd sales crossing 500 tons, quarterly yogurt volumes exceeding 100 tons, and Nourish Plus and high protein paneer accounting for more than 15% of our paneer portfolio.

6:57 These trends demonstrate the increasing scale of our brands and growing consumer preference for differentiated and nutrition led products. Including our consumer packed ghee and butter portfolio, the broader value added portfolio grew 31% year on year to 5,408 million dollars in quarter two and thirty five percent to 11,730 in H1. Its contribution to revenue increased to 42.5% in quarter two from 7.9% a year ago and to 45.7% in h one from 39.3% in h one of last financial year.

7:44 The growing contribution of higher value added products reflects our transition towards a more diversified and premium branded dairy business. We believe this shift will strengthen consumer loyalty, improve product differentiation, and support earnings resilience over time. Alongside portfolio expansion, we continue to invest in innovation. During the quarter, we strengthened our high protein portfolio with the launch of with the launch of Nourish Plus high protein curd containing 25 grams of protein and Greek yogurt available in single serve packs containing eight grams of protein and mid sized packs containing 40 grams of protein.

8:31 We also expanded the Alpenwe ice cream range and introduced organic curd, further strengthening our presence across premium dairy segments. Our objective is to build differentiated products that address emerging consumer needs while leveraging our brands, manufacturing capabilities and distribution network. These initiatives are helping us expand our presence in premium dairy and nutrition led categories with attractive long term growth potential. We continue to strengthen our adjacent growth platforms during the quarter. The newly commissioned ice cream facility provides additional manufacturing capacity for Alpenwe and Getaway, supporting capacity absorption, operating leverage, and future growth.

9:20 Getaway, in which we now hold 71% stake, delivered robust revenue growth during the quarter with Heritage manufacturing and supplying 3,272 liters of ice cream per day to support its growth, its product availability, and expansion. Heritage Novanti Foods, now a wholly owned subsidiary, continues to strengthen our presence in the yogurt category through the Livo brand and has established itself among the top five brands in India. These investments expand our presence across premium food and nutrition led categories while complementing our core dairy operations. Beyond our core dairy operations, Heritage NutriVet continued to deliver strong growth.

10:11 The wholly owned subsidiary reported revenue of 853,000,000 in quarter two, an increase of 47% year on year, with profit before tax of 37,000,000 rupees. For H1, revenue grew 42% to $1,581,000,000 rupees, with profit before tax of 56,000,000 rupees. This performance reflects the growing scale of our animal nutrition business and its increasing contribution to our broader portfolio. Our focus remains on translating revenue growth into sustainable profitability through calibrated pricing, tight cost control, continued premiumization, and improved operating leverage.

11:00 A stronger contribution from higher value products alongside disciplined execution across our operations will be critical to navigating the current cost environment and strengthening margins over time. We also remain committed to responsible and sustainable operations. During the quarter, Heritage Foods' wind farm comprising three turbines turbine generators with an aggregate installed capacity of 6.3 megawatts received the Indian Wind Power Association's best performing wind farm award for the year 2526. This recognition reinforces our continued focus on sustainability alongside business growth. Our long term direction remains unchanged to build a larger, more premium, and more resilient branded dairy business.

11:53 The progress achieved during Q2 and H1 reflects the strength of our consumer franchise and the increasing scale of our value added and adjacent businesses. While near term cost pressures persist, we remain focused on disciplined execution, profitable growth, and creating sustainable long term value for all our stakeholders. On behalf of the entire management team at Heritage Foods, I would like to thank our farmers, employees, distribution partners, customers, consumers, shareholders, and all our stakeholders for their continued trust and support. Once again, I wish everyone a very happy and prosperous festive season. With this, I would like to conclude my company's We are made progress If you wish to withdraw yourself from the question queue, you may press star and two.

13:01 Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Sameer Gupta with IIFL Capital. Please go ahead. Hi, sir. Good morning, and thanks for taking my question. Firstly, on going into the Buffalo Flush, are we seeing any sign of moderation in wood procurement prices? I understand last year also the prices had gone up during the flu season and normally it doesn't happen that for two consecutive years we have persistent inflation, but this is also an El Nino year plus a broad based inflation. You mentioned the feed and photo costs are seeing inflation. So any sense on the upcoming search that you can provide will be helpful.

14:02 Thank you, Sameer, for the question, and you have answered partly. The repetition of the same is not normally seen in terms of production drop or price hikes, etcetera, but this being impacted here. And the situation is repeating like last year. The prices have gone up in quarter two, and the performance of the season is not uniform across the country. If you see the last few months, certain states in northern part of the country have received good rains rather led to even floods of severe nature. And certain states in southern part of India have faced drought, and situation is unclear even today.

14:50 All the governments are announcing that situation could be difficult in the coming months in terms of drinking water, water for agriculture, electricity availability, etcetera. Most of the states have announced contingency plans for agriculture to avoid water in... Crops to semi dry crops kind of thing. So entire country is preparing for facing. So we are also preparing in our own areas of operation where our milk sheds are there, encouraging farmers to adopt more and more healthy practices. You you can see our feed growth itself has seen 47% year on year growth in quarter two, sale of cattle feed.

15:37 So the the performance of the season is yet to be clear. As of now, in certain areas, milk availability has improved. Certain areas may improve after Diwali festival. So it's it's a mixed kind of situation right now, and it might be stable if the good monsoon states perform well to compensate the drop in the drought, the heat states. So it's it's a kind of close observation we are making and improving our performance. You've seen milk also improved 7% over last year in volume terms at the procurement level. So with our field efforts, continued relations with farmers, extending good veterinary care, timely nutrition support, and even tying up with the funds for overcoming their requirements of working capital for the dairy or even to procure more animals from the...

16:37 In other states. This should help us to further improve our milk availability for us in our catchment areas. Got it, sir. This is very helpful. Second question is on the value added dairy portfolio. I understand there are broad based efforts, but this 32% growth, is there any element where weather was more supportive this year in terms of higher temperatures versus last year? Sandeep, this is Shririp here. Weather helped in q one. Right? And helped in the sense q one weather was normal, I would say, compared to, let's say, previous year q one, because of which in q one, we actually had significant growth in value added products because of the relatively better weather compared to previous year q one.

17:34 But in q two, I wouldn't say that because the growth that we have seen in value added products and... Is broad based. Even though you are seeing certain deficit in rainfall, the deficit in rainfall are district... You know, restricted to certain districts. Whereas we have seen the rainfalls in metro cities like, you know, Hyderabad, Mumbai, Bangalore, and all has been actually normal or even above normal. Bangalore has actually received more than normal rainfall. Mumbai has received more than normal rainfall. So I don't think there is any rainfall impact. And the q two value added product growth is broad based. If you have seen our investor note, we have very clearly called out that, you know, the growth is across, you know, and ghee and every... Everything. It's it's not just any heat related product category.

18:30 I hope you have have answered your question. And and and if you look at the the growth in the, let's say, temperature sensitive products, whether it is buttermilk and ice creams and all of that, it is sustained at at the same levels as q one. So so it's more about growing consumer franchise and a steady growth, sustained steady long term growth rather than any events like. Got it, Siri. This is very helpful. Thanks. I'll come back in the queue for any follow ups. Thank you. The next question comes from the line of Jay Danger with Systematic. Please go ahead. Thank you, sir, for the opportunity. My first question is on product price hike.

19:20 In milk and web, how much price hike we have taken in 2Q? And are we planning further price hikes in preview and beyond? And second question on milk procurement. And just keeping cattle field inflation in mind, what can we see in procurement growth subsequently over the next few months? Yeah. Just these two questions. Could you please repeat the second question? We are not... If if you could be very clear and speak a little bit slowly then. Thanks. Yeah. Keeping cattle feed inflation in mind, what trend we see in procurement cost subsequently? Milk procurement cost inflation, that's what I'm asking. Hello?

20:08 Yeah. Good morning. This is Ramamurti. Yeah. So first question is on increase. See, overall, increase for milk and value added products is about 8%. So milk is about 6%, and others is about nine to 10%. Overall, it is 8% increase is there. Yep. Second Yep. So you will see that the raw meat prices had increased by about 11 percentage in q two against which net weighted average price increase we have taken is about 8%. I think Meat is how much? Five six. No. 5.8. Percent. And the value added products are much higher. And it is eight percentage is a weighted average over three months of the quarter, July, August, September.

20:58 And the the price hikes we have passed on to the consumer in the month of September is much higher than 8%. Price hike is always staggered. The benefit of it will accrue in quarter three. In October, we have opened the month with much higher price levels than we had in q two as far as the consumer is concerned. There is... We are also seeing... Like you rightly said, because of the far feed and far price increases, we are also seeing village level, farm level procurement prices also increasing a tad bit. But like as as asked by mister Sameer Gupta in the beginning and as answered by our whole time director in the beginning, we are expecting, you know, the buffalo flush in the milk fed... Sorry, rain fed regions to improve.

21:47 And we are hoping that post Diwali, there is a little bit of a cooling effect as far as the procurement situation is concerned. But we... At at this point in time, we... What we see is slight increase of procurement prices in October compared to September as well. Okay. And, I mean, just in... Q o q basis, milk prices hike around 2.4 or 2.5% is my calculation. So in q three, we are expecting softer than that. That's what you are saying, sir. No, sir. Q two price increase year on year basis was 11%. Procurement. Procurement prices. Procurement. Procurement. Procurement prices increased by 11% in in q two, and the sales prices net weighted average increased by about 8%.

22:40 Oh, yeah. Yeah. Got it. Got it, sir. Yeah. And in q three, at this point in time, I think that 11% kind of thing might continue as we speak. But we are hoping, like I mentioned, as answered by our whole time director, sir, that we are hoping that there is Buffalo flush and, you know, an improvement because of that. I I hope the answer is clear. Right? Yeah. Yes, sir. And... Yeah. Yes. That goes. Hello? Yes. I I was saying I hope I have answered your question.

23:26 Yes, sir. If it's okay, you go on to the next question, please. Yeah. I mean, can you tell our EBITDA margins in loss making web categories like the I don't think I'm... We are able to hear your questions very well. Maybe you can come back in the queue, please. Yes. Sorry to interrupt. Mr. Vijay, I would just request you to please come back in the queue. Our next question comes from the line of Nirman with Unique PMS. Please go ahead. Yes, sir. So my question is, we have heard news about taking a big price hike. So how are the cooperatives behaving in October?

24:11 Because as you mentioned, we were yet to pass on the whole procurement increase completely. So how are prices trending now? Yeah. Yeah. So this is Shreedeep again. In in the month... In in the... In this quarter, we saw two significant events. One is AVEN increasing mill procurement from, you know, up to 38 to 41 rupees first and then 41 to 44 rupees. So that's about 6 rupees per liter kind of increase. It's unprecedented at the farm level. Slowly following suit, Karnataka government also announced that it is gonna increase consumer price by 8 rupees per liter, and they will pass on 6 rupees out of that to the farmer. Very similar to the Tamil Nadu model.

25:04 So this is, as you know, as per model conduct code of conduct for the election commission, that isn't there, this is gonna state... Take effect only from November 1. As the investors may know, our procurement footprint in Karnataka is not significant. So for us, we have sales side, you know, upside from this move because we we have some sales volume in Bangalore City. Now it it is... It it is... It's significant enough for us. So we are expecting once the KMF takes up the prices of Mandarin milk, we'll also be able to pass on much better to the consumer in Bangalore City. But apart from Bangalore City, in all other places, on a staggered basis, as and when we had opportunity, we have passed on. Not that on a same day, but on a staggered basis.

25:59 Throughout q two, we have been continuously passing on consumer price hikes across products, across regions. Okay. And we will continue that q three also. Right? The pro... Government prices should not increase by that much. Yes. That's what we are hoping. Yeah. Thanks. And, sir, one more question. So when the cycle finally turns, in which segments and how much benefit will you be able to... Will you have to pass on to the consumers once the milk prices start trending down? No. We won't have to because, usually, the consumer prices, once it goes up, at least, we have not seen it coming down.

26:50 So the milk prices trend downwards. Let's say we were doing an arithmetic earlier. See, the the good news is we are now cycling all these high levels that are much higher milk procurement volume level as well as much higher consumer franchise level, which means every rupee will have a much bigger impact than we had previously. So a 0.5 rupee 0.5 rupee reduction in mail procurement prices will improve our bottom line by point 7%. So we we won't have to increase consumer prices further. But that said, see, we... What we should realize is that the net revenue reported by the company is a weighted average of the products that we sell and the regions where we sell in. Yeah?

27:41 And as we see more and more value added product contribution, even without increasing consumer prices, our weighted average net revenue goes up. Within the value added products, one significant phenomenon we are seeing is that the percentage of our premium portfolio contribution is going up. For example, within paneer, now Nourish Plus paneer, which is our premium high protein variant, is now all... Already contributing 16 or 17 percentage of the volume, which is actually pulling up our consumer revenue. Our yogurt's contribution share is going up. Ice cream share is going up. Ice creams has got more than 200 rupees per liter of revenue. So all of these value added products, ghee has... We have seen close to about 20 percentage revenue increase in ghee.

28:28 So ghee going up, all these things will pull up our net revenue per liter realization. Got it, sir. And, sir, one last question. So last of a flash season, we saw that milk availability itself was a challenge. So do we expect something of that kind this year given the drought conditions and the poor monsoon? This is Ramni here. As mentioned, I think it's... We are on a wait and watch mode. However, I think I'd like to point out the fact that most procurement volume volumes for the company, despite the tough situation that we're seeing outside, has has increased by 7% in terms of volume, and that's because of the continuous efforts of how closely we work with the farmer.

29:15 We work very closely in terms of improving their their animal productivities. We organize a lot of third party lending to meet with their working capital needs as well as to help them purchase more animals. And very closely, they're looking at matrices, and basic fundamental metrics in terms of procurement are looking very encouraging and very positive, such as the number of farmers that they are adding, the number of farmers they are activating, the volume per farmer has seen a very positive trend this year, and the productivity the capacity utilization per milk collection center have all been very positive. So I think the basic fundamentals are looking good for us, and we continue to work in that direction of working with the farmer and looking at our numbers.

30:07 Yep. Sure, Ben. Got it. Thank you, and all the best. Thank you. Ladies and gentlemen, in order to ensure that the management is able to answer questions from all participants, please limit your questions to two per participant. The next question comes from the line of Yash with Auriga Capital Advisors. Please go ahead. Hi. Thank you for this. Sir, would the understanding be right that the worst is not behind us in terms of the procurement cycle, and it could only be normalizing post a good monsoon? Okay. This is here. I think that is a very speculative question. You know, we... If you want a speculative answer, I can give.

30:53 But, see, what we should understand is that we are in a very strong position because we have been able to take up consumer prices and sustain volumes. So if you see the presentation, our revenue growth in core dairy, which is about 17 percentage, two forty nine percentage has come through price increases, 51 percentage has come through volume increase. So we are able to sustain volume growth despite pricing. We'll continue to do this. So if procurement prices come and go up, we'll, again, take consumer prices. We we don't have an option. Right? And and at the same time, our value added products contribution has increased by 4.1%. In q three also, already... We are already fifteen days into the quarter. We are seeing the same trend continuing. So our value added products will continue to further expand in q three. This is a continuing job for us.

31:46 And one more thing what you should know is that in the beginning of the year, we had capitalized some large projects, and those depreciation is also impacting the P and L. You must have seen that the EBITDA improvement sequential is far better than PBT or PAT. The reason is depreciation is much higher, and that is another thing that we should see playing out in the subsequent quarters because operating leverage is increasing. Right? With higher volumes, higher throughput, operating leverage is kicking us to operating leverage in q two is better than q one, and the operating leverage in q three will be better than q two. So it's it's a it's a on on ongoing journey.

32:32 The oil prices is speculative, and I do not wish to make any comment. Okay. So thank you for this. So can you comment on how the actions have been? Because we're reading in the news that, Arvind, there is one... They're not been able to meet the demand. So if you can comment on the cooperative in the southern region, Arvind, Vijaya, and Nandari. I think it is very unfair to ask us, you know, a a question on cooperatives because we have... We we do not know the inner workings of cooperatives. And in most cases, there are multiple stakeholders there. One is a society farmer. The other is the government as a stakeholder.

33:18 Then there is voting population. So I don't know. Okay. Thank you for this. Thank you. The next question comes from the line of Ashani with N. E. Alpha. Please go ahead. Hi. I'd like to just ask a clarifying question. When you state in your presentation that accounts for 80% of procurement, do you mean price or volume? Volume. Volume. Volume. There... Now it comes with volume dependent. Yeah. Yeah. Yes, ma'am. Does that answer your question?

34:04 It does. Thank you. Yeah. Thank you. The next question comes from the line of with Yes Securities. Please go ahead. Yeah. Hi. Good morning. So one of the slides in your presentation had shown different value added products, their pricing and their volume. So is that true that the growth that is coming in and butter milk, it is coming at near zero price increases? These are all weighted averages. The general idea there is that I I don't think that you should deep dive too much into, you know, each at a product level. These are weighted averages. Let's say the realization in Hyderabad City is far higher than, let's say, rural Andhra, for example. I'm just making it up. And so if growth in rural markets are higher, then it will swing in a little different way as far as the net revenue realization is concerned... Net realization.

35:02 Second is in terms of pack realization. Now even though our home packs are very highly profitable, In fact, actually, home packs are very profitable, but the net realization in a home pack is lower than, let's say, a single serve pack at 10 rupees of... On a per liter basis. So the mix changing more towards home penetration, which is also profitable and long term sustainable growth, will also impact all of these things. So I think the idea is... And and and, also, there is also timing issue, right, in in terms of timing on when we might have up the prices. The main point to note is that because the raw milk prices were going up, we took significant price increases in ghee and paneer and curd.

35:50 These are, like like, you know, between ghee, paneer, and curd is about 90 percentage of everything we sell or 95%. Right? Ninety ninety percentage plus of everything we sell. So we took significant price increases in ghee, paneer, and curd. And except in the case of ghee, we were able to sustain the volume growth in all other... Both curd and paneer. As far as ghee is concerned, you will see that the volume growth has been flat. But what you should also note is that ghee is also a lot festive dependent. So the timing of Dashara Diwali also matters. You will see that g volumes will have a bumper growth coming into q three, and they're already seeing that in the first fifteen days of this quarter. So my my my suggestion is that please don't use that graph to calibrate and calculate to that granularity.

36:44 The general idea is that everything is growing. Understood. Just like you mentioned ghee, so out of the total fat sales, what would be the percentage of consumer packs and... Versus bulk? 100%. 100% would be consumer packs. Yeah. Yeah. Yeah. They're not selling it. Okay. Okay. And one more question on how do you see this new competition from a large conglomerate entering the dairy space product by product, like, first ice cream and now the drinkable space? And they have a generally a tradition of going at extremely low prices. So how do you see that hap... You know, impacting our industry and our company in particular? See, the dairy industry is...

37:32 Actually, there's no very good estimate, but I think my estimate is about 13 to 14 lakh crore. Out of which, only 4.5 lakh crore or... At best, maybe this year, it'll have... It would have expanded a little bit, $5.5.5 lakh crore is organized industry. And out of which, the largest dairy player that we know, Amul, is about 75 to 80,000 crore. So so can you imagine how small are organized players? Like, Heritage Foods is around 5,000 crores. So all of us have a big job to do, which is to convert from the whole unorganized trade to organized. And more than merrier, frankly, actually, it helps accelerate the category growth. It helps drive market penetration.

38:21 Even if I take a very simple example of retail penetration, while, let's say, biscuits, you might find biscuits in some 10,000,000 stores across India. Recently, was reading that Amul has about a million stores penetration. So you just imagine the kind of gap that we have as far as this category is concerned. There's humongous headroom for everyone to grow. And the third aspect that you need to look at is that our growth strategy is very highly differentiated. Yeah? And and this is something that continuing shareholders already know. And we are sharply focused on significant leadership position in third, a significant leadership position in fresh categories, which is buttermilk.

39:07 The size of fresh category is humongous. There's no second word to it. And if I put in terms of packaged or dairy, you know, long shelf life and all of that, it is just a minor fraction of the fresh dairy category. So we we see tremendous potential in fresh category dairy value added products, whether it is curd, bottom milk, paneer, which are all highly profitable businesses for us, and ghee. Ghee also, if you look at ghee as a category in India, is about 10,000 crores or something, but it is only some 18 to 20 percentages organized. So the the the the opportunity size is 50,000 crores. So, you know, we all have a lot of job to do, and this is a... And the $50.14 lakh crore dairy industry itself is growing at four or five percentage, which means that every single year, the dairy dairy industry is adding one Amul size to the industry size. One Amul is getting added.

40:05 Right? 75 to 80,000 crores. That's the opportunity size we are talking about. And fourth point I'll also speak about is that, see, in the last several years, we have continued to grow at a CAGR of 14 or 15 percentage, And we've achieved this CAGR without expanding geographic footprint, which means actually we are going deeper rather than going wider, unlike many of our competitors. And this actually has significance because we have we have... All the growth that we are getting is because of higher consumer love or bigger consumer love and better consumer traction. Our existing consumers are buying more and more of our products, and our household penetration is improving in the markets where we are operating.

40:50 This also helps us significantly improve our overall brand portfolio. Thank you, sir. The next question comes from the line of Tetsumana Chauthuri with Bowhead Investments. Please go ahead. Yeah. Hi. Hi, sir. Thank you for the opportunity. First, you to one of the participants, you spoke that even in Q3, there could be a 11% Y o Y increase in the procurement price, which would actually mean compared to Q2 of FY 'twenty seven, it would mean another INR 3 increase in the procurement price.

41:36 Is that what we are looking at? Because that's quite a big jump. See, Y o Y is one way to look at it. I encourage you to please look at the results from a sequential Q o Q basis also. See, in an inflationary situation, is very important for investors to look at sequential basis as well. Sequentially, the company has expanded EBITDA by almost one percentage point, 98 basis points or something, right? And this is despite raw milk prices going up. For example, in q one, raw milk prices were up about seven and a half percent or something. In q two, raw milk prices were up 11%. Despite that, EBITDA expanded by one percentage point, up 98 basis points. So... Which means, actually, we are exiting q two in a much stronger position.

42:30 And and even if I... And whatever is the EBITDA now is not gonna come down because the consumer prices have been increased. Right? The only thing we are not willing to speculate is if the raw meat prices will come down in the flush as it usually does. If it if it comes down, well and good, actually, it is gonna be tremendous. It's not enough anyways as for q two. Right? Yes. But, sir, I just... Like, in q two, like, procurement price was 47.7 rupees as per the p two three. So could this go to something like a 15 rupee plus in or that's way too high is what I was trying to understand. That's number one. And second, standing today, what do you see as the biggest season for milk price increase.

43:24 Is it still the delay in milk arrivals, or is it mainly to do more with the feedback... Feed cost increase that we are seeing? Because, see, it's been around eight quarters of milk price increase. So by now, ideally, milk arrivals should be much better. Sir, I think you are answering questions yourself. Yeah. We we are also thinking similar way. As in how long will it keep going up? Will it go to a 100 rupees per liter? I don't know. As I'm... You know? So we also expect that, you know, with such high prices, the farmers should produce more milk and prices should come down. But that said, we don't think it'll go from 47 to fifth...

44:11 50 rupees in a quarter and all of that. If I could speak about last quarter, q three of last year, the average milk procurement prices were about 45.55. So it's it's possible that, you know, we might see, you know, inflation... Continued inflation in terms of what we have seen in q two. But we are... At this point in time, our consumer prices are at a much higher level than we... It was earlier. That's all I can say. And like you said, maybe, you know, other prices will come down because of higher production. Thank you, sir.

45:01 Ladies and gentlemen, you are requested to limit your questions to one per participant. And if you have more questions, please come back in the queue for further questions. The next question comes from the line of Rajat with ITOG PMS. Please go ahead. Hi. Thanks for the opportunity. Sir, one clarification. You mentioned the 0.5 rupees reduction in procurement price can increase the bottom line by 0.7%. So are you referring to the absolute number? Like, if we are doing 100 crores, so this increase was 70 lakhs. You are referring to Yeah. See, it's a very high level calculation. You know? I was saying, see, we are procuring about 1,800,000 liters per day.

45:52 So if you price a, you know, roughly translates to almost 3 crore improvement in bottom line per per month. Right? That's 400 to $4.50 crores of revenue. That's how we did the arithmetic. But, you know, life is more complex than that. But I... That is just a simplistic way of calculating. Right? Got it. Got it. I just wanted to make sure that you're talking about absolute number or the margin percentage. Understood. And, sir, do you plan to get any price hikes in q three, or you will take a call later on? Yeah. Glad to watch, actually, the market, how it based, and also how we have discussed about procurement prices. Based on that, we'll take a call.

46:39 Okay. And, sir, one small thing that... Other thing was that the realization hike that we took in the last quarter. In which months did we take them and by how much percentage? Okay. So Oh, I'm sorry to interrupt, mister Rajat. I would request to please come back in the queue for further questions. So... Yeah. See, they have taken up the prices in the month of July, August, and September also. So like that, earlier, our CEO mentioned that... So some prices hike also there, took it up in the month of September, generally, which will also come in the month of also.

47:36 So that is why we have taken, yeah, all of the months delay in some certain pockets to the market, August, also September also. Okay? I think I answered your question. Thank you, sir. The next question comes from the line of Resham Mehta with GreenEdge Wealth. Please go ahead. Yeah. Thank you, and congrats for a good volume growth. I have just one question. So there's an interesting slide in the presentation, which talks about the inflation in cow milk versus buffalo milk since April. So if I look at that slide, right, so the cow milk has been more you know, versus the buffalo milk. So if you could just share your thoughts on this and, you know, how do you see this trending going ahead? And also if the slide only gives the trend from April onwards, but also if you could, you know, go back, let's say, eighteen months and say that, you know...

48:36 And, you know, talk about the trend of cow milk inflation versus buffalo milk inflation. And how do you all, you know, kind of think about it? Reshav, this is here. I'll I'll just give a quick situation analysis of what's happening. See, number one, there is a widening supply demand gap. Right? So there is... Demand is going strong. The supply is not... Unfortunately, for the last eighteen months, we are suffering for one reason or the other. As in earlier, it was on climate issue, then there was some other issue. Something or the other is happening, and the supply is not really growing. Right? And in the supply, actually, what is really really affected is the buffalo milk supply. So technically speaking, ideally, the buffalo milk prices should go up. Right?

49:24 Because buffalo milk supply is what is constrained, and cow milk supply is reasonably growing. But we are also seeing a phenomenon of both farmers and producers as well as companies, brands switching more and more towards cow milk because cow milk on a solid basis is cheaper than buffalo milk. Protein is also lower, but the solids basis also is slightly cheaper. So people are switching to the cheaper cow milk alternative, both production side as well as buying side. Because of which, even though production volumes of cow milk is going up, cow milk is becoming dearer. Now cow milk, actually, the total solids level price is almost getting closer to bubble of milk. Now that's the kind of phenomenon we are seeing. This is one at a very macro level. Secondly, you... Just earlier, I addressed that, you know, like, oven, for example, took up prices from 38 rupees to 41 to 43, 44 or something. So 6 rupees price increase.,, you know, Southern Andhra, these are all... These are all cow cow milk belts, actually. Not the buffalo milk belt because buffalo milk is usually in Khochalandra, Telangana, and all of that. So the the the significant inflationary trend we have seen also is in the hardcore comics. So it's a combination of these two factors that has actually driven both availability of common calls upwards, but prices also upwards.

50:58 Thank you, sir. The next question comes from the line of Madhu Rathi with Counter Cycle Investments. Please go ahead. Sir, thank you for the opportunity. Sir, I just wanted to understand how does the pricing pass through happen for our... The feed segment considering that this is an annual year and the raw material prices are very... So are we able to pass it on, or we will expect to take the hit during this year? I've seen an HR margins. Even request, mister Bridge. Yes. Yeah. Thank you, Ramigaram. This is doctor Bridgemohan from HERITAGE NURTUVET. And taking this question, we have a a strong quarter two.

51:44 Of course, we had a difficult quarter one due to the, you know, very, very high cost of the ingredients. But in the... Especially during the month of August and September, we had taken a very good price hike in all the verticals, including our integration as well as outside general trade market. And we have seen that in our PBT as well as in EBITDA, we have grown significantly during quarter two. So similar thought process is there that this will be passed on to the customers, the farmers, when we are seeing the inflation in the ingredients during the quarter three and, of course, in quarter four as well. And we are looking towards that to strengthen our PBT during rest of the year in h two. And we will be on top of the growth what we have taken in PBT during the month of August and September.

52:47 Hope it answers your question. Thank you, sir. The next question comes from the line of Rajvindra Kaurya with Chris PMS. Please go ahead. Hi, sir. Am I audible? Hello? Yes, sir. You're audible. Sir, if you could provide me the contribution of curd, paneer, and ice cream for the value added product. So I wanted to know the contribution for the value added products in the... Hello? Hello? Yes. I got it. P, I I... Hello?

53:35 Yes. Hello? Yeah. Oh, yes, sir. Please proceed. Yeah. Yeah. So, see, at a very high level, I can say... This is at a very high level. Right? Is roughly around 320 crores kind of revenue. Panure is, you know... And and and this is a... You know, you can say an annualized about thousand 200 kind of thing. Panir on an annualized basis will be about 200 crores plus, $202.30 crores. It's growing on a quarterly basis, if it gives you a kind of sense. And ghee also... Ghee also... Ghee, I think, we are currently trending at around $3.50 crores annualized basis. Thank you, sir.

54:24 Our next question comes from the line of Sunil Desai with HERITAL Capital. Please proceed. Hi. Good morning, everyone. So my question, sir, is that, you know, you indicated that the full impact of price hike is, you know, kind of will continue to kind of play out in q three and onwards. So we are already at 5.6% margin. So, you know, if the price of milk remains stable, which we are expecting in the same range, do we expect, you know, margin improvement? And even with the higher milk prices, you know, can we go to seven odd percent, you know, over, let's say, next two, three, four quarter? Yeah. That... See, our effort is actually... So we moved from 4.6 to 5.6.

55:20 Our effort is to keep on growing. Right? So our ability to absorb the costs are better. You must have seen in the p and l statement that, you know, cost heads per... As a percentage of revenue has has has come down, you know, whether it is, you know, like, employee expenses as a percentage of revenue has come down by about 1%. Operating expenses has come down by about point 6%. You know? These are all aspects, and and freight also has come down by about point 1%. So the only expense which is going up is the raw material as a percentage of revenue. If... So we we are able to offset a lot of this raw material cost increase through better realizations from the... From our product portfolio, and and this journey is continuing.

56:10 And as volumes continue to grow, then our operating leverage continues to grow as well. Right? And and that's what we are hoping. And we are hoping that even if, let's say, raw milk inflation continues at the current trend also, we will be relatively better off in terms of EBITDA because of the price increases we have taken. And if raw material comes down, then we will widen and and the margin... Margins will go back to our steady state levels. Thank you, sir. Our next question comes from the line of Siddharth Nagandhi with CWC. Please proceed. Hi. Thanks for the opportunity.

56:59 Two questions. One, on a long term basis, right, you've shown a 6% CAGR on milk procurement. Now considering that's the bottleneck to to sales volume growth, right, do you believe that that's adequate for you to maintain a mid teens revenue value value growth? Right? That's question number one. Question number two is on that slide nine, which shows the price and volume change. Right? If if one were to instead of crossing it at minus 10, cross it at 11, right, which is which is where the milk price inflation was. Then, you know, most of the large categories, which is milk, curd, buttermilk, would would fall to the left, which would be lower than lower than the the procurement price increase. Right?

58:01 And I understand that's a function of a staggering between the increase in procurement cost versus the increasing consumer price. Right? But do you believe that next quarter, most of it should be to the right if one had to draw that up? And and consequently, accordingly, should milk prices remain at the same levels as Q2 sequentially, is there enough confidence to see improved margins in in q three? The the next question was on ice creams. If we look at your total value growth would be roughly about 30 odd purse... 30 odd percent.

58:52 Right? Considering that comes off a low base, what's the longer term CAGR, and what's your assessment of your share in ice creams? And my last question is considering your endeavor to be a national brand, could you give us some salience... Understanding of salience in terms of South, West, and and other regions? Yeah. Those are good. Yeah. This is here. There were four questions, actually, you asked. I'll, you know, I'll answer question two, three, and four, and our executive director will answer the long term vision of the company and how we are building it. Right?

59:38 Now I'll start with the last question. You see, when we commissioned the ice cream factory, we said our vision is in the next six or seven years, we want to get to 500 crores of revenue. Last year, we had clocked about 110 crores. This year, our own ice creams is getting close to about 200 crores, so a $170,180 crores. So, you know, the traction will continue. You can do the math that in five, six years to get to 500 crores, what kind of... And and this is excluding Getaway because that's a subsidiary company. The... Sorry. The the... I remember the second question. The third question was... Because you asked so many questions. Sorry. Maybe you can ask me. So the last question actually was more on your regional sales.

1:00:33 Right? If you could give me an understanding of Yeah. I I I will your end around that, again. Okay. We are not expanding geographically as we speak. So we are going deeper is our strategy. That said, our ops... Our are now spreading globally. We have entered 12 countries, mainly in Middle East And West Asia as well as Southeast Asia and Far East Asia, And we are doing reasonably well. Even though the revenues is just point five percentage of our overall revenue, it is not a very big one. But I see see that growing over a period of time. But, otherwise, we are actually going deeper. Right? Your question on putting a line at 11 percentage and looking at which products on the left side, which products on the right side, you know, you can't... If milk procurement prices go up by 11%, you can't take up all products by 11% click and drag. That doesn't work because I can't increase consumer milk prices by 11 percentage.

1:01:40 Right? You know, milk is... You can imagine, doesn't... Cannot go up by 11%. Right? So it's always... That is the reason why we call the rest of the category value added because the... Because of the value added and the branding and all of that, we will have a better ability to take up prices in the remaining category. So curd, for example, we have taken much higher price increases than milk, for example. I'm I'm just giving an example. And and even though the number here you are seeing is close to about 10% in curd, but, actually, in the premium versions of card, whether it is Sampurna card or all those variants, whether it is the top card, which is the one case, which is actually our fastest growing segment of card, there, we have taken prices upwards of 15% also.

1:02:28 So, eventually, our overall weighted average, like we mentioned earlier, has gone up by about eight percentage. And, naturally, when you look at it, and that's the reason why you will see that milk, we will not be able to pass on as much price inflation as as we will be able to do in value added products, which is why our bottom line is suffering whenever there is a raw milk price increase. So the more and more value added product contribution goes up, the better will be our ability to pass on to our consumers more... As much as raw milk inflation happens. I'll pass on to ED. Thanks, Ashley. So I think when it comes to procurement, we are at a good state to secure and... Our procurement volumes. We have been in the past, and we will be in the... We are confident we will be in the future.

1:03:18 We are extremely focused on empowering the farmer, and a huge part of that is to double their incomes every few year... A few few years. So it's not just the transactional benefit that we offer to them of paying paying them accurately, paying them in time, and always picking up the milk that they're supplying to us. But there's a lot more that we do. For instance, we supply sub... Subsidized cattle feed very conveniently to them so that the health of their animals improves, the the productivity of their animals improves. And I think the good part is that we've seen a significant increase in higher protein sort of concentrated feed and outcome of which we're seeing in terms of the volumes that we procure from individual farmers. We also facilitate a lot of third party lending to, like I said earlier, to meet with their working requirements and also for them to increase increase their health sizes, which is coming in very handy to these farmers, and it's all digitally managed. So it's a very efficient process by which we do it. We actually focus on on a lot of artificial insemination programs and awareness programs. So we have a huge team of about 400 procurements and veterinary personnel at the field level who work alongside with the farmers to make...

1:04:36 To to focus on the animal health. So in fact, I'm happy to say that our artificial inflammation program is more successful than an average program, and we focus, encourage farmers to go with, you know, chromosome started... Sort of sex started semen to be able to guarantee female caste. We also do a lot of social security programs with the farmers for themselves and for the animals as well. So there is a lot of benefit that we offer to the farmer in the direction of doubling their income, which is also leading to Heritage as a company securing our volumes with the farmer. We also are very digitally integrated, very transparent, so all payments happen online at the farmer level. And we also have a integrated app called the bed plus app through which all transactions, real time basis are recorded with the farmer, and they can also avail some of these services that I've mentioned through the app. So it's a very tight ecosystem through which we are able to deepen our relationship with Farmers across the country.

1:05:50 Thank you, ma'am. Ladies and gentlemen, due to time constraint, that was the last question for today. I now hand the conference over to doctor Rao for closing comments. Thank you very much for your active participation and feedback. Looking forward to catch up in the next quarter. Thank you all. Wish you a happy festival season. Thank you, sir. On behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.