Dodla Dairy Limited ($DODLA)

Ladies and gentlemen, good day, and welcome to Dodla Dairy Limited Q4 FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dodla Sunil Reddy, Managing Director of Dodla Dairy. Thank you, and over to you, sir.

Thank you very much. Good morning to all the participants. On behalf of Dodla Dairy Limited, I extend a very warm welcome to everyone joining us on our call today. On this call, I'm joined by our CEO, Mr. B.V.K. Reddy; CFO, Mr. Murali Mohan Raju; and SGA, our Investor Relations advisers. I hope everyone has had an opportunity to go through the financial results and investor presentation, which have been uploaded on the stock exchanges and our company's website. Financial -- now coming to the business. Financial year FY '26 was a year that tested the dairy industry. Milk supplies remained constrained for most of the year. Procurement cost inflation was sharp and erratic rainfall affected demand for certain value-added products in some regions. Against that backdrop, Dodla Dairy has delivered resilient performance. Revenue growth was 11% year-on-year. EBITDA margin stood at 7.5% and a PAT margin of 6.5%. Notably, the performance is overall on the healthy base of FY '25, which was -- which delivered an exceptional growth of almost 20% over the previous. To better understand the trends of the dairy industry, one should look at the 3 to 4 year cycle. On that basis, our 4-year CAGR stands at a healthy level of 16%. Based on our growth and expansion plans for the next 3 to 4 years, we are confident to maintain or even surpass this CAGR number in the long run. The pressures we faced were industry-wide in such tough times, the diversifications, which we have built via Africa and Orgafeed played a critical role. Now coming to the quarter performance. During the quarter, we recorded our highest ever revenue growth for the fourth time in a row with a top line of INR 1,074 crores, reflecting a year-on-year growth of 18%, primarily driven by volume expansion. EBITDA for the quarter stood at 5.5% ((sic) [ 5.0% ]) and PAT margin stood at 6.5%. Margins remained under pressure due to elevated milk procurement costs and a calibrated pricing strategy. An increase in procurement price was not fully passed on to the selling price to maintain the market share. Our pricing strategy is in line with the overall industry. Going forward, the situation is turning positive. Milk supply is improving, which should result in a normalization of procurement costs. For milk sales, some price hikes will also be considered. Some trends are already visible where a few of the northern players have already increased their milk prices. Our value-added product segment witnessed steady performance during the quarter. Due to operational variability, the overall VAP portfolio could not grow to its full potential. Once our planned expansion fully stabilizes, our planned expansion directionally, we are confident that the VAP mix will improve further. This growth will be delivered by curd, 100%aneer and ice cream. And broadly, we are targeting closer to 32% to 34% in terms of VAP contribution. Africa business recorded a revenue of INR 151 crores, reflecting a robust growth of 48% year-on-year, driven by more than 60% growth in liquid milk sales. As a result of continuous increase in the scaling of business along with better operational efficiency, we have achieved our highest ever EBITDA number of INR 18 crores in Africa, and this is for the quarter -- the fourth quarter. The decision that we took 12 years ago to extend our footprint in Africa has now become an important engine for long-term growth for the company. We see Africa scaling towards 15% to 18% of consolidated revenue by FY '28, supported by a Phase 2 expansion in Uganda, which will include pasteurized milk and milk products that will be sold in Uganda. Orgafeed business delivered a strong revenue growth of 23.2% year-on-year with a slight dip in margins as a factor of higher raw material costs and expansion of our footprint of distribution. This business complements our core dairy operations with a strategic angle. It helps in strengthening farmer relationships through assured feed supply and creating an important loyalty loop in our procurement network. OSAM business reported a steady progress with our focus remaining intact on enhancing operational efficiencies in this business to improve profitability. I also would like to welcome Ms. Dodla Silpa Reddy, who got appointed by the Board as a senior management personnel for strategy and transformation. Silpa has spent considerable time understanding the business across verticals, and now she is increasingly taking responsibility in the strategic and operational areas. Now speaking about the operations of expansion projects. Our Maharashtra project is progressing as per the scheduled time lines and is expected to start commercial operations by the end of FY '27. The work is under progress and INR 106 crores worth of CapEx has already been deployed cumulatively across '25 and '26. We have also made decent progress towards improving our operational efficiencies of the OSAM business, improved its product quality and upgraded the infrastructure. We should continue in this direction until margins are at par with the overall company level margins. We were also allocated a 7-acre land parcel by the Bihar Industrial Area Development Authority for a dairy project, which will call for additional investment of around INR 4.4 crores towards the land. The project is presently under consideration and further details shall be disclosed after Board approvals. On the Uganda expansion plan, we acquired 70 acres of land parcel for a Greenfield expansion. Total CapEx budgeted for this project is currently around INR 60 crores, including land as well as the plant. It will be executed in a phased manner and will be completed by year-end of '29. Before I hand over to BVK, let me share our directional views for FY '27. We expect revenue growth to be in the low to mid-teens, supported by OSAM's full year contribution. Africa continuing on its current trajectory and an 8% to 9% organic growth in our India business. We are expecting a gradual gross margin recovery of 50 to 100 basis points over FY '26 levels as procurement normalizes and our pricing actions take effect. Effective tax rate will return to the normal 25% to 27% range post completion of the favorable tax orders we received in FY '26. On capital allocation, let me articulate the firm clearly. Our priority order is first, fund growth CapEx, where Maharashtra, Uganda and our current regular CapEx are both covered from our internal accruals. Second, regular dividends; third, selective bolt-on acquisitions where we see procurement or distribution synergies. The combination of strong company fundamentals, a clean balance sheet, healthy cash flows and all of these growth initiatives underpins our commitment towards a disciplined capital allocation and long-term sustainable growth of the company. With this brief, I will now hand over to our CEO of the company, Mr. BVK Reddy Thank you very much.

Thank you, Mr. Sunil Reddy. I will now walk you through the consolidated performance highlights of our business. During the quarter, despite a shortage of milk in the overall industry, our milk procurement level remained stable at 18.5 lakh liters per day, which is an increase of 13.4% on a year-on-year basis, underscoring the strength of our procurement network, long-standing farmer relationship. The average procurement cost in Q4 FY '26 stood INR 31 (sic) [ 40.97 ] per liter as against INR 38.7 per liter in the previous quarter and 37.4 liter Q4 FY '25. However, we did not entirely pass on this increase in cost to the consumers. Our average milk sales price for the quarter stood INR 58.4 per liter, which was INR 57.7 per liter in the previous quarter. This was primary reason for our margin being under pressure during the quarter. To give some context, our stand-alone India EBITDA margin for the quarter reflected sharpest quarter of the procurement cost inflation in the cycle. The consolidated EBITDA margin of 5% was supported meaningfully by Africa and Orgafeed, which together delivered around INR 22 crores EBITDA in Q4. On 9 months basis, our stand-alone India EBITDA margin was approximately 6% to 7%. In Q4, represented , we expect this begin to recover in Q1 FY '27. We also witnessed some cost pressure in packing and logistic costs, among other things, due to the shift of bulk sales in higher liquid milk and milk product sales. Speaking of Africa, we continue with our growth momentum in the Kenya market. The business is now seeing the benefits of scale with profitability improving steadily. We continue to price our products competitively to strengthen market presence and remain confident of gradual improvement in margins. Now coming to our product sales mix. Dodla recorded its highest ever milk sales of 14 lakh liters per day, driven by the continuous efforts of our team towards expanding the geographic reach across India and Africa. Total value-added products stood INR 2,969 million as against INR 2,841 million in Q4 FY '25. Excluding bulk sales, VAP delivered growth of 21% on a year-on-year basis. Curd sales volume reported a healthy growth of 15.4% on year-on-year and stood at 442 metric tons in terms of value. Curd sales grew by 19.1% on a year-on-year basis. Products like curd, paneer, buttermilk, flavored milk, lassi, et cetera, delivered a decent growth whereas other products remained muted due to seasonal variance. Within the Orgafeed business, the revenue growth is healthy and the utilization levels also are scaling up in a good way. However, rising the raw material input costs have not been fully passed on to the farmers in order to sustain long-term relationship aim to low milk supply environment, heightened competitive intensity. Some moderation in the input cost is expected in the upcoming quarters, which would improve the profitability of this business. Our pricing strategy in line with the overall industry, and we also see an opportunity to increase milk price in the near term to pass on some part of elevated procurement cost. We are also witnessing some moderation in procurement costs as the milk supply in the industry is coming back. Hence, we expect a gradual improvement in the margin going ahead. With the strong underlying fundamentals and expansion plans in place, we remain focused on effective execution and achieving long-term objectives while delivering profitability growth. Now I would request our CFO, Mr. Murali Mohan Raju, to share the financial highlights for the quarter. Thank you.

Thank you, Mr. BVK Reddy, and a very good morning to all the participants on the call. Talking about consolidated financial performance in Q4 FY '26. Revenue from operations for Q4 FY '26 stood at INR 1,074 crores, marking its highest ever quarterly revenue, growing 18.1% on a year-on-year basis from INR 910 crores in Q4 FY '25. Gross profit stood at INR 247 crores with a margin of 23%. Employee expenses for the quarter stood at INR 52 crores, up approximately 27% from FY '25, primarily reflecting OSAM inclusion, Maharashtra greenfield expansion and the Kenya plant ramp-up. Other expenses stood at INR 141 crores compared to INR 123 crores in the corresponding quarter last year. While other expenses remained broadly in line with the revenue as a percentage of sales, the increase in absolute terms was primarily driven by increase in infrastructure-related expenses, including rent, employee travel and the conveyance costs due to an increase in the headcount of the employees, higher transport costs owing to shift in product mix from bulk sales towards liquid milk and VAP. We reported EBITDA of INR 54 crores for the quarter with an EBITDA margin of 5%. Depreciation expense increased to INR 22 crores during the quarter as against INR 18 crores in the same period last year. Other income for the quarter stood at INR 20 crores, including INR 10 crores of interest income tax refund pertaining to interest on a tax refund following a favorable IT order. In Q4, we recorded an exceptional item that is INR 3 crores worth of reversal on the onetime labor code expenses, which was recorded in Q3 FY '26. An exceptional expense of INR 5.7 crores was recognized in the previous quarter pursuant to the revised labor code guidelines. However, the actual impact was lower than initially estimated due to the restructuring of salary components. Additionally, the company recorded a tax reversal of INR 29.2 crores for the quarter relating to earlier year following favorable orders received from the ITAT. These tax credits represent the final portion and accordingly, no further impact shall be reflected from the next quarter onwards. Net profit for the quarter stood at INR 70 crores with net profit margin of 6.5%. I want to call out the one-off support to Q4 PAT explicitly. The INR 70 crore reported Q4 PAT includes INR 29 crores annual tax credit, which I just mentioned and INR 10 crores of interest income on the related tax refund. Excluding these 2 one-off items, our Q4 underlying PAT is approximately INR 40 crores for the full year FY '26 reported PAT of INR 267 crores includes total one-off benefits of approximately INR 70 crores, that is INR 58.7 crores of earlier tax credit through the year and INR 10 crores of related interest income. Adjusted FY '26 PAT is, therefore, approximately INR 215 crores with an adjusted PAT margin of around 5.2%. This is a clean baseline against which FY '27 should be evaluated. Now coming to FY '26 performance. Revenue from operations grew by 10.9% year-on-year to the highest ever INR 4,125 crores compared to INR 3,720 crores in the previous year. Revenue remained over INR 1,000 crores for all the quarters of FY '26. Gross profit increased by 3.3% year-on-year to INR 1,055 crores. EBITDA for the year stood at INR 309 crores with EBITDA margin at 7.5%. The company reported a profit after tax of INR 267 crores, translating into a PAT margin of 6.5%. The company generated healthy cash flow from operations of INR 295 crores during the year, while total cash and cash equivalents stood at INR 649 crores as of 31st March 2026. This includes cash and bank balance over cash and bank plus our current as well as noncurrent investments as all of those are liquid in nature. Our debt to equity remains under control at 0.03 level. The capital investment done in FY '26 is about INR 430 crores. This includes around INR 271 crores of expansion CapEx in HR food, INR 86 crores in Maharashtra during FY '26, taking the cumulative Maharashtra spend across FY '25 and FY '26 to INR 106 crores against a total project envelope of INR 280 crores and the balance INR 73 crores of maintenance CapEx. For FY '26, the Board has recommended a final dividend of INR 5 per equity share. With this, we conclude this presentation and open the floor for further discussion.

[Operator Instructions] The first question is from the line of Praveen Kumar from Equitas Capital Advisors.

I had a few questions. The first one was, can you give us a sense of what is the steady-state margin that we can expect in this current environment? Because earlier in the call, you had specified 50 to 100 basis points improvement -- margin improvement from FY '26 levels, which would still take you to about 8% at an EBITDA level, 8% or 8.5%, which is at the lower end of the earlier margin band which you were referring to. So are you recognizing a structural lowering of the steady-state margin that you can achieve? Or is it like -- are you saying that FY '27 is a year in transition and then onwards, there are factors which can take it upwards? Yes, that's my first question.

So thank you very much for the question. I think it's more in terms of being cautious with this whole uncertain environment that we are in because none of us are able to take sure of what is going to be pricing of fuel, pricing of plastics, the whole agriculture under impact with urea production, none of this is very clear for us. So that is what is leaving. We'd rather be on the cautious side of taking what can be -- what we can achieve even by considering all the uncertainties that are there. So this is more a 27-year kind of a year where taking into consideration uncertainties, what is going on, that we are trying to give this kind of guidance.

So just as an aside to that, do you see, for example, when you are talking about the urea issues, et cetera, on one hand, it can indirectly impact your feed business. But on the other hand, if farmers are constrained on the agricultural side of things, they might focus more on the livestock part and might improve on the dairy procurement side, right? So could you throw some light on that?

You're exactly right, right? If there is drought and less of agriculture, then animal husbandry steps in to become -- acts as a buffer for the farmers to grow. But like I said, we are not too sure where this is going to end, right? Is El Nino actually going to play out and more procurement pricing coming in. So that is the reason we are being more cautious because, here, you have a weather, which is normally there as an uncertainty, but added to that, the uncertainty of the war and the pricing that is coming. So keeping that into consideration, we are being more cautious.

So to understand you, you are saying that post FY '27, assuming some of these things normalize, you can get back to a more normal kind of ?

Yes, it will come back to the normal, yes. And also one more thing is that in these uncertain times, right, we have to be very careful of taking care of both the ends of the chain, that is the farmer and the customer. If we go and unreasonably try to kill the customer, then we'll lose not only consumption will start taking a dip. If we are unreasonable with the farmer, long-term impact in terms of productivity also will get hit. So keeping both into consideration is why we are being more cautious than being aggressive.

Understood. And on the VAP mix, can you throw some light on how are you trying -- what are the steps that you're taking to reduce the seasonality on that? And I think you had already indicated some kind of a mix -- stable mix you want to get to. But if you can throw some light on how do you plan to reduce the seasonality part of it to the extent because a lot of your existing products in the VAP are somewhat seasonal in nature.

Yes. Basically, seasonality impacts 3 major products for us. One is ice cream, which does not move the needle significantly because it's a smaller portion of the overall. Buttermilk, Lassi and curd are the ones which majorly go a bit with the seasonality. That I think will be very -- a southern consumption habit that if there is more summer, people shift more towards the fermented products. We are trying to see that if it becomes a throughout the year product, what was exclusively 2 to 3 months, we are trying to extend that to a 6-month period to see that people start using it as a refreshment rather than worrying about it as a summer product. On the other hand, products like paneer have improved for us. Paneer has seen a significant growth that has come in the local consumption once placements are in place. And also that we are looking at things like our flavored milk, which is also expanding and growing at a bit of a steady state growth that we're looking at growing those products. I think in the days to come, depending on customer habits and health grounds, we will think that even butter milk and such will become a regular product. Other than that, I think the shift will not be -- we will not be able to change customer habits dramatically.

Understood. And the last question was on OSAM. What operational changes incrementally are you driving to converge OSAM margins to the overall company margins? And ...

In detail. Yes, the operational margins that we're looking at, OSAM basically, broadly, it's on all fronts, right? It is on production, it's on market and it's on procurement. I think the operational efficiencies that you're saying, I'll ask BVK to give you more in detail what are the operational efficiencies in OSAM that we have undertaken, which will help us improve our margin?

Yes, yes. See, when we -- see we have implemented SAP and a lot of infra correction we have done, a lot of stresses being driven towards quality and a lot of logistics cost. So everything streamlined. So since in a couple of months, it took, maybe in the coming year, you will see further refining and a lot of operational efficiencies, come.

So what kind of time will it take for it to converge? And how does this -- you're talking about now new land allocation and spending on that for expansion further in Bihar. So how do you -- how does that affect the margin conversion trajectory?

So presently, what we are looking at it is the land because the government is offering that's only for a future project, which will not be immediate, but more like we said, we'll have to go through the Board approvals and get it. But existing operations improvement is still what we are looking at. We look at between 6 to 12 months, we'll be -- that you will see the -- all the improvements coming into effect fully. And then on, it will come back to the regular margins as the overall company margins.

Next question is from the line of [ Yash Goenka ] from [indiscernible] Capital.

My question is on the cycle. Do you see anything different about this current dairy cycle?

Yes, what we have seen is there's a significant like -- as usual when the summers come in, we have seen a significant offtake and volumes increasing in the first quarter. That is one on the sales side where we see the significant improvement happening in the product mix given the better realization over the previous -- last year the same period. But on the other end, procurement is still under stress. We are seeing improvement signs. And we hope that maybe in another month or so, that will also start to improve. I think Maharashtra and Karnataka have improved a bit in terms of productivity. We are waiting to see how the productivity in Tamil Nadu, Andhra and Telangana and other places will come into place. So the shift has happened in the proper manner on the sales side. Procurement is also on track. We hope to see better results coming in the next month or so.

Okay. Secondly, are cooperatives raising the prices in all the regions you're operating, in the Southern states?

They have increased the selling prices. Amul and Mother Dairy [indiscernible] increased the INR 2 selling price. We have already taken the price increase in the month of March itself. Mid-March itself, we have taken the increase. So the cooperatives are just following the increase that we have taken to compensate the cost.

And over the next 2 to 3 months, would you be further taking price hikes? And what would that range be in?

We won't be taking price hikes per se, but we will be trying to correct certain things that are there, right? Like if -- for example, if the packaging material, it will only minor corrections that we will take, not a major price correction because already we have a significant headroom over the cooperatives that are there. We will only correct more on the procurement side.

Okay. Lastly, just to confirm, you said that margins will be reverting to mean by FY '28, right?

Yes.

Next question is from the line of Abhishek Mathur from Systematix.

Just wanted to check what is the milk procurement cost that you're seeing currently as of today, what is that level? And also with the pricing that you have taken so far, as of today, what part of the cost inflation is currently covered already as of mid-May? That's what I wanted to check first.

Murali will answer that, Abhishek, but what you're saying is what is the price increase in procurement and what is the price increase in sales to have compensated the price increase, correct?

Yes, broadly, sir. Just wanted to check -- so you gave the number for the procurement cost for the fourth quarter, but what is it today? And the pricing that we have taken so far since we've indicated we are not planning any further major hikes, what part of inflation is covered as of now?

Yes. Majority of the procurement price in line with whatever the March price is. There is no major increase. Whatever we provided as a consolidated INR 37.36 to INR 40.97, that is a 9.7% of growth was there year-on-year. The same thing is continuing. But as standalone, it is 9.3%.

We have passed on around -- to answer your question, I think we have passed on around INR 1 of the inflation in the sales recovery that we have already done -- currently that we are doing. We're anticipating the procurement improves. We should get another INR 1 or so will be coming down in the procurement phase.

Great, sir. So if I'm hearing correctly, as of mid-May, there is no sequential increase from the number that you gave out on the procurement cost front. Is that the right understanding to take?

Yes, that's the right understanding. No price reduction, but we are anticipating certain areas of price reduction to come effective in end May.

And second question is, for FY '27, if you can indicate what is the CapEx that we are planning and what will be its breakup. I think you have given the FY '26 to FY '28 CapEx number, but what would be that number for FY '27? And also just some bookkeeping numbers, if you can share the consol overall realizations and the VAP realizations for the fourth quarter. Yes, that's it.

Yes. So basically, regarding the -- I will give -- Murali will give you the numbers specifically about the CapEx up to the current year. And then the future, CapEx that we are looking at, broadly, it will be -- the higher number which will keep coming from Maharashtra, OSAM and Africa business. I think Murali will give you the specifics in terms of what we are looking at our CapEx and also the -- you wanted the fourth quarter numbers, right, of FY '26?

Yes.

Both of them, FY '26 fourth quarter numbers, we shall give it to you.

Fourth quarter, what are the CapEx we're spending?

Fourth quarter, you want the CapEx numbers or?

No sir, I was asking for the CapEx number for FY '27 and fourth quarter, just needed the consol overall realization and the VAP realization.

Overall, budget for the FY '27 what we have considered is...

One minute, we are just pulling up the numbers.

Sure, sure.

So INR 65 crores for the regular CapEx what we consider. Around INR 33 crores we have considered for the [indiscernible] and hardware around INR 7 crores. And overall, standalone we are expecting around INR 120 crores of CapEx. Yes. That's what we are projecting in the [indiscernible].

Without considering Maharashtra project, which we...

Maharashtra, out of INR 280 crores, INR 20 crores we have spent in FY '25, INR 86 crores, we will spend in FY '26 and balance INR 180 crores, we're planning to spend in FY '27.

Those will be the broad areas of CapEx that we will be spending.

Right sir, and the realization, sir.

Fourth quarter, realization for consolidated, I will just see...

Consolidated sales realization is INR 51.19. That is the overall sales realization of the -- including the product mix. But if you exclude the...

And you want also the procurement price for fourth quarter, Abhishek?

No sir, just needed the consol realization and the VAP realization for the fourth quarter.

So for the milk procurement, when you talk about -- when you liquid [indiscernible] sales only. So it is INR 55.16 of last year Q4, too, [indiscernible] it is INR 56.16, but when you talk about specifically of India INR 56.15 to INR 58.25. That is INR 2.10 increase in the milk sales realization, especially without considering the VAP. VAP is blended. So [indiscernible] tell you the blended price [indiscernible] standalone, it is INR 60.72, sorry, INR 60.89 to it is reduced to INR 60.54 because the product mix was changed. Because of the bulk [indiscernible] we have exited, so that's why there is a reduction it shows in the [indiscernible] consolidated number.

Sorry, the VAP consol realization was what sir?

INR 60.54.

Next question is from the line of Aditya from Securities Investment Management.

Sir, just wanted to understand what kind of price estimation we are seeing in our packing [indiscernible]. So [indiscernible] going through the roof. And how are you looking to mitigate [indiscernible].

So I think packaging material as a number has gone up by 30%. Most of the plastics that are there and we use a lot of the plastic, has gone up by 30%. [indiscernible] small correction [indiscernible] what we have passed on to the consumers in terms of the price corrections that we have taken. So we are anticipating that the plastic prices will remain at the current elevated levels only because there was some government support that came in, in the middle in terms of excise duty reduction and such. So unless something dramatic happens, we are thinking that it will hold fort at the current 30% increase over previous year.

And sir, now with increasing petrol cost, how are you looking at [indiscernible] way forward.

So the current INR 3 I think, temporarily for the month also, we will have to look at it and we will absorb because a portion of it will be passed on to the transporters itself because we take price corrections only periodically and we normally try to keep it for that period. And if it remains at INR 3, so that's the whole reason which I was saying the certain -- uncertainty of times, we don't know whether it's going to remain at INR 3, is it going to go up to INR 6 or INR 7. So that is the reason we'll wait and watch, I think, for another, I think, fortnight or a month before we decide how to take it forward in terms of price.

Understood sir. And now sir, in such an inflationary scenario is price increase the only solution for us or there is an option for grammage reduction also in our kind of industry?

So grammage reduction, which we normally used to do, we will not do much this time because it is not helping in terms of -- the consumers are also able to realize what is happening as grammage reduction towards price. I think it is going to be a blend today that we are going to do in terms of moving up, what do you say, procurement, operational efficiency and marginal increase in pricing. It will be a blend of all the 3. So for us, the way I look at it is we need to cover cost and to improve margins, maybe we need to increase INR 1 or so more in terms of pricing. If we are able to manage INR 0.30, INR 0.40 overall in procurement, INR 0.20, INR 0.30 operationally and INR 0.20, INR 0.30 in terms of the front end, we should be able to improve our margin. And also because overall, our volume growth is there, percentage might be a little on the lower side, but the absolute number will be higher because the volumes in the first quarter are seeming to be pretty reasonable in terms of the size of the sales that we are getting.

[indiscernible] sir, there is expectation of [indiscernible] some of the seasonal and El Nino, now in such a scenario while [indiscernible] because of higher VAP sales, but on the plus side, the milk yields might also take away [indiscernible] procurement cost also. And with the milk inventory in the system pretty low, how do we see both of these things intermingling with each other and [indiscernible] impact on margins going forward. And what would be the factors, things you would look at going forward, which would give you the confidence of improvement margin outlook for the company?

Broadly, I would like to say the fluctuations will not be dramatic if there is a severe drought. This is a 2-way [indiscernible] for us. Certain areas, if there is a drought, animal husbandry improves because there is no other income for the farmers. They concentrate more on animal husbandry and therefore production normally improves and also the sale mix, if it continues to be high on the value added product side because of [indiscernible] summer, that is more curd, more buttermilk and lassi that goes up. Our average realization increases because of the product mix changing. So it sort of helps in a manner of speaking to keep our [indiscernible] going. That is what we said. But we are more worried about the other costs that are going to shoot up dramatically, more than the price of milk itself. We are not 100% certain about where will this price of fuel will be stopped. Because if you look at on people and this is my view and please correct me if I'm wrong, $60 to $120 in my simple mathematics for barrel means it's 100% price increase. If you translate even to a 25% or 30% increase for us on fuel, this is not yet shown. So we are not yet shown, right? We are not sure whether it's going to go up by 20% of fuel or only going to remain at the current levels. So I think once we get more of a -- clarity on this, we can think of where all we are going to pass on. How much is the customer, how much to the farmer and how much in terms of operational efficiency.

Understood sir. [indiscernible]. So we have been doing that with 9%. So just wanted to understand what would be the growth in India specifically because Africa would be the part driving this. So just wanted to understand what is the liquid [indiscernible] volume growth in India for the last 2, 3 quarters?

So we will continue to grow with that -- volumes terms [indiscernible] 5% to 6% in terms of liquid milk, although the current year, we did -- excluding bulk, we did -- including value added, we did 9.4% of growth. We think that we will continue to maintain an average growth in terms of including value-added to the 10% or volume growth.

So what I wanted to understand was we did not increase the milk prices because in the presentation you mentioned that you wanted to gain market share. So in the last 2, 3 quarters, has our liquid milk sales volume growth seen an uptick?

Liquid milk volume has seen an uptick. But value-added, we are pushing more. That has been a significant uptick. Liquid milk has seen an uptake of around 5% to 6% where as value-added has grown up by 16%.

Understood. Understood. And now sir, what is the OSAM revenue and EBITDA for this quarter?

For the fourth quarter of this year?

Yes, Q4 EBITDA is basically INR 2.7 crores, and overall -- no, no we are talking about EBITDA. Okay, I will talk about even revenue also. For the Q4, the revenue is INR 81.9 crores, EBITDA of INR 2.7 crores. And full year, it is INR 214.7 crores and EBITDA is 4.8 crores.

And what kind of gross margins that OSAM [indiscernible]?

Gross margins of OSAM would be around 21%.

Okay. And just a last one...

[indiscernible].

Sorry, can you repeat sir?

It will move up to the 25% soon.

And this will be majorly due to price hike and improvement in VAP mix?

No, price hikes, improvement in VAP mix and also the efficiencies that we were talking about, increasing our own procurement, bringing down freight costs, cutting down on losses and all the [indiscernible].

Understood. And sir, just last one question. In Orgafeed, we have seen a drop in margins. But what I understand that there has been a reduction in maize prices and margins would actually -- have improved. So what is the reason for this drop in margins in Orgafeed?

So basically, although maize prices [indiscernible] that have reduced now. It will only be -- what we're buying now will be used later. But I think the maize prices overall did go up and not come down. That is number one. And number two, earlier days, like when you're operating in a closer proximity of our area, we had the advantage of other operating costs like freight. Now since we are expanding our volume and expanding into other areas, we have impact on freight and we have to be also competitive with the local producers. For example, if I'm sending my cattle feed to sell in Maharashtra, the transport cost from selling from Kuppam to Maharashtra will add on the margin pressure. And the pricing in Maharashtra in terms of the local competition will be there. But we're still maintaining that 11% margins that we are, and we think we'll continue to maintain that kind of margins.

[Operator Instructions] We will take our next question from the line of [indiscernible].

So my first question was on butter prices. Last few quarters, due to elevated butter prices is one of the reasons [indiscernible] higher. So what is the latest on the global [indiscernible] prices and global SMP prices. And why was they really elevated previously?

So butter prices and powder prices are elevated because, like you said, last year was low productivity in terms of milk availability coming down. And therefore, the stocks have been depleted and now [indiscernible] in therms of this volume, stocks will be built up. That is the reason why we have removed our bulk sales and not done bulk sales because we don't have the extra butter that we produce. But we have sort of compensated it by increasing our milk procurement that we have. And I think [indiscernible] we did turn out to be a small amount of a net buyer. And that is the reason why the whole market prices are elevated.

Sir, my question was more on the global butter and [indiscernible] prices, not [indiscernible] India specific because [indiscernible].

Yes. Global prices also -- similar manner, what happens was -- they are actually, I think, coming to now they are looking at it as an oversupply. And India's export of butter is not much. It's mostly ghee that we export in terms of fat for the Indian diaspora, which is there. That is what consumes more of the fat exports that India [indiscernible].

So right now, we are seeing these prices coming down, the export prices for butter and SMP?

No, not coming down. They are maintaining the same state as what they were earlier. We are not much into exports. I don't have the specific numbers, but I don't think they're coming down.

But that's not a risk to our thesis that procurement [indiscernible] coming down, we will not expect that elevating global butter and SMP prices would be [indiscernible].

Not much because I think the number of exports that we see out of the country is not that significant to change pricing patterns as much as also and imports are very restricted because we have duty structure so that we don't get the flood of imports coming in. It will broadly be dependent on domestic consumption and production, not much of variation due to exports.

And the last question is on the cost mix. If I were to look at our cost of goods sold for India business especially, so how much would be -- what would be the mix of [indiscernible] how much would be milk as a percentage of the cost, how much would packaging material, what about logistics if you can give that and the second question would be on the Maharashtra site. I think [indiscernible] already from Maharashtra, but we don't have any bulk sales [indiscernible]. So where is it really going in terms of the...

Sorry, everyone, for the disconnection. I will just -- Murali will give the breakup of the costs that you had asked for earlier -- last question.

Overall, [indiscernible] breakup for the full year. It is [indiscernible] 4% if you include the packing material and employee benefit expenses is around 4.9% and transport cost is 7.3% [indiscernible] is around 1.5%, commission of [indiscernible] is 1% and balance all other miscellaneous expenditure towards [indiscernible]. So overall, the other expenses is coming to 13.2% excluding the employment benefit expenses, that is 18.1%.

[indiscernible] raw material mix.

Out of that 17.4%, 3.5% is the packing material.

Sorry, how much?

3.5%.

Is the packing expense. And what about logistics expense in this?

Logistics expense is 7.3%.

And remaining else is all milk.

In 74%, out of that only packing material is 3.5% out of the 74% plus 7.3% transport.

And 64 -- around 64% will be milk.

74% -- transport is not excluded. 74.4% plus transport 7.3% out of -- for the transport...

Input and output.

So transport includes the 4 legs, that is village to the chilling center, chilling center to the plant, plant to the sales office, sales office to the customer. All the transports are included. Apart from that, the loading/unloading charges, the freight carryforward [indiscernible] and the contract labor who all work under the transport of that.

All the cost comes to 7.3%. It doesn't come in the 74% of raw materials. 74% of raw material includes 3.5% of packaging material.

And remaining this all milk. 74% minus 3.5%.

Sorry to interrupt Mr. [indiscernible], you may please rejoin the queue for more questions. We will take our next question from the line of [indiscernible] from DT Portfolio Managers.

I just wanted to know how are you thinking of the risk of El Nino on your gross margins? I think earlier in the call, you referred to like a 50 to 100 basis points improvement in your gross margins. So how are you thinking of that?

Basically, we are very confident that milk procurement should come back to normal. It cannot be there, and the prices will drop in milk procurement. And that itself should give us that difference in our margins. Because if you look at it as what we are saying as 1% or 100 bps of price margin, as you see average realizations are around INR 60. We're looking at a INR 0.60 correction that [indiscernible].

Yes. And so my second question is a little more broad. Your Africa business seems to be going strong and growing a lot. What is going right there? And how do you see that continuing into the future?

So I think what is growing right is basically Uganda, we have become a significantly large player. And in Kenya, we're just beginning to see that. And Kenya is a much larger market than Uganda. Earlier, we used to cater from Uganda to Kenya, and due to the border disputes, we were not able to cater to it properly because there would be restrictions on how much we could send. Once we have now entered in Kenya with our own operations and our own plant and having the stability of the product, we are able to do better. And I think in terms of comparison, like we said, it's more keeping the quality and improved quality, making sure that operational efficiencies are maintained. And we are still a smaller market share in Kenya, and that gives us growth opportunities. So like we said, in Uganda, we are expanding. Earlier, we were into long-life products only. Now we are entering into the pasteurized and other milk products.

Next question is from the line of [ Darshit ] from [indiscernible] Institutional Equities.

I actually especially just wanted curd sales in rupee terms for this quarter, Q4.

Curd sales, Q4, in rupee terms, right, Darshit?

Yes.

Consolidated curd sales for the Q4 in rupee terms INR 230 crores and for the full year it is INR 845.7 crores.

Alright. And secondly, just wanted to understand, is there any [indiscernible] difference between [indiscernible] and realization costs and realizations between domestic overall business and OSAM. And if you were to like just see a broader trend [indiscernible] move in tandem or are their [indiscernible] between the [indiscernible].

Okay. So I was not able to get the question clearly, but what you are saying is difference between OSAM price realization and the rest of India price realization, am I correct?

Yes.

So actually, OSAM in fact has better realization than the VAP portion than in [indiscernible]. Murali will give you the specific numbers.

So with regard to Dodla Dairy India, so basically the milk realization is around INR 58.1 and whereas HR Foods, that is OSAM, it is [indiscernible] and VAP excluding the fat products, it is INR 64.2 for the Dodla Dairy. Whereas for HR Foods, it is INR 98.8.

Next question is from the line of Deepak from Unifi Capital.

Congrats on good top line growth, but my questions were on the margin profile of the company. So if you can explain as to how you will get to the 100 to 50 basis margin expansion that you are talking about in EBITDA for FY '27 given that procurement costs are still elevated at the March levels, freight costs are up, employee and other expenses are also -- the costs are up by anywhere around 15% to 20%. So if you can explain firstly, the gross margin trajectory that we should start looking at from Q1 and then the below gross margin line items that is under your control, employee and other expenses as well. So [indiscernible].

So you're right Deepak, basically, the employment expenses, this year, we actually brought it down in terms of the existing operational by only 5%, 6% increase. But the overall impact is still at 11% because of the new wage code impact that is there. All these costs including packaging that you're looking at and all that may have taken up our cost by maybe INR 1, INR 1.5. We're expecting that the procurement prices would come down to the INR 1.5 to INR 2 and because of the product mix improvement, our realization is on the higher side. As a combination of these 2, like I explained earlier, our 100%, [indiscernible] 1% increase represents roughly INR 1, INR 1.5 of price -- overall efficiency that we need to build up, which we think will come in the following quarters because normally price will come down. It has not come down for 1.5 years. It will come down as productivity increases.

Okay. So if I hear you right, so are there any structural circumstances which occur in the March -- sorry, the May month or the June month, which would lead to this price reduction? I don't understand as to why [indiscernible] the government cost would...

Yes. Because already Maharashtra and Karnataka have got a significant upward growth in the milk procurement. So you will start seeing Maharashtra prices sort of correcting a little bit because of the growth that is coming in. And similarly, when the seasons of the rest of the operations come in, you will see a drop.

Sir, next thing I wanted to understand on the price hikes, your strategy on not taking more price hikes when you have the opportunity as the cooperatives also taking. So I just wanted to understand your mindset on taking more price hikes. Maybe you're not taking it right now, will you take it later in the future? I just wanted to understand on the pricing actions from the company?

Because we have basically taken a price hike in March, which the cooperatives have only followed later now in May. So we will again take -- the next round will be, as I said, the uncertainty of the fuel prices, packing material and all that has to settle down. And once we see what the impact of that is going to be in terms of sort of a stable state, then the price hikes will again come in from all of us. It is only now that the difference in terms of us and the cooperatives are significantly higher. We don't want to keep expanding that more and more.

Okay. And lastly, on the volume growth for both the liquid milk and VAP, you mentioned that VAP had some operational challenge. So if you can allude to what operational challenge? And secondly, what kind of growth have you seen to the season which has started in April. So if you can call out that? And any improvement that you've seen in the growth rates for milk, sir?

Yes. Our milk growth rates have maintained around 4.5%, 5% even in the current scenario, but we have seen significant increase in the VAP growth. Like you normally say that the summers of VAP will be higher. So VAP rates are being -- VAP growth rates have been significantly higher. They are around 16%, 17% VAP growth.

Sorry to interrupt Deepak. I'm very sorry. You may please rejoin the queue for more questions. Next question is from the line of from Rehan [indiscernible] from [indiscernible] Advisors.

So my first question is regarding the impact of an increase in fuel price by INR 1 on the logistic cost.

So basically, when you look at fuel prices, the INR 3 increase currently will have an impact of maybe not that much in terms of 0.5% is what the impact would be. But that as I said, if we delay giving it to our transporters, normally they take a hit for a 15-day process and then we go in. So currently, it will only be a small hit of 0.25% that we look at. But once we are sure of what the fuel prices are going to be stable at, then we can make a call of how to pass it on.

Okay. And my second question is regarding the Africa business. What can be the sustainable growth number to look for there?

The sustainable growth numbers in terms of volume, we are confident of maintaining the 20% kind of growth numbers in the current year.

Vihaan, does that answer your question?

Yes. Actually, I wanted to know the value as well in terms of the sustainable growth.

In terms of value you need, sir.

Basically, sir, last year, we earned around INR 500 crores on that what sir is talking about...

20%. INR 600 crores.

Next question is from the line of [indiscernible] from White Equity Investment.

Sir, regarding the Africa sales, can you split it between Uganda and Kenya for FY '25 and FY '26, please?

So Uganda and Kenya breakup for '25 and '26. One minute. BVK will answer this.

So Uganda is almost stable, [indiscernible] 1.45 lakhs to [indiscernible] 1.5 lakhs. So see now -- if we see last year, we have done -- FY '25 1.80 lakhs, out of that 1.45 lakhs from Uganda and balance 35,000 from Kenya. And FY '26, the similar number. From Uganda, we have done 1.45 lakhs, 1.50 lakhs and total number what we have done average is 2.27 lakhs. So 2.27 lakhs. So 1.50 lakhs minus balance 87,000, 90,000 liters average we have done in Kenya FY '26.

Yes. So FY '26 volume growth has largely come from the Kenya [indiscernible].

Yes.

And sir, if you can give the Africa EBITDA numbers. We have the revenue numbers, but FY '25, FY '26 and Q4 FY '25 Africa business.

EBITDA number in '25 it was 11% EBITDA and '26 is 11.3% EBITDA.

And sir, the last question I have is on the Maharashtra plant. So where are we on the procurement in Maharashtra in terms of lakh liters per day and do you see it going to 5 lakhs till end of '27?

So right now, the average procurement Maharashtra, what we are procuring is 3 lakhs average, right now, in the last couple of months onwards. So once season comes -- by end of this year, we are targeting minimum 5 lakhs.

Thank you. That was the last question for today. I would now like to hand the conference back to the management for closing comments.

Thank you, everyone, for joining us today on this earnings call. We appreciate your interest in Dodla Dairy. If you have any further queries, please contact SGA, our Investor Relations advisers. Thank you very much.

Thank you. On behalf of Dodla Dairy Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.