Heritage Foods Limited (HERITGFOOD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Heritage Foods Q2 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal. Thank you, and over to you, Anuj.

Thank you. Good morning, everyone. A very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Heritage Foods Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the second quarter and first half of the financial year 2024. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is to purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We firstly have with us Mrs. N. Brahmani, Executive Director; Dr. Sambasiva Rao, President; Mr. Srideep Kesavan, Chief Executive Officer; Mr. A. Prabhakara Naidu, Chief Financial Officer; Mr. J. Samba Murthy, Chief Operating Officer; Mr. Upendra Pandey, CEO of Heritage Nutrivet Limited; and Mr. Umakanta Barik, Company Secretary and Compliance Officer. Without any further delay, I request Dr. Sambasiva Rao to start with this open remarks. Thank you, and over to you, sir.

Thank you. Thank you, Anuj. Good morning to everyone. We are pleased to welcome you all to this earnings call for the second quarter and first half of financial year 2024. The financial results and earnings presentations have been uploaded on the exchanges, and I hope you must have had a chance to look at them by now. Let me take you through the financial performance for the quarter under review first. Heritage Foods achieved its highest ever quarterly revenue which on a consolidated basis stood at INR 979 crores, representing a growth of 20% year-on-year. This was driven by continued strong growth in value-added products. EBITDA for the quarter was INR 47 crores, which grew by 18% year-on-year. EBITDA margins were recorded at 4.81%. Net profit for the quarter was INR 22 crore, which grew by 18% year-on-year with PAT margins reported at 2.29%. For the first half of the financial year 2024, our consolidated revenue grew by 16% year-on-year to INR 1,902 crore. EBITDA was INR 87 crores, representing a strong growth of 37% with EBITDA margins improving to 4.6%. Net profit for the first half was INR 39 crore, which has seen a significant improvement year-on-year of 49%. Now moving on to the performance on the operational front. The value-added products portfolio witnessed strong growth of 18% year-on-year contributing INR 258 crore to the overall top line, with the overall VAP contribution standing at 26.8%. The average milk procurement during the quarter under review was 1.48 million liters per day as compared to 1.46 million liters during Q2 of the previous financial year, while the average milk procurement price during the quarter stood at INR 43.22 per liter, which increased by INR 2.57 per liter over quarter 2 of the financial FY '23. An average milk sales price increased by INR 3.89 per liter year-on-year. The revenues from the sale of liquid milk for the quarter stood at INR 571 crore which grew by 8.5% year-on-year. Additionally, we successfully commissioned the new production facility at our existing B.Kothakota plant in Chittoor District of Andhra Pradesh with the capacity to process 55,000 liters per day. During the quarter, the company launched new products like premium buffalo milk with 7% fat and 50 mL and 100 mL ghee jars. Lastly, on the distribution front, we continued our effort for enhancing our geographical reach and added 437 new distribution points in the general trade. Now the floor is open for interaction. Thank you.

[Operator Instructions] The first question is from the line of [ Aditya ] from Securities Investment Management.

Sir, my first question...

Aditya, sorry to interrupt you, but we are losing your audio. Can you come in a better reception area, please?

Yes. Is it better now?

Yes.

Yes. So my first question is regarding the gross margins. So on a Q-o-Q basis, our [ procurement ] prices have dropped by INR 1.3. So even then our gross margins have reduced. So I know the VAP share is lower in the second quarter as compared to the first quarter, but still some benefits should have been seen in the gross margins. So if you could just elaborate what happened? And a connected question to this is there has any sharp jump in fat revenue as well. So is this one of the reasons why the gross margins have not expanded that much?

Yes, the second part of the question, Aditya is concerning fat sale, right? Is that right?

Yes.

Yes, right. So thank you very much, Mr. Aditya for this question. Yes, we saw that towards the end of quarter 2, the raw milk procurement prices have started coming down. In fact, we registered a marginal improvement on account of that. But most of quarter 2 still was managed with high raw milk procurement prices. So because you're looking at the quarterly numbers, you are not looking at the month-on-month improvement, but I can assure you that towards the end of the quarter, actually, there was a significant improvement in terms of gross margins. But that said, a couple of other factors have impacted. For example, you know that in the first quarter, we had value-added products contributing close to about 50%, whereas that has come down in quarter 2 as is expected. That is one. And number two, we've also had losses -- higher losses on account of fat sale, which amounted to about INR 11.8 crores for this particular quarter. And that is another factor which also impacted the gross margin. If I -- out of this INR 11.8 crores, we were continuing to liquidate the inventory of butter that we were sitting on. You may recall that we have close to about INR 360 crores of inventory at the beginning of the financial year, which have substantially reduced and in fact it has become half as we speak at the close of Q2. The liquidation of butter as the prices came down has happened at a loss as well. And that is the other factor which is impacting. So overall business, if I look at in isolation, the continuing consumer business that we are doing, that is growing, and that is growing strongly in profitability as well.

Got it, sir. And sir, if you can just talk about how the flush season started for us. So there has been reports that the rainfall has been uneven this year. So considering that do you expect a better flush season this year compared to last year? And how the procurement price is trending?

Yes. This is Samba Murthy. So as mentioned by Mr. Srideep, this procurement price coming down end of September, from mid of September onwards. So there is a drop actually, if you compare with Q1 to Q2, there's a drop of procurement price at about INR 1. Then further -- we are expecting further drop is going to be there in Q3 as well. So procurement prices are coming down overall. And the procurement volumes are going up and building, and so that is why overall demand like commodity demand side, also commodity like butter, SMP, the demand also has come down, people are again converting it. And commodity price is also coming down, so because of this flush season. So hoping that further prices will come down during this quarter, Q3.

So if I could just add to that what COO has actually told you exactly what's happening in the market. But overall, for the business, the good news is that the raw milk prices are coming down, the flush season is looking very normal. This is going to be a very normal procurement season for us, which means that good deals on the raw milk procurement side. Whereas on the commodity side, the commodity is -- commodities are softening. The good news is that we are -- like we are very low in terms of stocks that we're sitting up. So we are actually very well poised to enter the flush season at this point in time.

Got it, sir. And sir, how are cattle feed prices trending? So are they also seeing a downward trend? Because if the cattle feed prices remain high, the milk prices wouldn't see a drop. So if you could just elaborate what are the cattle feed prices trending now?

I'll request Mr. Upendra to take this question.

Yes. So what we see is that the next 1 or 2 months' time frame, the cattle feed prices will be stable. Maybe from quarter 4 onwards, there may be some corrections. But at least in this quarter, it should be -- remain stable.

Okay. Got it. And sir, one last final question. So if I look at your liquid milk sales, so the last 3 quarters, the growth in liquid milk sales in volume terms hasn't been that great. So if you just elaborate what is leading to this?

In fact, in the first quarter, we had reported a decline in -- degrowth in milk -- market milk volumes which has actually turned around. If you've seen that we've reported 1 percentage positive growth in this quarter. So for us, actually, from a minus 1 to plus 1 is actually a good swing of about plus 2%. The minus 1% that we recorded in Q1 was primarily because of sequential price increases that we have to take to correct the profitability or to bring it in line with the raw milk prices. That market situation has stabilized. And now all the expansion that we are doing in terms of distribution is what is helping us grow. Now, while we have -- you should imagine that a number which was at minus 1%, if we ended with a quarter average of plus 1%, which means that through the month of July to September, it must have been an upward swing, right? So I can very well assure you that number is double that number at this point in time. So we are continuously growing milk volumes as we speak. In quarter 3 as well, we expect that trend to continue. So things are stabilizing much better now.

Right. And going forward, as the procurement prices come down, will you pass on some of this benefit to the customers?

See, we will -- usually market milk price correction happens in terms of MRP, which is a consumer price, but the net realization of the company is net of what we spend in the market to achieve our sales. So -- because we have the comfort of margins at this point in time, we have the luxury to spend a little bit more in terms of market expansion. But as far as consumer prices are concerned, I don't think that we will be doing any correction.

Next question is from the line of Viraj Mehta from Equirus PMS.

Yes. Sir, my first question is that your procurement is kind of not growing, and it's at around 1.48 million liters per day. This is very contrary to what you said at the start of the year with high single-digit to low double-digit growth in volumes. So can you please elaborate on this?

Yes, yes. See, currently in the procurement -- actually, overall procurement, it is about -- without overall procurement is about [ 14.45 lakh ] liters. And last year, it was 14.62 lakh liters, which is including the skim milk. Skim milk we purchased and converted into milk powder, SMP, and that also taken into the procurement. So the difference is actually we are growing and the difference basically because that skim milk actually. This time, we have not purchased and we have not converted because we are having milk and we are -- internally our own milk we are procuring it. So that is why the difference actually not visible. Otherwise, we have grown by 9.8% actually in the milk procurement volume without skim milk. And coming to our own procurement, own procurement -- yes, that's all.

And sir, if I look at the operating margin of our...

Viraj, sorry, but your volume is coming a little low. Can you speak a little louder?

Sure. Sir, if I look at the operating margin for our company, the kind of improvement we have seen in our peer numbers, and I'm not even talking the absolute numbers that some of the peers are reporting double-digit margin. I'm saying just improvement in margins for some of the peers is significantly higher than ours. We are still below 5% in margin. And on top of that, I am worried that you are saying that we have cushion of margins. Sir, at 4.5% or 4.75%, I see no cushion of margins. Our operational number you had said some months ago and even few quarters ago was 7% to 8%. So there is a cushion of margins. Can you please throw some light on this?

Okay. Sure. Sure, Mr. Viraj. See, I'm speaking with the perspective of today, right? And I understand that you are looking at the numbers that got reported in retrospect. Probably that is the reason why the perspectives are slightly different. And I shouldn't have said what I said because I'm speaking with the insights that I have of what is happening today. Now let me just clarify. First of all, you've seen that in terms of PBT, we have improved from, let's say, about 2.55% in quarter 1 to about 3.14% in quarter 2, right, which is actually an improvement of about 0.6% or 60 basis points, you can say that. But if you recall, in quarter 1, also, we said that out of the INR 360 crores of inventory that we were sitting on primarily butter, we have liquidated part of that, and we had incurred close to about INR 10 crores of losses in that in terms of booking in terms of mark-to-market prices. And subsequently, in quarter 2, we had an additional loss of about INR 7.7 crores on account of the same, which is actually -- see, this is -- this was a business call at a point in time when the raw milk procurement prices were going up and it was sequentially going up. Every single week, the prices were going up, and we have showed up inventories to face a difficult year. Now as it turned out, the milk production became normal starting from April, May itself and the prices started coming down, which is why as per accounting practice, we have booked those losses against the mark-to-market prices. Now if I were to, it is not -- our profits are just 3.14% whatever we have reported, but assuming that in a continuing normal business, we do not have these kind of commodities going up and down. As we speak now, Mr. Viraj, let me assure you that we are not sitting on any inventory of commodities, not much of inventories of commodities as well as you would have seen in the balance sheet, the raw materials have come down to INR 180 crores. Now assuming that we take this out. And this means that our profitability in Q1 would have been 3.62% in terms of PBT and in Q2 would have been 3.86% without the butter losses that we would have incurred. Now the reason why I said I have the cushion right now is because this 3.86% also is a weighted average of the profitability in quarter 2 across 3 months, whereas as the Chief Operating Officer said some time back, the prices have started coming down in the month of September, which means that our profitability is sequentially improving month-on-month after that. We are expecting the prices to further come down in quarter 3, which means that the quarter 3 should actually report much better than this. This is the reason why I said what I said. But coming back to -- because you also mentioned about comparison with other companies, we wouldn't like to compare ourselves with other companies because none of the companies have a comparable structure apple-to-apple. Different companies are operating in different regions, which might give competitive advantage in certain times, competitive disadvantage in certain other times. Different companies have different portfolio structure, which will also have its own advantages and disadvantages. But as far as we are concerned, what I want -- I would like you to hold us accountable as a company is that we are committed to growing our value-added products, and you must have seen that in every quarter, we have registered significant growth in value-added products. And this quarter, again, we have grown value-added products by 18%. Good news is with raw material prices coming down sequentially, and if we are able to sustain the level of growth that we are recording at this point in time, so you know that in H1 itself, we have registered close to about INR 2,000 crores of revenue. If we're going to keep this kind of very high revenue and then profits normalize, then we are going to eventually book the profits that the Street expects.

Sure, sir. Thank you so much for the explanation. Just one last thing, sir. By what time as in 5 quarters, 6 quarters, couple of years or what revenue target do you have at which you think you can do that 8% margin?

So that's speculative. But let me tell you that in the coming quarters, we expect the profitability to improve, for sure. This is what we are seeing basis our growth momentum, this is basis the value-added products that we continue to grow. Every month it is growing for us. So I know that this is actually improving. Procurement prices are coming down. But by when we will reach that 8 percentage will be totally speculative to say at this point in time.

Next question is from line of Sameer Gupta, IIFL Research.

Am I audible?

Yes, sir, you are.

Just wanted to understand this gross margin thing a bit more in detail. So you mentioned that there was a fat loss of around INR 12 crores this quarter. And if I remember correctly, in the last quarter also, we had booked a provision because of the fat prices coming down, and that had affected our previous quarter margins also. So unless there was a sharp markdown again in 2Q versus 1Q in fat, this INR 12 crores wouldn't have arisen. Am I -- is this understanding correct?

Yes, your understanding is absolutely correct. There was -- sharp is a very strong adjective to use. But I would say that there was a further markdown in quarter 2. So if I could just put the numbers, we had an additional close to INR 7 crores of additional price reduction in quarter 2 on account of this. Yes, you are right. So in quarter 1, as per accounting standards, we had booked notional losses basis the mark-to-market price, but in quarter 2, we actually liquidated the fat. And you must have seen that close to about INR 72 crores is the revenue that we have booked on account of fat sales as well. And the eventual loss that flowed was higher than what we had provided for. And that's what it's got booked.

Got it, sir. Just to get this number right, it is INR 12 crore losses in 2Q of FY '22 -- 2Q of this quarter?

Yes. So yes -- so total is INR 11.8 crores. But if you say out of that about INR 7.02 crores is on account of bulk butter, other losses that we are seeing is our regular consumer sale, which is our ghee and other things, which also we were trying to ramp up and we cut down the prices in line with the market.

Okay. Got it, sir. And second question, a follow-up on this. So basically, now there is a butter inventory, which you said is around INR 180 crores on the books. And if milk procurement prices are going to go down as per expectation, there would probably be, again, a loss on this fat inventory. So probably in third quarter, also this issue will impact our margins?

No, no, no. Okay. See, there could be a little bit up or down, but the INR 180 crores of inventory is on account of everything that we are holding at this point in time. Out of which bulk butter -- yes, INR 20 crores is the bulk butter inventory, hardly anything.

And what was this number, let's say, at the start of the year, that INR 20 crore?

More than INR 100 crores it was.

Got it, sir. Yes, I have a second question. I think a lot of it has been asked and answered. But just on the outlook of milk flush, so I understand that the initial push in this direction has been good. But just on the outlook on milk flush, given that there is a larger rainfall deficit in Southern Peninsula area, where -- which is primarily the region where we operate. Are we still very confident of seeing a normal milk flush this year?

Yes. Procurement side, overall, it is good. Now all the parts of our operating area, procurement is increasing and prices also as we mentioned that it's coming down. And everywhere, our growth is there in the procurement areas. There is no thing that there's no procurement in South or other parts. So everywhere it is increasing because of good rains actually, good monsoon we've had and continuous rains.

Next question is from the line of Resha Mehta from GreenEdge Wealth Services.

So again, on the fat sales, right? So historically, if I recall correctly, over the last several years, we've always booked fat losses annually, right? So on an average, you could call out what have been your fat losses over the last 5, 6, 7 years...

Ma'am, sorry to interrupt you, we are losing your audio in between.

Okay. Is it better?

Yes.

Yes, Resha, we got the question. We got the question. Can you allow us some time, and we'll come back to you on that. Resha is asking what has...

Hello?

This season is not -- is a bit different from earlier years because we have accumulated the fat stocks over a period of 7, 8 months and disposed in this quarter, that has caused the onetime bulge of this loss. Otherwise, it would be 1 year it will be a little lower, 1 year it will be a little higher over a period of 5, 6 years ranging from, let's say, INR 20 crores to INR 40 crores per annum kind of loss. Yes, it ranges from INR 20 crores to INR 45 crores per annum. Different years behaves differently depending on the milk availability, commodity prices. Actual year-wise, we will take some time to pull out and give you.

And this year, it is only looking like that because we just went through a very high procurement price. And then suddenly, it all come off. It's been like -- the turnaround in terms of prices have been significant, which is why it is stock is standing out.

Right. But if we look at your historical average of INR 20 crores to INR 45 crores of losses annually, right? So I think this year also, we are pretty much on track to do that, right? So maybe we can expect a little bit of more fat losses in the coming 2 quarters?

No, it was not booked in the earlier periods as the stocks were sold in the short time of 1 month. That is not there.

Okay. Okay. Right. So in H2, basically Q3 and Q4, do we expect a lot more of fat losses like to the tune of, let's say, INR 10 crores to INR 20 crores put together?

See, we do not have, at this point in time, any more butter that we need to dispose of. Whatever we are having is, you could say that, the input is pretty much matching with output because we are continuously liquidating whatever surplus fat we have. That said, I wouldn't like to speculate in terms of what would be the change in prices and what kind of losses we'd have. Of course, our intention is to sell all our consumer packs in profit and our consumer sale of whether it is ghee or butter and all are growing month-on-month basis. So if that happens and if we are able to sell most of our fats in terms of consumer packs, then the losses would be very minimal. But if that doesn't happen and if we have to liquidate and if it's a falling market, then we might continue to have a little bit of losses booked month-on-month going forward as well. But we will not have like President said shortly -- presently, we don't have the accumulated 9 months or 10 months of fats to dispose of anymore. It's only whatever transaction happening on a month-on-month basis.

Understood. Very clear. And second, on the milk sales growth, right, it's been very tepid at around 1% volume growth, right? So is this because of the high milk inflation over the last 15 months, do you see consumer sentiment being muted at least on the liquid milk front and that is why also we may have had to take more promotions and higher trade margins to boost top line growth there and which in turn has impacted our gross margins?

No, no, no. In fact, actually, milk margins have improved tremendously. Let me assure you that we are not -- whatever we are spending in terms of driving milk growth is in line with what we have always spent. So there's no excess spend there, but the numbers volume growth have come down.

She's asking about shrinkflation.

Yes. The numbers have come down because of 2 reasons. Number one is because of prices going up and consumer appetite to consume had come down. Number two is we had achieved some the [ NR ] increases by reduction of fat sizes. We call it shrinkflation effect. And many of the fats, we have actually shrunk by almost 10% or 15%, which means that the number of fats that the consumers are buying remains the same, but volumes have shrunk by about 10%, 15%. So a combination of that is what has caused the volumes to come down. And now we are growing the numbers, like you could say about upwards of 2% is the kind of volume growth we have seen. But in terms of transaction growth, most of the packs are growing in a very healthy double-digit transaction growth.

Got it. And also, on your -- what was your milk procurement price in Q2 of last year?

INR 40.37. Price is INR 43.22 now.

Got it. It's INR 43.22 right now, right?

Yes.

Yes. And lastly, on the EBITDA margins, right? So I think we had the kind of embarked on that journey of reducing 10% of total cost or thereabouts, right, by gaining efficiency, trying to reduce sales and distribution costs and also reducing conversion costs. So where are we in that journey out of the ambition of 10% cost reduction? How much have we achieved and how much more room is left?

We are progressing on that. Several initiatives are now operating full blown. And we are -- you should say that we are about -- we must have covered about 1/3 of the journey in that.

Right. And the balance journey is to be covered over the next 6 months or 18 months or what kind of a time period?

At any point in time, we have several projects that we are running in terms of value-creation initiatives, which many of them will come online in Q3 as well. So that's a continuous process as far as we are concerned.

[Operator Instructions] The next question is from the line of Pratik Kothari from Unique PMS.

[Technical Difficulty]

Pratik, sorry, but your audio is not coming clearly.

Is this any better?

Yes, slightly better.

Sir, my one question [indiscernible] reach. Sir, when we look at our -- I guess, on the supply side the kind of...

Pratik, sorry, but again, your voice is breaking. May I request you to come back in the question queue?

Sure.

Next question is from the line of Anushka Chitnis from Arihant Capital.

Am I audible?

Yes.

Yes. I just had one question that I wanted to ask. What was the share of cow milk and buffalo milk procurement in this quarter?

81, 19, cow 81, buffalo 19.

Just for this quarter, I wanted to know what was the share of cow and buffalo milk procurement?

You could say roughly around 80-20 is the ratio, 81, 19 as we speak for quarter 2.

Sorry?

81-19, you could say roughly 80-20 ratio.

Next question is from the line of Kaustubh Pawaskar from Sharekhan Limited.

Yes. I have a couple of questions. First on value-added products, what was the contribution of curd for this quarter? And what was the growth on year-on-year basis? And my second question is should we expect the contribution of value-added products to improve in the quarter 3 considering the [indiscernible] and the overall mix might improve because of fat would be lower in the next quarter, so considering that also even the mix should improve in Q3?

Thanks for the question. So let me answer the second question first. See, we will continue to drive high growth of value-added products as we go -- continuing forward, you could expect us to continue to drive value-added products growth of a very high-teens level, 18%, 19%, 20%, this kind of growth you could expect and this is what we are working on. Now ratio of value-added products in terms of their contribution to the overall revenue will be a function of other things as well, right, which is either the revenue, here, you have seen that we have taken higher revenue increase in milk compared to value-added products. So contribution per se our value-added products might have -- might be looking a little suppressed or because of festive period fat sales might go up, and hence, contribution might look a little muted. But value-added products will be the one that will continue to drive growth of the revenue or top line for our company. And the first question was contribution of curd. Curd has grown at 10.5% for us in this particular quarter and...

16%. So curd has grown by 16%. Overall value-added products have grown by 18%.

Okay. Sir, my next question is about...

Kaustubh, sorry to interrupt you, there's a lot of airy sound coming from the line. Can you speak through the handset?

Is it better now?

Yes.

Yes. My second -- my last question is on the capacity expansion you just recently did. So I just wanted to understand how it is going to help you? And whether we might see some efficiency coming up through this expansion?

Yes. See, the capacity expansion has -- is a net addition of about 25,000 liters because we have also decommissioned certain capacities and reorganized towards markets which we are looking at expanding. So this particular plant where we have added or commissioned new capacities is in Chittoor district place called B.Kothakota, which gives us access to the Rayalaseema market or the market, you can imagine that lies between Tirupati and Bangalore. That's a market where -- which this plant would be catering to. This, again, is a part of our growth strategy in terms of markets that we are focusing on.

Right. So in that context, the farmer addition, what you normally talk about, just a comment on that, where are we currently? And what is our target on that front?

Did you mean farmer addition?

In a sense, the procurement -- in terms of procurement of milk from the suppliers what we have?

Already, we are having procurement in that area. We are already procuring it. We have just created that packing facility, curd production facility over there. This is more about processing and packing capacity, not procurement capacity in that area. What we explained in the...

Next question is from the line of [ Vandit ] from Alpha Investments.

I just have one question being what kind of procurement number do we look by, say, FY '26, 2 years out?

See, we are -- sometime back, we had mentioned that our ambition is to grow at the rate of 15, 16 percentage year-on-year. And we expect half of that growth to be driven by volumes and half of it to come from price or shift towards value-added products, right? Now which means that we will have to continue growing our procurement volumes in line with the volume requirements of our company, which means that it will be either in high single digits or like low double digits. So you can say about 8%, 9%, 10%, 11%, 12% kind of growth we'll have to sustain to fuel this growth. And we are well on track for that.

And what kind of CapEx number do we look for, say, for FY '25-'26?

Yes. So see, we have been tracking around INR 100 crores year-on-year. And we don't -- we think that that's sufficient to fuel the organic growth that we have seen or that we are anticipating.

Okay. And one last question. I think we have been doing really well on the value-added products side. If you can just talk about some initiatives which are really putting this kind of a growth? Because I think for the last 2, 3 quarters year-over-year, we've been doing a decent number. So should we speak about what has been driving this kind of growth?

Several things. See, first of all, I think that we are committed to offering the best product that is there in the market. which starts with understanding the consumer in terms of continuously improving our product quality and this is not just in terms of the inherent product quality, but also the packaging and the presentation of the product to the consumer. So that is one thing that we have been continuously working on. In the last many quarters, we have actually improved, whether it is our curd, paneer, ice cream, many of these products have gone through multiple rounds of revisions, and this is a continuous process at our end. Secondly, in terms of distribution expansion is something that we are continuously focused on. So while we -- you could call the core of our business, which is the fresh products is primarily driven through traditional channels, whether it is Heritage farmers or Heritage distribution -- distributor network. We have added or we have invested significantly in growing the distribution through grocery channel and many other emerging channels such as e-commerce and quick commerce and all of that in the last several quarters. So whether it is in terms of adding of distributors, which has -- today, we have close to about 50,000 outlets reach in the grocery channel. We have also added close to about 160-plus Heritage happiness points. We have Heritage happiness points at our distribution centers, which -- neighborhood distribution centers, which act both as a retail store as well as a redistribution center. We have also expanded our presence across e-commerce, quick commerce and modern trade channels. We have now even in cities like Delhi NCR and all of that, you can pretty much buy most of our products, our value-added products on, whether it is BigBasket and Zepto and Blinkit and all of that. So these are all the things that is driving growth for us as far as value-added products are concerned.

Sir, what could be the percentage revenue that you're getting from e-commerce and modern trade channel?

Close to about 10.5% of the revenue that we get from this channel.

Next follow-up question is from the line of [ Ramesh from Retail Investor ].

Sir, I have a couple of questions. The first one is you have told curd growth at 16% value, What is the volume growth you had, what did you say?

It's 10.6%.

Because I understand curd price, it is going in the market, means people are moving more to buying curd instead of buying milk. I heard from you guys only in the previous calls, in previous quarters. Is it our driven growth or it is a market growth that 10.5%?

Okay. So it's both. So I really don't know exactly what the market is growing at. Definitely, there is momentum in the market. Because the package curd consumption is on the rise and which is primarily driven by some of the leading brands, right, which also includes Heritage somewhere right at the top. So it's a function of a bunch of brands, including Heritage driving this growth and consumer adoption is happening.

Okay. And the second thing is on butter, means I know so many questions came in this call. Only thing is how much metric tonne of butter we sold in Q-on-Q...

Roughly close to 2,000.

So the same question, Sameer had asked you a question. INR 10.5 crores, I did not get much clarity on it -- in last quarter, as I remember. So this quarter, you're saying we have booked INR 11.8 crores loss. Is it after setting of that provision, what we have made in Q1? Or is it additional to that provision that INR 11 crores?

So the 2 numbers are different. See, INR 10 crores that we mentioned in Q1 was notional loss on butter stocks. That was not the fat loss. Because the fat loss was slightly higher than that because we also sell in consumer packs, ghee and butter and all that, right? And the INR 11.8 crores that you are calling out in Q2 is the total fat loss, out of which only INR 7 crores is on account of butter. The value...

INR 10 crores loss of Q1, you're saying INR 7 crore additional loss in Q2?

You could say that cumulatively, in H1 we might have had to book a loss of about INR 16.5 crores, INR 17 crores on account of the butter prices coming down.

Okay. Understood. And can't we...

Which is, yes, inventory, sorry.

So my follow-up thing was, can't we use this butter as our advertising strategy from milk and curd or some value-added, we can use our butter or fat products for our advertisement instead of spending in other advertisements? Just a suggestion or something. Can you use...

No, no, it's a good suggestion. But see, at the end of the day, we have to balance everything, right? See, what is not visible here is the revenue growth that we are seeing in terms of the consumer packs. So we also sell 100-gram, 200-gram butter like you see the Amul butter, right? So if you come to our core markets, whether it is Hyderabad or Bangalore and Chennai and all, you will see strong presence of Heritage butter on all shelves, retail shelves. The consumer part of butter for us is growing very strongly. But however, in a month, we sell close to about 60, 70 tonnes of butter in consumer packs. 60 or 70, which is about roughly you could say about 2 tonnes -- close to 2 tonnes per day is what we sell. Now even if we sell -- even if we grow that by 100x, it is still not like -- I hope you understand that the mismatch in terms of numbers. So we are -- the consumer packs are growing for us in very high double-digits or even in some cases, even triple digits. But still, those numbers are not significant enough to compensate this kind of huge inventory that we might have.

Next question is from the line of [ Avinash from NAFA Asset Management ].

So I noticed that your value-added products grew at 18%, while your milk has grown by 9%. Could you just give us a breakup on margins from each of these Q-on-Q and Y-o-Y?

Sorry, we couldn't hear you.

He's asking for margins of milk and value-added products.

EBITDA margins. My name is Prabhakara. Q2 EBITDA margin of milk at 5.36% and value-added products margin is 8.34%. Curd, particularly curd 7.92%, buttermilk 12.74%, ice cream 11.67%, overall 4.37%.

Similarly, Y-on-Y?

Sorry.

Year-on-year, what was the margin?

Okay, these are EBITDA percentages that we said, we were not talking about the change.

No, these are EBITDA percentages.

Next question is from the line of Aman Vij from Astute Investment Management.

My first question is on the procurement volume. So you talked about in order to achieve 15% to 16% overall company-level growth, we need a high single digit or low double-digit kind of procurement growth? At the same time, you talked about the impact of inflation that although the number of packets are growing at double digit, but the volume growth is very low single digit, 1%, 2% only. So if you can talk about from which quarter, is it like Q3, Q4 or it will happen only next year do we see this high single-digit kind of growth in procurement?

No. See there are 2 different things. I think -- see, one, I was responding to the gentleman who asked about what will be the procurement in 2026, okay? So I was -- when I said the high single digit or low double digit, the number was you could say with a long-term perspective, right? Now that means that the -- it doesn't mean that every quarter or every month, we'll be growing at that rate, right? The procurement will be growing or slightly growing less based on the cyclicity of the milk supply that is there. That's the raw milk supply side. The second question, what you're asking about is the growth, right? Even though milk is growing at 1%, value-added products are growing strongly in double digits in terms of volumes also, right? Just now you heard that curd itself is growing at 10.6%. So overall, our requirement of solids or milk per se is continuing to grow. So we'll have to bring in the milk to take it to that demand. The growth is only going up for us. So there was a small tapering of growth at the time when we took the consumer prices up. For the last several months, consumer prices are stable or rather the increase in consumer prices have been marginal. And we continue our distribution expansion and our volume growth on the market side is continuing to grow, which means that looking forward, we will require the raw milk at that rate.

Sir, for H2, what kind of volume growth do you see in procurement?

So sir, that's what I was saying that we'll need to grow our raw milk procurement at the rate of 8%, 9% or 10% to sustain the market requirement of growth because market will also grow at that rate, right, and are sustained over a long period in time. I mean it may not be -- I may not be talking about 1 quarter or 2 quarters here, we're talking about slightly longer perspective if you look at it. That's the kind of growth that we'll have to drive, both in procurement as well as sales side.

Okay. So H1 maybe was an aberration and you're saying maybe H2 onwards, we'll see that kind of growth because we need this growth to continue our growth in value-added products?

Yes. Okay. Okay. H1 was a long period. So you should look at Q2 and Q1 separately, but that's fine.

Sure, sir. My second question is on the value-added side. So out of the INR 260 crore kind of sales we did, if you can talk about the non-curd portfolio. So how are -- you have talked about margins, but in terms of growth, which are the segment, example, paneer, ice cream, which are going quite well for us? And also, sir, I'm linking this with the margins you talked about in different value-added products, so it seems much lower than what other players make. I understand we don't have the same here, maybe in some of the products like ice cream and all those things. So on the whole basket value-added, if this kind of growth continues, do you think, say, in the next year or year after that, we can see a good double-digit kind of margins on this value-added portfolio rather than high single digits?

Sure. So I'll take the second part of the question first, and then we'll give you the growth numbers we are seeing and the Chief Operating Officer will call out some of the growth that we are seeing in some of the products, maybe not all the products, but some of the products, right? So see, in terms of margins, we have -- most of the time, value-added products will roughly deliver double the margins of milk, right? Now while we took milk prices up, corrected the milk prices in line with the raw milk price increase, we did not do so much of correction in the value-added products because we are still continuing to drive volume growth in value-added products, right, which is why the gap between value-added products and milk in terms of percentages have come down a little bit, while milk EBITDA is close to 5.6%, value-added products is about 8.5%. So -- but at this point in time, we are in a very strong position as far as value-added products are concerned. And at any point in time, we can make those price corrections and all of that and that EBITDA will consequently improve as we go forward. So that's just a point in time. And the idea is to bring more and more contribution from value-added products, so that weighted average EBITDA of the company grows and moves towards the 8 percentage margin, which is [indiscernible]. Yes, now I'll hand over to...

Yes, these value-added products other than curd, paneer is growing by 28% and ice cream is growing at 45%, and total drinkables, it is growing by 28%. So there is a good growth in the value-added products other than curd as well.

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

What was your procurement price at the start of the quarter, say, in July? And what would be at the end of the quarter in September?

See, overall Q1 to Q2, INR 1.36 per liter has come down. Probably, July to...

We'll have to come back to you on that. But you could say that there was a good decline from July to September.

Got it. And sir, this 43.5 which we gave in our press release, so that is for the average of the quarter, right?

That is right.

Okay. And sir, my last question...

Aditya, your voice is breaking.

Aditya, we're unable to hear you.

Hello?

Yes. Aditya, sorry, but we are losing your audio. Can you please come in a better reception area?

Am I audible now?

Sir, we can hear you, but then your voice is breaking.

Is it better now?

Yes.

Yes. So the spread per liter which we are making on liquid milk and VAP product like now, are we back to pre-COVID levels or at a level which we make in a normalized environment? Or we are still some time away before reaching those levels?

Are you talking volumes, Mr. Aditya?

The spread per liter which we make on liquid milk or in VAP products like curd?

We are still below COVID numbers, actually. So we are still way below that.

Ladies and gentlemen, we will take that as a last question. I will now hand the conference over to Dr. Rao for closing comments.

Thank you very much for all the participants for raising interesting questions and giving details. So we look forward to interact with you again after the next quarter. Thank you all.

Thank you very much. On behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.