Heritage Foods Limited (HERITGFOOD) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to another enriching session of Knowledge series by Go India Advisors. I'm Garima Singla, and I'm joined by Mr. Rakesh Arora, Founder of Go India Stocks. Today, we are truly delighted to host Mr. Srideep Kesavan, CEO of Heritage Foods. An alumnus of XLRI Jamshedpur, Mr. Kesavan brings with him over 28 years of leadership across FMCG giants such as Coca-Cola and Olam International. He joined Heritage Foods in 2021 and has led a remarkable transformation, scaling milk procurement to 1.7 million liters per day across 11,000-plus villages while embedding innovation and sustainability at the heart of company's operations. He's widely recognized for his deep leadership and digital-first strategies and customer-centric approach. Srideep Sir, a very warm welcome, and we are eager to hear from you the inspiring journey and insights into the rapidly evolving dairy industry. We are also joined by Mr. Umakanta Barik, Company Secretary and Compliance Officer. Next slide, please. I'll also take a minute to introduce Heritage Foods. So founded in 1992, Heritage Foods is one of the India's leading dairy companies. It serves over 10 million customers and has a deeply rooted integrated supply chain. It directly sources the milk from 3 lakh-plus farmers, operates 18 state-of-the-art processing facilities and sells its products across 17 states. The focus areas remain clear, selling high-quality, differentiated products and growing the share of the portfolio in terms of the revenue. As the company has declared its 34th Foundation Day on 5th of June, it has set forth an ambitious target to become the most admired dairy company in India. So without any further ado, I would like to hand it over to Mr. Rakesh Arora, who will lead the fireside chat with Mr. Srideep Kesavan and Mr. Umakanta Barik. Thank you, and over to you, sir.

Thank you, Garima. So welcome to the show. I just wanted to start with asking you one of the basic questions because dairy is such an unorganized sector and then you have so many cooperatives who don't really have profit as the main motive. So in this kind of tough environment, how do we see ourselves? What is allowing us to make a decent return for our investors as well as servicing our customers.

Thank you, Rakesh, for having us on the show, both Umakanta and I, we were just talking just before this conversation started how we're delighted that we are finally on your show, which is watched by so many investors. I think it's an amazing, absolutely brilliant medium you have created to reach out to such a wide population. So happy to be here.

Thank you, sir. Thank you. Welcome.

Yes. See, you have to go back a little bit in history to answer the question that you asked. Till about 1991 -- okay, just before I go back, let me start from where we are today. So today, India is the largest producer of milk in the world. India produces about 250 million tonnes of milk, which is about 25 percentage of all the global production. Even on a per capita basis, India's per capita dairy production is about 420 grams per person, which is incredible. About 50, 60 years ago, India was a milk deficit country. There was a big case of malnourishment. And the first phase of it was addressed through white revolution, which was primarily driven by the cooperatives. And it was around 91%, 92% at the time of economic liberalization that the government brought in the Milk and Milk Products Order, MMPO, as we call it in 1992, which liberalized the sector for the private companies to compete as well. The idea was that government in the true spirit of competitive liberalism felt that with more innovative companies coming in, there will be better products and lesser monopoly and consumers will be benefited better. Innovation will be driven, and that is what is going to create value in the industry. And the government was so right in that in -- 30 years ago, 33 years ago, the contribution of private dairy companies was 0%. And today, if I fast forward 33 years and out of the INR 4.5 lakh crore, which is the size of the industry, 55 percentage of it is contributed by private companies like us, right? That wouldn't have been possible if there was no way of creating value, right? It's the fact that we have grown from 0 to 55% and all private companies, including Heritage, we exist to make profits. Actually, that's -- without profits, we cannot survive. If it was not possible, it wouldn't have grown from 0% to 55%. Now I'd also like to call out a couple of other points. The first is the contribution of value-added dairy, and this is something that we can speak in detail later. Value-added dairy was the primary purpose of MMPO. The idea of a Milk and Milk Product Act was to encourage private companies to come in with value-added dairy and -- which is what has eventually happened because except for, let's say, a couple of large cooperatives like Amul and Mother Dairy, mostly the innovations in value-added dairy has been created by the private companies. The second aspect I would like to talk about is branding and the premium or the equity that we are able to create through branding and the consumer -- by serving the consumer better. That is actually -- if you ask a cooperative, they are probably single focus -- single-minded focus on the farmer, whereas companies like Heritage, in our vision statement itself, in our mission statement itself, we have said that to delight our consumers with fresh and healthy products and to empower farmers, which means there are 2 parts to it. One part of it, 50% of our focus is on building brand equity, which is what creates value and which is how we compete and win against cooperatives.

Got it, sir. So definitely, that clearly answers our first question. I just wanted to ask how do you decide on from where are you going to procure the milk milling because it's so widespread and while there are other cooperatives, et cetera. But how do you earmark that area that this is the area we are going to focus on. Recently, I'm hearing that you guys are also looking to venture into East India. And one of your other competitors also mentioned East India. So what is the thought process in selecting the catchment area for milk?

Sure. Before I get into East India, I'll speak a little bit about the milk procurement side. Our company was founded at a time when farmers were going through distress. And that too in the specific political constituency of our founder, right, Mr. Chandrababu Naidu. And that is in Southern Andhra near Tirupati. The farmers were actually under distress because the cooperatives had failed in that area. And an animal, which produces milk on an everyday basis cannot stop producing. And farmers, if you don't get an income for that, they have no way of -- no way but to throw the milk away, right? That is a -- that -- so our company was born in a space of -- in a period of distress like that, which continues to be one of the core purposes or the mission that we have in our minds and why we exist. So our approach to identifying milk is actually from the point of view of which is an underserved area where farmers can benefit with Heritage stepping in, that is where we step in and procure our milk. And as I just now said, not more than 45% of the revenues from organized sector come from cooperatives. Now forget all of this. The -- out of the overall -- you should also understand, out of the total 240 million metric tons, roughly around 40% of that is consumed by the producer herself or himself because in a village, a household has got an animal, many of them are keeping the animal only for their own consumption. They're not selling it outside. Only 60 or 65 percentage come into the open market as a commercial opportunity. That value is roughly around INR 11.5 lakh crore for the country. Now out of the INR 11.5 lakh crore, only INR 4.5 lakh crore is organized, which means that roughly around INR 7 lakh crores is in the unorganized sector, right? So the competition is often not between the private companies and the cooperatives, but the competition is private and cooperatives together against the unorganized sector because the unorganized sector is where the farmer is losing value because whether it is cooperative sector or the private company, we all add value to the farmer. So India still has about 60 -- 2/3 of the villages, which are still underserved, which are usually in the catchment area of the unorganized players. And our teams continuously do what you call is market mapping and they do assessment of the potential of -- milk potential of the area. And wherever we feel there is an area where there is no organized player playing, and that is where we step in and the farmer is immediately able to see value. Now that said, you mentioned East India. See, we have -- the products that we serve can be primarily clubbed at a very basic level can be divided into 2. The large part of the portfolio that we serve is what we call as fresh products, which have got shelf life of less than 7 days, right? And then we have ambient long shelf life, which ranges from 1 month to even 12 months like ice creams and some of our ghee variants and all are 12-month shelf life. It's all these long shelf life ambient products, whether it is milk shakes or ghee. These are the products that we are serving consumers all over India. As far as our fresh products are concerned, we -- our principle actually is to serve consumers in a tight geography so that milk doesn't travel much. So we always look at minimizing the distance from the producer, the dairy producer to the processing plant to the consumer. That triangle is something that we are obsessed about, and we ensure that the milk doesn't travel more than, let's say, 300 kilometers or so. So you will not find our milk or curd or something in, let's say, UP and Bengal and all of that, unless we set up our milk procurement in those regions.

So, looking at or understanding you that there's still large untapped potential for the milk procurement. And one of the questions people are raising that we haven't really grown our catchment area very fast given the opportunity size. So are there any reasons? And is it going to change a little bit under your direction now?

Rakesh, if you could just clarify what do you mean by catchment area?

So one of the questions is that our procurement has been weak as compared to some of our peers. So we aren't growing our milk volumes as fast as some of our peers. So what are the challenges? And is it a conscious decision that we are more focused on premiumization, et cetera, so that we are not -- so how should one look at our volume growth for milk?

Yes. For the benefit of listeners, I'll just explain how it works. So for someone who is not very familiar with the business, it looks more like a chicken and egg. And that's primarily because of the narrative that comes from cooperative organizations. Because the cooperative organizations work in a very different manner. Their primary purpose is building marketability of the milk that is produced. So they are more focused on producing milk. So they are more focused on the farmers. So if I'm a cooperative company, the primary thing that I'm focused on is like go to a farmer and say, produce, produce, produce, produce because they want to drive the production up. And once the production happens, they are like their job is just to market it. Market it means just find a revenue outlet for the -- because they're not -- their business -- their constitution is not to generate profits, right? It is to find marketability of the milk that is produced by the farmer. We are not like that, okay? So we -- which is why in our mission statement, it is very clear. It starts with delighting every home with fresh and healthy products and empowering the farmer. So farmer is a very, very important stakeholder for us but an equally important stakeholder for us is the consumer. So for us at Heritage, it is about balancing the market side and the supply side. So demand and supply has to be balanced. I -- and if at all, if I have to break the chicken and egg, it is usually on the market side. So I build demand and I build the supply side to match the demand. So if my milk procurement volume has grown at 10.6% year-on-year in the last 4 years at a CAGR of 10.6%, that is because that is the level at which the volumes have grown for me. My volumes have actually grown at about 9.8% CAGR in the last 4 years. Our revenue CAGR is about 14.3% because the gap of 4.3% or 4.5 percentage is actually the price hardening, the revenue realization per liter. So if I don't need milk, I don't need to procure milk, right? So tomorrow, if my volume growth becomes 15%, then I will get 15 percentage of volume milk. That said, the question also carried something about comparison with competition. I would actually like to see the numbers. On a domestic scenario, I'm pretty confident that we are one of the fastest-growing private dairy companies as far as the milk volume growth is concerned since COVID. If the person who asked the question feels otherwise, then we'll have to speak with data.

So I think you made extremely important point about being focused on your consumer, which is the demand rather than the supply itself because we have seen historically a lot of dairy companies have gone bonkers trying to buy cheap milk and hoping that they'll be able to sell it later on and settle with unsold inventory. So I think that's a very conservative thing. So this brings to my next point, which I wanted to discuss. Where are we in terms of demand and supply for milk? Because farmers get excited, they buy increase the supply and then suddenly, there's a glut. So last few years have been very good for us and the industry. So where do you see we are in the cycle and where it's headed for the next few years?

Touchwood, the scenario of milk production is very stable in the country. And I hope I don't jinx it by saying it, okay? And we have just seen about last 18 to 20 months of stable production. See, COVID was a massive disruptor. For the benefit of your listeners, I'll just take a minute to explain because many people may not -- when they analyze our P&L statement for the last 4 years, they might see massive swings, okay? The reason is that during COVID, the raw milk prices went down as low as INR 18 or INR 19 per liter. And you can imagine -- the reason is that the demand side was -- it was not working, right? As the demand crashed during COVID. So there was no take up of milk. Companies like Heritage and Amul and all continue to buy milk. But still, there is a long, huge number of unorganized players like in this country, right? They all dropped and run away. And when you have that kind of scenario and farmers have no outlet for sales, the prices crash. It's eventually a supply-demand issue. And when it came down to INR 19 or INR 18 and all of that, a lot of farmers exited dairy, right? And India has about 8 crore farmers. So even if, let's say, certain few lakhs of people leave, you will suddenly feel shrinkage of production. The second factor was during COVID due to restrictions of movement and out, animals are mammal, so they need to get pregnant, deliver, lactate. So if you don't have -- get into that cycle because of the COVID movement restrictions and all of that, several -- certain percentage of animals missed lactation cycle. So they went out of production. Thirdly, COVID was hit by one of -- bouts of foot and mouth disease. All of this meant that some 3, 4 percentage of milk production in India shrank. And in a country which produces 200-plus million tonnes, if you have 4% disappearing means that's about 10 million tonnes disappearing. And that impact will be tremendously felt. Now that's the reason why 3 years ago, 2.5 years ago, the prices went skyrocketing. When the prices went skyrocketing, the profitability of all of us were massively impacted. When that happened, when the prices went so high, a lot of producers jumped in and started producing massively, right? This happens in the agricultural industry. Now just for the last 18 months or so, there is stability. As in the farm level prices are really good. The farmer -- at the farm level, the economics is good, which means that we should see this situation persisting for some more time. And that doesn't mean that prices will not go up. Currently, we are seeing about 4 to 5 percentage price increase in milk. That is in line with the inflation, which is ideally good because that means that the farmers' cost inputs are being matched. Production remaining stable, prices remaining stable is good news for us. That gives us space and time to focus on what is important, which is building demand.

So I wanted to ask how do you price your purchase of milk? Is there some standard or you increase it, then the other cooperative increase it? How does it happen actually? And how do you keep track of cost of production for the farmer?

Okay. Different -- I don't think there is any 2 companies, which has the same pricing or even the same pricing model in the country, right? So it's a little complex. If I can just explain. When we buy milk, we actually don't pay milk in liters. We pay money for the solids that is delivered. So when the milk is poured at our reception, at our collection centers, we have got these digital machines, which measures the fat content and the solids in the milk. And because if I pay for the milk as a quantity, then they will probably add water and give me, right? The water is not paid money for. The money is only paid for the solids that they bring, right? And the way the pricing is determined is for a standard, let's say, for example, 4% fat and 8.5 percentage SNF kind of thing. Maybe at that price, there could be kind of a parity with respect to competition. But beyond that or below that, the pricing, whether it is like the price -- what is the price paid at 8.6%, 8.7%, 8.8%, 8.9% SNF. That the price chart varies for different companies depending on the strategy. Like if I'm a company, which requires high fat, I'll pay more price for the fat rather than SNF. So it's a 2-way pricing chart, if you can imagine, right? In terms of price discovery, it's just like in any business, any commodity business. So if I price it low, like today, let's say, for example, my cow milk price is INR 292 for total solids, let's say, per kg of solids. If I drop it, let's say, I drop it to INR 285. Suddenly, I see volume dropping. If I see volume dropping, I'll bring it back to INR 292. If I don't see volume dropping, I'll keep it at INR 285. So that's how price discovery is done, right? So there is no other way to do it.

Okay. So I want to discuss this value-added stuff and all that. But before that, I just wanted to ask you questions from a user point of view. I find my wife saying that buy this brand only, it tastes different. This brand is different. And then we tried all this fancy Pride of Cows thing and Country Delight. So how do you account for these kind of differences? And the basic difference is like cow versus buffalo also, do you differentiate that also?

Absolutely. So everybody looks at milk and things it's white milk but it's not a commodity. Actually, we call it recipe. It's at Heritage, we procure about 20% of the milk that we procure as buffalo milk. Cow milk is cheaper but we insist on procuring 20 percentage buffalo milk because we need it for the recipes that we have. Every product that we put out in the market is actually a recipe, which is why we have built the kind of loyal consumer base that we have, which is also what allows us to charge a premium over any other brand. So ideally, our Heritage brand anywhere is always sold at a premium. And that's a function of recipe. Now apart from recipe, there is also quality. Quality is something that significantly matters to a consumer. I can maybe demystify that in simple layman terms. For example, for someone who's a milk user, if you keep a milk and if it splits while boiling, it's not good quality. Why does it happen? Because of the high bacterial load in the milk. Now at Heritage, for example, we ensure that the raw milk never travels more than 25 kilometers. We are obsessed with that. So we have 200 chilling centers spread across 6 states. Now there is obviously milk available 50 kilometers from the chilling center but we don't pick it up even if we need the milk. We look for milk within the 25-kilometer radius. Why? Because after milk, we need the milk to come to our chilling center within 1 or 2 hours. That allows us to instantly chill the milk to 4 degrees. If you are able to do that, the bacterial load in the milk is frozen at a particular level. And the same chilled milk when it moves to our manufacturing centers, which are closer to our consumer centers and we make products out of that, including milk, that milk is naturally of highest quality. That milk has got -- the quality test that we do is called as MBRT, it's methyl blue reduction test. It stays good in ambient for about 7 hours. No problem. People think we add preservatives and all of that. There is absolutely no preservative in it. It is the cleanest, clean label product that you can ever have. It's just the source quality that makes a difference. And if you're able to deliver it like that, of course, I'm sure, Rakesh, that your wife will probably pay a 10 percentage premium for Heritage milk. That's our success mantra.

Yes, of course. So do we also sell all this fancy A2 milk and -- milk from one source, we are paying like INR 100 per liter when milk is available at INR 44 or something. So do we sell this? And what is the proportion of this kind of milk? And is it growing faster given that people are getting a little bit more rich, I would say?

It is still a very niche business, I should say. And the largest brand that we have in India is Pride of Cows, okay? Parag Foods, Pride of Cows is the largest brand that we have. We do not have single origin milk. For single origin milk to do any meaningful conversion because we are a large volume player, right? We need access to at least 5,000 liters because that's the size of our smallest silo. You need 5,000 liters from a single source. Either you [ raise ] your own cows like they do in Pride of Cows, they have their own cows. We are not in the business of cows or we need to find some other partner who is able to produce at that scale. So we don't have single origin. But definitely, we have niche premium brands like one brand that we have is called as Village Buffalo Milk. Village Buffalo Milk is -- it's nonstandardized, non-homogenized milk as is. So see, the government standards, FSSAI standard says full-cream milk needs to have a minimum 6% fat. In the Village Buffalo Milk is buffalo milk as is. So buffalo produces 7%, you will get 7% fat. If buffalo chooses to produce 7.5%, you will get 7.5%. We don't touch it at all. As is we get. Definitely, buffalo produces above 6%, so we are on the safe side. That we sell at a premium, right? And there is another product which we have -- we recently launched Sampurna A2 milk. That's an A2 milk. It's uniquely chosen A2 indigenous breed milk, which is also sold at a premium. And that we are selling in Mumbai and certain other markets, Bangalore and all. There's another product, which we launched in Delhi, it's called Sarvaguna. So through these, Sarvaguna is another milk which we have, which is partially homogenized. These are kind of brands which we are creating, trying to non-commoditize the milk space also. So eventually, our vision is that even milk can become a value-added product.

So I'll come to value-added theme back. But before that, I wanted to ask you about our distribution network. There was one question about our retail outlets haven't really grown as much. So what is our distribution network? And what is our strategy in terms of growing that?

Yes. So see, I believe our retail -- retail network has grown. I believe maybe the person who has asked or some of the data points that you might have pulled in must be some of the reported numbers from the company in the past. See, there are 2 things that we need to understand as far as retail network reported by any company in the consumer space is concerned, not just Heritage. The retail universe is defined as coverage. Coverage means having access to an outlet is called as coverage. So when Unilever says that it has got 4 million outlets covered means that it doesn't mean that it is selling in 4 million outlets every day or something like that, right? It comes in the coverage of the company, right? We have actually converted that into an effective coverage in the last several years. So while, let's say, 4 years ago, we must have had a coverage of 2 lakh outlets. And today, our effective coverage is close to about 2.7 lakh outlets. You might think that it is actually 2 lakh grown to 2.7 lakhs or something. But it's actually effective coverage is in 2.7 lakhs, which means [indiscernible] not have that. Where is the volume growth coming from? We've literally doubled our business from some 11.8 lakhs or 12 lakh liters to close to about 17 lakh, 18 lakh liters and the revenue of INR 4,100 crores. It's happened because of the effective coverage increase, right? So -- and this effective coverage has improved because we have implemented a strategy of fit-for-purpose route to market. This is something that we strategized about 4 years ago, and we have been at it because we are focused on consumer. And we are looking at where is the consumer going? And there are 2 avatars of the consumer. One is a consumer who consume, and there is an avatar of consumer called a shopper. Shopper is a consumer who buys. Shopper need not necessarily be a consumer or vice versa. So we keep track on the shopper trends. We understand where the shopper is buying. So for example, one of the things that we have looked at is the growth of dairy in grocery. So if you go back a decade or 2, 99% of the milk used to get sold from milk booths or parlors. Today, that's not the case. Milk is actually sold largely from your neighborhood grocery stores. So if not even [indiscernible] given value-added dairy. Now if [indiscernible] from grocery stores, then my milk distributors or the traditional milk distributors are not going to get me there. Then I need a route to market, which gets me there. So I'm looking at FMCG distributors who can take my products out there. So today, we have FMCG distributors who are taking me -- who are giving me coverage of 1.2 lakh to 1.3 lakh outlets. So that's what -- it may not have -- there might be -- you might see if you make a Venn diagram, there might be certain overlaps, but my effective coverage has increased because the number of lines that I sell in these shops have increased. My availability has increased in these stores, et cetera, et cetera.

Got it. So sir, coming to value-added products, there are multiple questions which come to mind. One is that you are selling milk, asset turnover is so high, ROCE is like infinite. So that is quite attractive from an investor point of view. Then you want to have all full range of products. We want to do cheese, butter, whatever. And now with all these new age companies coming in, meaning they are experimenting with such niche products. So is there enough margin to compensate for the working capital requirements? Is it easy to manage so many SKUs? Or are we better off focusing on -- because we are a large company, and we are better off focusing on some large segments only. So -- and finally, the expectations are very high from you, by the way. So can you tell us what is the strategy which you have finally balanced all these things?

Yes. Thanks, Rakesh. This is a question we debate a lot internally as well. In fact, actually, we used to debate a lot early on. I think we have got clarity on this, which is why we are on this path now, okay? So we are on the path of -- we laid out the strategy and we are executing it, right? So I'll answer this question in 3 different parts and not rather 3 different perspectives I'll give. They are not parts. They are looking at the animal from 3 different angles, okay? So let me first talk about the first angle, which is a simplistic angle, which is I wish there was a way that milk would grow at 15 to 20 percentage CAGR year-on-year. And I'm able to make EBITDA of 10 percentage. I will stop doing value-added product. So I'll just talk tomorrow, okay? So there's no way because milk volumes, milk is -- while I spoke about the organized and unorganized sector, right? Milk is a category, which is -- which has penetrated the maximum. 60 percentage of all milk that is consumed in the country is in the organized space, whereas only 20 percentage of ghee is organized, 18 percentage of curd is organized, 6 or 7 percentage of paneer is organized. So the moment you look at value-added products, a large part of it is all unorganized. So if I wait for milk, milk only will grow at the rate at which population grows. In fact, actually, yesterday, I read a news article saying that Indian population has like kind of maxed out and the birth rate has dropped below replacement rate. So the population also is growing at the rate of urbanization, I should say, because we are primarily an urban company, which is 3% or 4%. I don't think that milk will grow more than that, right? And there is no way I can take the EBITDA of milk to the levels that I really want. The second angle that I would like to -- Rakesh, are you...

Yes, yes. We're just there, one Slide to show to support you. Please go ahead.

Sure, sir. No, I thought you were asking a question, you are on mute, I thought.

No, no, no. I was just telling Garima to open one slide to show the value added and their margins.

Yes, yes. Sure, sir. Sorry. The second angle or the second way to look at it is -- the question that you asked is specifically pertaining to the return on assets or ROCE per se. Large part of the value chain -- a large part of the value-added products and where we see really value as far as company heritage is concerned is mostly on the fresh products, fresh value-added products, whether it is curd, whether it is butter milk, butter milk is one of our fastest-growing categories. And I'll speak I'm especially passionate about butter milk because I used to work for a beverage industry for almost 2 decades. And I see we used to do so many consumer tests. And whenever we test any aerated beverage with butter milk, the butter milk will always win. But in India, there is no company which has actually made it big. The reason being nobody has done a marketing effort like the beverage majors have done. Similarly, paneer, for the last 4 years, paneer is growing at -- yes.

We will come back to this just because Mr. Srideep has raised a very topical point, which I wanted -- it's coming from my heart also. Because when you are talking about butter milk, is it the thing which is left after you've taken out the butter out of it?

That is the definition of butter milk, but that's now -- that -- actually, when you have churn butter, you get the milk that comes out of it or the liquid -- the liquid that comes out of it is called as butter milk. That's a correct definition of traditional butter milk but that's not how butter milk is made in. So butter milk that we make in dairy industry, all of us, we make it from curd as we would make in at home.

Okay. So that's why I was wondering because there's so much of focus on protein and protein per calorie and all that. I thought butter milk has a lot of protein with a lot of calories. So it is the ideal thing instead of drinking all these things that we are doing.

Absolutely. In fact actually, this is why -- see, we -- a couple of years back, we hired the services of Ryan Fernando. Ryan Fernando is a celebrity nutritionist. He was the nutritionist or he is still the nutritionist of Virat Kohli. So he endorses our product. And with Ryan's help, we've been building probiotic butter milk, and it's actually become almost a 15 percentage contribution to our whole butter milk portfolio. And the idea is there is nothing that tastes better with Indian spicy and oil food compared to butter milk. So while for pizza burger and all of that, a cola might be a great choice. But for Indian biryani or panipuri or chole bhature and all of that, nothing beats butter milk. So we are diligently trying to build that thing. Anyways, coming to the products, paneer, these are all like if you take curd, paneer, buttermilk and all of that, these are all products which behave very much like milk as far as the working capital usage is concerned. Curd has got a shelf life of 10 days. I ship out in 2 days' time. I don't keep it at all, right? So paneer, even though it's got 1 month shelf life, 50 percentage of sale of paneer actually happens through organized trade, where I'm obliged to give 75% of shelf life, which means that I don't hold paneer more than 3 or 4 days in my warehouse. So as far as the working capital is concerned, all of my value-added products, all of these things would behave exactly like. Then, of course, the growing segment of, let's say, certain drinkables, whether it is milk shakes or ice creams, et cetera, where we have long -- slightly longer inventory carry, right? But there, gross margins of 35% or 40% justify the working capital carry because it behaves just like any FMCG, right? So I don't see that's the second angle I would like to talk about.

Okay. So Garima, I was just sharing that table that we have. Do you agree with these kind of numbers like ice cream, et cetera, having EBITDA margins of 37% to 39% cheese, yogurt, a much higher EBITDA margin as compared to, say, ghee or...

Yes. See, yes, the EBITDA margins of ice cream would be slightly lower than this but definitely, it is much higher than -- like I mentioned, our gross margins in ice cream is upwards of 35%, which definitely means that it is significantly far more profitable than the rest of the value-added products. But yes, I agree to the general direction in which the numbers are presented.

So Ice cream would have a little bit longer -- meaning how long does it take, like paneer, you said 3 to 4 days in our warehouse. So what about ice cream?

Fundamentally, you should look at the working capital days, right? Our working capital days for those who have analyzed our balance sheet, you will see that is in the range of 30 to 34, 35 days. We never have more than 30 to 34 days of working capital in our books, out of which 25 days is just SMP and butter that we have, which is what we need for running our business, the commodities that we keep, which means actually all of this put together is not more than a week's inventory. So primarily, there is -- it's not in our interest to produce and keep in our warehouse. In fact, we don't even have warehouses which can store so many products. So even if it is ice cream, we don't keep more than 2 weeks of inventory with us. Ghee, for example, never crossed 14 days of inventory. We don't keep it.

Okay. Okay. Understood. So what are the -- so you did mention butter milk, paneer, curd, which are like mirroring milk kind of characteristics. Then we have heard ice cream also a lot from you. So what is the strategy on that?

Yes. Ice cream is a massive opportunity. See, let me just give you some numbers. Today, ice cream industry in India is about INR 18,000 crores, okay? Compare that with another impulse category, which is, let's say, for example, the carbonated beverages, right? The carbonated beverages is estimated to be anywhere between INR 50,000 crores to INR 60,000 crores, right? I'm only talking about carbonated beverages. If you look at the price range, bulk of the ice creams that we sell is INR 20 price point, okay, large percentage of the ice creams that we sell. What is the price range of a carbonated beverage INR 20, INR 25 kind of thing, right? So there is no reason why this cannot be bigger than that because if nothing, this is actually healthier, right because it's got dairy and it's got proteins and other stuff, right? So the primary barrier here is availability. So in India, even today, the availability of ice creams is not more than 3 lakh or 4 lakh outlets, whereas if you look at the carbonated beverages or anything, they speak in millions, right, 4 million, 5 million stores. So the availability has to expand. And primarily, the availability of ice creams were driven by the beverage majors -- sorry, the availability of beverages, carbonated beverages were driven by the beverage majors by putting those Visi coolers, right, the refrigerators that you see them in the market. The large companies are in the ice cream space are primarily doing exactly the same. And ice cream freezer costs a little bit more than a Visi cooler. But adding more and more freezers in the market and expanding retail footprint is the way this is going to grow. Today, at Heritage, we've got about 7,000, 7,500 outlets. And every year, we add another 1,000, 1,500 outlets to our network. And at this point in time, we have slowed down the pace of expansion. The reason being we are maxed out on our capacity. So recently, we announced a greenfield CapEx, which will come online by end of this year, November, December, it should start, which gives us sufficient capacity for growth for the next 7 or 8 years. And we think that we can grow our revenues 5x in this space.

Okay. Very good. Let's take this question from Momin. He is mentioning that why are we doing frozen desserts also in ice cream, doesn't it dilute brand of a pure milk company?

Whoever is the person who asked this question has done a very thorough job of analysis of the portfolio because most people don't know, right? But for those who are unaware of this, let me just tell you that at the end of the day, a fact is a fact, is a fact is a fact. See, we are a dairy company, okay? But that doesn't mean that we are going to malign the nondairy players because that's not correct, right? So at the end of the day, if it's a fat oleo molecule, it doesn't matter whether it comes from dairy or it comes from some vegetable fat. That's the bottom line. So from that point of view, I don't think that there is anything wrong in doing vegetable fat-based ice creams, which is what we call in India as [indiscernible], we have to call it frozen dessert. But in Western world, it's called ice creams, right? And the largest player in the space is Unilever. They have Kwality Walls. So if it is so bad, Kwality Walls wouldn't be such a big brand. It's the largest ice cream brand in the country or as a frozen dessert in the country. So we do it because it allows us to hit certain price points because pure dairy fat is more expensive. And because we are able to deliver the consumer experience, because we are able to meet the needs and requirements of the consumers at that price point with a vegetable fat, that's the right strategy for us.

Let's take this question on protein because everybody is so obsessed with it. And I can see my own son, he has to buy only high protein curd and high protein paneer, everything high protein. Even bread is high protein these days, I mean, surprisingly. So what is our strategy on protein when everybody is demanding whey protein?

The latest I heard is protein water. They have put protein and water also. So I thought water was H2O, but they figured out a way to put protein in it. See, at this point in time, it is still an emerging trend, frankly. It has still not become mainstream, if you ask me. So your son is more of an exception than no at this point in time. But it is slowly catching speed, and we're seeing more and more people. See, the first and foremost thing I would like to speak about is about 7, 8 years ago in my previous role, one detailed consumer study we had done regarding the protein awareness in the country. We asked hundreds or thousands of people how much protein one should take in a day. And less than 1 out of 10 people were able to answer that. The awareness level was so low. Fast forward today, if I ask this question, 5 out of 10 people will be able to tell me exactly the kind of number of quantities of protein that they should take. At the outset, what is this doing is helping our base portfolio because our base portfolio of milk, curd, paneer and all of that are all protein products. If you take a glass of milk, it's got about 7 grams of protein. So we are encouraging even adults to take at least 1 glass of milk a day because that gives you 7 grams of protein. If somebody needs, let's say, 60 grams of protein, a glass of milk will give you 11 to 12 percentage of what you need in a day. Paneer is a great protein giver for an Indian diet. And the same goes for curd, et cetera. Now comes the thing about enhanced protein products where you -- instead of, let's say, 3.5 or 4 grams per 100 grams, take it to 7, 8, you're pushing the limit. The more protein you put, actually, the product starts tasting bad because protein has got a sliming texture and it also tastes like chalk. So it screws up the taste and texture. And we, at Heritage, we strongly believe that taste is as important as nutrition. And we try to achieve the taste without adding too much of sugar. we are obsessed. So you see many of the -- any of the dairy brings and products that we create, we don't try to exceed more than 6 or 7 or 8 grams of sugar. So we don't want to put too much of sugar, then that will kill all the goodness that is there on the protein, right? So our scientists have been working on creating certain products, which will balance the 2. One of the products that we just released last week or 10 days back is our high-protein yogurts under the brand name of Livo, which has got 5.5 grams of protein in every serve. So you have, let's say, that's just 90 grams of protein. A small cup has got 5.5 grams of protein. With just 8% added sugar, and you should compare it with many other products that are there in the market, 13%, 12% added sugar. With just 8 percentage added sugar, a 5.5 percentage protein product, yogurt has been made to taste tremendous, right? So that's our approach. So we are working on many more products in the high protein range, but it's just a matter of getting the product right.

So what is the value-added product as a percentage of our revenue that we are targeting because people have raised some concern that under the earlier leadership, we also had kind of lofty targets, but we never reached there. So what are the targets now? And how sure are we that we'll be reaching those targets?

Yes. So see, let's just -- I'd like to clarify that to the team that we have just enhanced the leadership and not replaced the leadership, okay? So in the sense that our leadership, the previous person who used to lead a dairy business, is still our Chief Operating Officer reporting to me because he's one of the strongest. In fact, he's actually probably one of the -- if you take top 3 dairy leaders in the country, he's one of the persons, right? So he -- I don't think that we will find anyone better to do his job, right? So it's not about replacement of previous leadership, which has been enhanced with me stepping in that I'm able to draw strategies, which probably I bring in experience from FMCG, from branding, from consumer space, et cetera, which is probably an enhancement over what existed earlier. Now coming to value-added products, 4 years ago, when I joined, value-added products, including consumer fats, used to be around 26.8% or 27%, which today stands at about 36.8% or near about 37%, which means that roughly 9.7%, 9.8% or round about 10 percentage, expansion has happened, okay? 10 percent has moved out of milk and joined value-added products. That's about roughly 2.5 percentage year-on-year. So that's not bad. Yes. So we are hopeful and we are confident that we can keep a pace of, let's say, adding 2 percentage every year. It means that currently it's around 37%, maybe another 6 years or 7 years, we should be able to take it up to 50%, right? Now apart from -- so there is milk, there is value-added products. Then there is bulk butter, which we sell, which today it's about 2.5% to 3% Hopefully, it will become 0. We don't want to deal in this bulk business because anything which is commoditized doesn't generate value. And then we have about 3 to 4 percentage of animal feeds that we sell to our farmers, right? So the animal feeds business will grow to maybe about 4 or 5 percentage. The bulk butter will probably disappear, 50%, which means that milk will probably come down to about 45%, 43% kind of thing. And that's -- maybe in 5 to 6 years, that's the kind of portfolio shift that will happen. Is it feasible? Yes. Our history shows that in the last 4 years, we have steadily grown that thing, right? But that said, out of this 37 percentage of value-added products that we have, roughly 5 percentage is consumer fats, like whether it is ghee or pasteurized butter that we sell. These are not bulk. This is what we sell in consumer packs, right. Whether it is ghee or butter, 100 gram butter, et cetera. The margin profile of the consumer fats is not comparable to the margin profile of value-added products, which is the reason why we declare these 2 numbers separately. In fact, at an EBITDA level or a gross margin level, the gap between the 2 is almost close to about INR 60 to INR 70 per kg, okay, which if you are able to bridge, then the entire value -- so there are 2 shifts, right, as far as people who are looking at the bottom line. One is the value-added products itself going from 37% to 50%. The second is out of the 37%, there is a 5 percentage of consumer fats that is sitting there where the EBITDA margins are, let's say, about 7 or 8 percentage lower than the value-added products currently. So which we will take it up to the remaining value-added products through branding efforts because eventually, the price of butter and ghee depends on the strength of the brand. If you go -- if you walk into a supermarket shelf, you look at prices, you will find ghee getting sold at INR 450 to INR 800. It's fundamentally a function of the strength of the brand. The stronger that we get if you are able to increase our price by about INR 60 to INR 70, ghee would already be on par with curd, paneer, ice cream, et cetera. So -- and I think that the headroom on the pricing is even more as the brand gets stronger. So those are 2 levers as far as value-added products and bottom line is concerned.

So this perfectly sets up for the question which Jayesh has asked on the EBITDA margin. He's saying that in the last decade, we have ranged between 4% to 11%, on average, around 6%. So with all this strategy, what will it take to go to that 8% to 10% EBITDA margin?

So see, I didn't even want to put a stop at 10%. No, why not 12%, why not 15%? See, I don't want to give any timeline. But to your investors and listeners, what I want to say is the general direction in which we are moving, right? There is a mean EBITDA right? Like Jayesh was saying, maybe 6% earlier. That mean today has moved towards 7.5, 8 percentage today, probably, right? Now the mean will have to keep moving up because what we are not able to do anything about, and I have to be absolutely honest here, is the volatility of raw milk prices, okay? That's the nature of the industry because India has 8 crore dairy producers, India produces 240 million tonnes and even the largest brand, Amul, only has about 7 or 8 percentage market share, right? So in large industry like that, nobody can control anything, right? So the volatility will remain. But the objective is to increase the mean level so that even in the low cycle of the volatile period, we are still delivering a great or acceptable profit margin, right? So that's one. The second thing is how we are going to achieve that, right? So I spoke about -- just now I spoke about 2 levers. One is increasing more value-added products, right? Second is within value-added products, there is a particular section of value-added products, which is consumer fats, where my profit margin is not similar to the rest of the value-added products, improving that, which means the value-added products, if they are delivering 6 to 7 percentage EBITDA higher than milk, that 6 to 7 percentage will become, let's say, 10 percentage higher than milk if I address the margin issue of ghee and butter, right? So -- and then the entire portfolio becoming 45% to 50% is the second lever. The third lever is actually brand equity-led premiumization because the general direction in which heritage company is moving is building brands. That is why in the last 4 years, if you look at our P&L, 4 years ago, we used to spend less than 0.1 percentage of our revenue in marketing. Today, we are spending close to 1 percentage of our revenue in marketing, right? And that is steadily increasing. Now we are investing in marketing. Can I invest? So somebody will ask me why are not putting INR 100 crores? Of course, I can put INR 100 crores but then that will impact my PBT immediately. So we are working on [ thin wire. ] We are reinvesting the money that we are earning from our profits back into building our brand, and that is what is allowing me to keep on expanding the brand equity and keep on expanding the premium that I'm charging from the consumers. Imagine a time that 5 years or 6 years or 10 years later, a certain number of our products become just branded products. Like if I ask you what is the price of a Good Day biscuit compared with, let's say, Sunfeast, I'm sure that you won't be able to know because you're buying a brand and you're not. But if I ask about milk, you will say INR 30, INR 29. So I want to move away from this commodity space to more and more branded space, which is the general direction in which we are building the business. That is where the real value will accrue.

Got it. We're already over time, but Pawan is asking about Novandie. What is this? And he's asking when will it be profitable?

That's a good probably last question to answer because it's very important for us also. So we were partnered with Novandie Andros, the French company for 5, 6 years. They were great partners because they brought in international expertise but their primary business is something else. They are into fruits and in that space. And as a company, they wanted to focus on their core and which is the reason why they wanted to offload the tasting. And which was a great opportunity for us. We felt it was -- because there's no better way to buy out your joint venture partner because we really believe in that business, right? So, with that, we currently own close to 95% Close to 90 -- close to 95% of the business now, which means we are running practically majority owners of the business. And that allows us to do many things, which in the previous joint venture setup, it was not possible because it was 50-50. Nobody had a higher stake, right? So like, for example, one of the things that we are able to do is contract manufacturing. So our factory earlier was running at 10 to 15 percentage capacity utilization. We have signed up certain contract manufacturing for some of the people, which immediately in one step takes our capacity utilization to 50 percentage or more, which means my costs are going to come crashing down. That's one. Second, that facility can be used now for making many of the other products, which we were not making like, for example, we are running short of capacities of lassis and stuff like that, which will now be produced in that, which means that we are able to leverage that asset even more. Thirdly, I just spoke about high-protein yogurt that we launched from Heritage under the brand Livo. Now for us, we are already selling a wide portfolio to our customers like whether you call it Reliance, C-Mart, Zepto, Swiggy's, BigBasket and all of that. For us, adding just one more product is very easy. We feel that we're able to scale up the business much more faster than -- so it's just a matter of time before the loss of its history and we turn profitable. We're very confident that because it's a no-brainer.

Okay. There are so many new age companies coming out with niche product. Will inorganic would be one of the strategies we'll follow to acquire brands which are showing promise?

Of course, we're always looking for opportunity. Always -- Umakanta here. We are always looking -- but I'll tell you what we always look for businesses that match our ethos and ethical standards because we are a business that is built on highest levels of ethical standards and principles. Our business was founded by Mr. Chandrababu Naidu. Everybody knows him. And it is not -- a lot of political leaders have these businesses, which they don't talk about. This is a business which Mr. Chandrababu Naidu and his family flaunts about. Like they are proud of having this brand, right? And -- which means what? Which means we have to be really above and beyond the board. Means that we have to do -- if everybody does it correct, I have to do it 100x correct. We have to do it extra correct so that there is no -- not even an iota of doubt on the things that we do, which affects his political career, right? So it's very easy even if people -- even if there is a small thing, people make a mountain out of a molehill as we know. So the ethical standards of the company is very, very critical for us. So we always look for businesses that match that. If we find we are always looking for opportunities.

So I'm pretty sure under your leadership, the company is going to see new heights. So before we close, there was some question on Vision 2030. Broadly, you covered most of it. Is there anything left in that Vision 2030, which we might have missed?

Is that question to me?

Yes, yes, I was asking...

Yes. Okay, right. Okay. On our 34th birthday, which was on 5th of June 2025, we announced our Vision 2030, which is what we would -- it's an ambition statement. It's a very lofty one. Let's see how we achieve that. What we said was by 2030, we want to be the most admired dairy nutrition company in India. There are many words there. Okay. And now we cannot be the biggest because Amul is already there. I don't think we can become bigger than Amul. Hence, we said what do we want to be? We want to be -- in the world, the most admired company is Apple, okay? Apple is measured through Net Promoter Score and several other things. So we have actually put down a certain number of parameters that we're going to track through third party as well, and we'll be publishing those reports going forward. It also includes -- you will also see this reflecting in our BRSR report, our ESG reports, et cetera, because we really want to be a brand like you guys know in whether it is Unilever or Britannia and all in the dairy space. We want to be known as -- not just known, we want to be admired, not just loved. That's our ambition in 5 years' time. And that's when we realize the real potential in the business.

So with that thought, I want to close this discussion. Though there are a lot of things, which I still wanted to discuss, maybe in your next episode, probably we covered a lot more. So thank you, sir, and thank you Umakanta, for your time. I'll just close the recording.

Thank you very much.

Thank you.

Thank you so much, sir. It was an exciting discussion. We learned a lot about the dairy industry. Personally, I think it's a fabulous business. And obviously, my forefathers used to do it at one of their house early. So...

We all used to do, right? Like I grew up when I was a child, we used to have a cow.

When we asked Garima to cover the dairy industry, I told her, as she comes from Bathinda that every household has a dairy industry there.

Yes, absolutely.

So thank you so much, sir, for your time. Thank you, sir.

Thank you very much.