Heritage Foods Limited ($HERITGFOOD)

Ladies and gentlemen, good day, and welcome to the Heritage Foods Q4 and FY '26 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Ms. Garima Singla. Thank you, and over to you.

Thank you. Good morning, everyone. I'm Garima Singla, and it's my pleasure to welcome you on behalf of Heritage Foods Limited. Thank you for joining us today for Q4 and FY '26 Earnings Conference Call. This call is being hosted by Go India Advisors. Please note that today's discussion may include certain forward-looking statements. Therefore, they must be viewed in conjunction with the risks that the company faces. Today, on the call, we are joined by Mrs. Brahmani Nara, Executive Director; Mr. M. Sambasiva Rao, Whole-Time Director; Mr. Srideep Kesavan, CEO; Mr. A. Prabhakara Naidu, CFO; Mr. J. Samba Murthy, COO; Dr. Brij Mohan, CEO, Heritage Nutrivet Limited; and Mr. Umakanta Barik, Company Secretary and Compliance Officer. I now invite Dr. Rao to present the company's business outlook and performance, after which we will open the floor. Thank you, and over to you, sir.

Thank you, Garima, for the introduction. Good morning to everyone on the call, and thank you all for joining us today. At the outset, on behalf of the entire management team at Heritage Foods, I would like to sincerely thank our farmers, employees, distribution partners, customers, consumers, shareholders and all stakeholders for their continued trust and support through what has been one of the most challenging years the dairy industry has witnessed in recent times. As we close FY '26, we do so with deep gratitude, resilience and optimism for the future ahead. Now, turning to quarter 4 and the overall performance of financial year '26. The final quarter of the year was shaped by an exceptionally tight milk supply environment, elevated procurement inflation and sustained volatility in dairy commodity markets. What made this period particularly unprecedented was that the industry experienced supply shortages, not only during the lean season, but even through periods where availability is traditionally expected to improve. This created significant pressure across procurement, input costs and operating margins for the entire dairy sector. Despite these difficult external conditions, Heritage Foods demonstrated resilience, stability and execution strength across the value chain. Our teams on the ground remain deeply committed to supporting farmers, ensuring uninterrupted supply, maintaining product quality and serving consumers consistently across markets. Despite one of the toughest operating environments witnessed by the dairy industry in recent years, Heritage Foods delivered resilient revenue performance in Q4 of FY '26. Consolidated revenue for the quarter grew 10% year-on-year to INR 11,576 million, while full year revenue crossed the significant milestone of INR 45,000 million, reaching INR 45,260 million. This performance reflects the strength of our brand, resilient consumer demand and sustained momentum across value-added products. During the quarter, EBITDA stood at INR 522 million with an EBITDA margin of 4.5%, while profit after tax stood at INR 230 million with a PAT margin of 2.1%. Profitability remained under pressure due to unprecedented procurement inflation. However, disciplined pricing actions, improving product mix and continued operational efficiencies helped partially mitigate the impact. Milk procurement during the quarter declined 7% year-on-year to 16.38 lakh liters per day, reflecting persistent supply side constraints across industry. Average milk procurement prices increased sharply by 8% year-on-year to INR 46.67 per liter in quarter 4, while for the full year, the procurement prices increased 7% year-on-year to INR 44.72 per liter amid industry-wide milk inflation. Despite these pressures, we remain committed to our farmer-first philosophy, continuing to prioritize timely farmer payments, cattle feed support, veterinary assistance and direct engagement programs, reinforcing long-term trust and supply continuity. On the consumer side, demand remained healthy and encouraging. Milk sale volumes grew 1% year-on-year to 11.73 lakh liter per day during quarter 4 and 2% year-on-year to 11.83 lakh liters per day for FY '26. Average milk selling prices improved 4% year-on-year to INR 57.80 per liter in quarter 4 and to INR 57.13 per liter for FY '26, supported by calibrated pricing actions, sustained brand strength and stable consumer demand. Value-added products once again emerged as a key growth driver for the company. Categories such as curd, paneer, ghee, ice creams, drinkables and other high-margin products delivered strong growth, reflecting improving brand preference, deeper market penetration and sustained consumer engagement. Importantly, the quality of growth continued to improve. Value-added products remain central to our long-term strategy with VAP revenues growing 18% year-on-year during Q4. Contribution from value-added products increased to 35.5% of overall revenues compared to 32.5% in the corresponding period last year, reflecting sustained premiumization and improving revenue mix. This transformation not only strengthens our profitability profile over the long term, but also improves the resilience and quality of the business. From an operational perspective, our teams continue to focus sharply on efficiencies across procurement, logistics, chilling and digital interventions. These initiatives helped partially offset inflationary pressures and improve execution agility during a volatile environment. Even amidst industry headwinds, Heritage Foods continued investing confidently behind the future. Our Hyderabad ice cream facility has now moved into production phase, while the flavored milk plant is also nearing operationalization fully. These capacities will strengthen our presence in high-growth categories and position us well for the next phase of expansion. FY '26 was not an easy year for the dairy industry. From erratic weather patterns and weak flush season to unprecedented butter shortages and elevated procurement costs, the sector faced several challenges. Yet what stands out for Heritage Foods is the resilience of our business model, the dedication of our teams and the trust of millions of consumers and farmers associated with us. As we look ahead, while near-term cost pressures may persist for a while, improving milk availability, normalization in commodity dynamics, stronger value-added products contribution to revenue and benefits from ongoing capacity expansion give us confidence about the future trajectory of our business. We enter FY '27 with cautious optimism, stronger capabilities and revenue determination. Our focus remains clear, strengthening farmer relationships, driving premiumization, improving efficiencies and creating sustainable long-term value for all stakeholders. With this, I would like to conclude my remarks and open the floor for interaction. Thank you very much.

[Operator Instructions] We'll take our first question from the line of Sameer Gupta from IIFL Capital.

Sir, first question has 2 sub-questions. So the outlook on milk prices, now last quarter, you had mentioned that milk prices would remain firm till the advent of cow flush in May. And so, here we are in May, and are we seeing any signs of moderation? And a sub-question to this is, last year was a good year in terms of rainfall, which generally is seen as a positive for next year's milk production, given reservoir levels are healthy and there is ample availability of feed, et cetera. But this year also has an expectation of below-normal rainfall. And now, we are seeing inflationary pressures because of the West Asia crisis. So does it change the outlook for milk production in upcoming flush? Your thoughts?

Sameer, this is Srideep here. First of all, there are -- I'd like to break down the problem into 2, right? One is the volume availability -- or milk availability itself, and number two is the pricing. Usually, whenever there is surplus milk availability is when the prices soften significantly. We saw in quarter 3, as well as in quarter 4, both impacted in terms of milk availability -- surplus milk availability. Especially in the regions where we operate, there was a constraint, which impacted the prices as well. As we speak now, we are already seeing supply side improve in regions of dominant cow milk availability. So you can say that the cow milk flush has started, and we are seeing the volumes being increasingly available. But it has yet to reach a place where there is sufficient surplus that the prices will start softening. So, on the one hand, it is a positive signal, which we are all very happy about, but it has still not reached a place where it has started reducing the prices -- procurement prices. That's the first part. The second is, yes, you are right. Last year, we had excessive rainfalls. But what we should also note is that rainfall happened at time when rain shouldn't have happened. So like summer was totally washed out, whereas in -- during the monsoon, there were several areas which had a deficit of rainfall. So the headline here is actually climatic vagaries, the unpredictability of weather. And this, in the last quarterly call also, our CEO of Heritage Nutrivet explained that it results in animal stress. Usually, hormones and all get impacted. And that's what results in production declining or animal productivity falling. We just hope -- and again, there is -- like you rightly said, there is news of El Nino and all, and we are also witnessing -- on the same side, there is good news. There is a good summer happening right now. But then, what we need is a balanced year, okay? So we all hope -- at this point in time, we are hoping that this is a normal year. There would be monsoon as it should be. There is summer as it should be and things will normalize. But it is still too early to say.

Just a follow-up here, sir. So let's say, hypothetically, this is a below-normal monsoon. Will then it have -- will it have implications this year itself on the cow -- or buffalo flush? Or it won't matter, and that's not a factor to look at?

We shouldn't speculate, first of all. See, as a country, India is the largest producer of milk in the world. We have 8 crore dairy producing households. The numbers are just too many. And the regions are so -- India is also a very large country with many geoclimatic regions. It's very difficult to predict exactly how this will grow. But then, we should also understand there are multiple factors. One factor is the climatic impact on the animal productivity. But the other factor is pricing. The farm-level prices have never ever reached the level that it is right now. So we feel -- and as I said in the last quarterly call also, that we feel, at this price level, farmers are profitable. And with this, we expect more and more dairy farmers -- or more and more farmers to enter into dairy. And usually, this results in production gradually increasing. And despite all other adverse factors, it should result in production going up and prices softening. This has to happen. This is the fundamental basis of agri commodity cycle, right? So -- but the thing is, we shouldn't speculate on the timing of this. At this point in time, I can only report that the cow flush has started well, and we are seeing volumes coming in.

Got it, sir. This is very helpful. Second question is on the CapEx this year. So we've seen a INR 380 crores CapEx. Can you give a rough split of where exactly this has gone? Normally, we do INR 150 crores to INR 200 crores kind of a CapEx. And what would be the guidance for the coming -- upcoming year?

Sure. I'll give us a minute. Yes. See, bulk of the CapEx has actually gone in plant production capacity expansion, and -- just give me a minute. Yes. Sameer, roughly around INR 300 crores has gone into plant production capacity expansion. The largest proportion of this or large percentage of this has gone into our greenfield ice cream facility, which we inaugurated in Hyderabad. We also inaugurated a flavored milk line. That's also a greenfield facility. This is in Tirupati. These are the 2 main areas where the CapEx has gone in. We have also expanded our curd production capacity by another 50 tonnes per day. This is all in requirement -- as per requirement of the season. So all investment -- and some small increase in buttermilk, et cetera. So all value-added products capacities where we invested. We also invested close to about INR 20 crores in milk procurement or chilling center capacity addition. That is in line with our year-on-year expansion. And the others are all minor CapEx. And in terms of going forward, we have a couple of projects that is work in progress. We are in the process of expanding our paneer capacity, which is growing at upwards of 30% in terms of CAGR volume terms, which means that every 2 years, we'll have to almost double our capacity. So there is a project on paneer. There is a project on ghee. Ghee -- consumer ghee is actually doing very well for us. This year, again, we have grown in terms of revenue. We have grown upwards of 50%. So there is a project that is undergoing in this. Apart from that, we have only regular CapEx in the pipeline.

So INR 200 crores should suffice? Or you expect another year of more than INR 200 crores?

Yes. No, I think it will be around that amount is what we should look at.

Got it, sir. Last question, if I may squeeze in with your permission. Can I go ahead?

Yes, please.

So just a bookkeeping number, bulk fat sales during the quarter and during the year.

Sir, I believe you are on mute.

In general, I can say that there was no bulk fat sale, but I think CFO will give the exact number.

Bulk fat sale for this quarter is nothing, actually only INR 2.55 crores. For the full year, INR 37.56 crores.

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

Just wanted to check, Srideep sir, do you feel that due to the milk supply constraints or shortages, the growth for us was held back or is currently being held back in any way versus what we could have done for the quarter or for the current quarter? That's my first question.

Volume-wise, there was no constraint. We managed the volumes, right? But in terms of pricing, we had taken up pricing a little more aggressively, which might have muted the growth a little bit in terms of volumes, especially on the milk. In the milk, actually, our volume growth was only about 1.2%. That was because of aggressive repeated price increases that we had to do to manage the raw milk price inflation. But otherwise, supply side, there was -- it did not constrain our growth.

Right. A follow-up on that, sir, the pricing that we took, what was the quantum of that for the previous quarter? And currently, anything that we are planning on this side?

Price increases, numbers.

I think this is indicated in our investor note.

Anything further planned, sir, in the current quarter?

Yes. So we increased our milk prices by about 3.96% or 4%, you could say, for the quarter. And across value-added products, we had increased prices everywhere, like curd prices increased by -- again, a mix change also is there because different regions might have had different impact. Even paneer, we took up prices by 5%. Ice cream prices went up by about 13%, et cetera. Yes. So, as we speak now, we have again increased prices for -- selectively in several markets as -- in the month of April. And we are continuing to review this in May also. We are taking up some more prices. Good news is that [indiscernible] staying strong. The demand is strong. And despite price increases, we have been able to grow business. So that's good news. So we are rather than taking pricing up in one shot, we are staggering it, and we are taking it by different packs and different regions.

Right. And sir, can you quantify the price increase that you've taken in April and now in May?

I won't be able to tell you that. It suffices that we are...

I'm sorry, sir. Sorry to interrupt. The last line was not clear. Can you please repeat, sir, the answer?

I said I wouldn't be able to tell you about the prices in the current quarter. But I can tell you that we are actively looking at price increases. We have done price increases as well.

Right, sir. And secondly, I just wanted to check what is the sales of cow milk for our production and which are the regions where we are indicating that there has been a cow flush, and therefore, there is a recovery in supply?

We have about 80% cow milk in our mix. And predominantly, it is the south of India, which is Southern and Coastal Andra, as well as Tamil Nadu and Maharashtra. These are main regions for us.

Next question is from Nirmam from Unique PMS.

Just a follow-up on the previous participant's question. So you mentioned that milk volumes were muted due to the price hikes that we have taken, but volumes have been poor for quite some time now. So what are the challenges that we are facing for growing our milk sales, especially the volumes?

Yes. I think the first and foremost, as far as milk is concerned, see, as a company, we are focused on delivering a balanced growth, which means that we need to sustain growth momentum in milk, at the same time, driving aggressive growth in value-added products. And it is a fact that as a company, we have sustained aggressive growth in value-added products. In the quarter that went by, in quarter 4, our value-added products have grown at 22.5%. And this is value-added products, including ghee. And if I remove the ghee also, value-added products have grown at 18%, right? But milk growth has been about 6%, and out of which, roughly around 1%, 1.2% is volume growth, and the rest is revenue -- pricing -- price-led growth. There are 2 factors happening. The first is that in most of our markets, actually, what is driving aggressive growth for us in value-added products is curd. And we are seeing that households previously that used to buy milk and convert part of the milk to curd are now buying curd as well in packaged form, which is great news because the penetration of curd in households even now in south of India is at only around 20% to 25%, which means that 70% to 75% of the people are still -- or 75% to 80% of the people are still making curd at home. This is fast changing, especially with the aggressive category building work that we have done in the last 4 or 5 years. And this is helping us put ourselves in a leadership position. So this is one factor. So the quantity required for the household is now breaking up into milk and curd, and curd is coming home directly, and hence, the milk requirement is falling a bit. This is one reason. The second reason is increasing competition. And I don't think that I can shy away from this. Every -- like Heritage is now available in North India and West India and all of that -- in Mumbai, Delhi. And all the same way, some of the national brands are also coming to our markets, right? So there is increased competition in all markets. And that's also another reason why the market is getting more and more fragmented. But see, as far as we are concerned, there are 2 things that are most important for us. Number one is that we hold our franchise and we sustain the momentum, which means that we need to continue to grow, and that is what we have delivered. I don't think in any other quarter, we have declared that we have degrown in volumes. We have never, right? So we are growing. Secondly, what is important for us is that we are aggressively driving growth in value-added products to overcompensate for the limited growth in milk. And these 2 have worked reasonably well for us.

Understood, sir. So does that mean -- so earlier, we were expecting about 4% of volume growth in milk volumes. So does that number change going forward in a normal situation when the supply constraints are not there?

So there is no supply constraint. But I'm saying, yes, that is still our North Star. See, the industry is expected to grow at between 3% to 4% as far as milk is concerned. And so, it is our aim to grow at that rate. And -- but this is a combination of many factors. It is a combination of, like I said, consumer basket shrinking. It's also a function of markets fragmenting, channels fragmenting. It's also a function of various regions. It's not like while we have -- our numbers are 1% growth, region-wise, there are variances also. So we -- our aim is still to try and aim and reach that 4% growth target that we have for ourselves.

We'll take our next question from the line of Resham Jain from VVD Asset Managers.

I have 2 questions. So first one is, in the current situation, how are you seeing cooperatives behaving, especially in Andhra, Karnataka and Maharashtra? Is it similar? Or are you seeing any difference? And are they also taking price hikes?

We don't have reported numbers. We don't have their reported numbers. But all must be going through the same situation in all the regions, except in Karnataka, where Nandini has reported in the news that they have achieved good volume of milk in this month, the last month because there's -- not many people procure milk in Karnataka as there is a price discrepancy. But other states must be on the same board, but no numbers are announced by any of them.

So no price hikes by cooperatives as well? Like you took 4% pricing hike. Sorry, sir, I missed your voice.

Yes. Basically, some cooperatives have increased the prices and some other cooperatives have not increased the prices in this -- particularly southern region.

Kerala increased. Karnataka?

Karnataka not increased, Kerala not increased. AP cooperatives increased it, and Telangana cooperatives increased it.

Tamil Nadu went through elections recently. Maybe we can expect the government [indiscernible].

Understood. Sir, the second question is with respect to your North and Mumbai geography. What is the contribution now coming from both these regions for you in terms of revenue?

It's still less than 10%.

And profitability? Because these regions were still in the ramping up stage and profitability was low. Are you seeing improvement there?

These regions are still not profitable for us. We are working towards improving the profitability. Maybe this current financial year, FY '27 could be a year where we will see some improvement and we get closer to breakeven, at least in one of the regions.

We'll take our next question from the line of Rehan Saiyyed from Trinetra Asset Managers.

I have a couple of questions. First on your -- I'm audible, right?

Yes.

Yes, sir.

Yes. So my first question is on your ice cream facility in Shamirpet ramp-up. So just wanted to understand -- could management elaborate on the expected utilization ramp-up for their Shamirpet ice cream facility?

Can you repeat, please? Some voice disturbance.

I want understanding on your expected utilization ramp-up for the Shamirpet ice cream facility.

Yes, sir. So in the first year, we are expecting the utilization to be around 35% to 40%. And we had mentioned that it will take us about 6 years or 7 years -- 6 to 7 years to utilize this facility completely. That is assuming that we are able to grow year-on-year at upwards of 20%, 25%.

Yes. So, as management has guided INR 500 crores ice cream revenue by FY '30, so which implies a sharp scale-up. So what gives you confidence in achieving this target, given the highly competitive nature of this category?

No, see -- okay. See, the category is -- see, there are many things here, right, the way to look at it. First and foremost is that this is a very, very fragmented category, but it requires an ice cream freezer to sell the ice cream, which means if you place an ice cream freezer, only you are selling. You must be seeing it in your own residential area where you stay. I don't know where you stay, but wherever you stay, there will be only one brand available, and that brand sells. And ice cream is an impulse product. And if you're in a shop and the product that you get is X or a brand that you get is X, then X is what you consume. You're not going to walk 0.5 kilometer to buy the brand -- another brand, right? So that is one. So we have our areas of strength. And in those areas of strength or regions of strength, we are adding more freezers, and that is what is driving our growth. And if you have seen our ice cream business, in the last 4 or 5 years, it has nearly quadrupled. That's the reason why we have added [indiscernible] facility, right? Otherwise, we wouldn't have added. We are continuing to see that momentum in the market, right? Second thing that we also need to remember is that very recently, we acquired majority stake in Peanut Butter and Jelly Limited. It is one of the fastest-growing new-age ice cream brand, and it's available all over India. They sell high-protein, zero-sugar ice creams. They're doing exceedingly well. We are co-manufacturing for that as well. So, that is also being made in our factory. That's also helping us utilize the plant better.

Okay. Okay. Fair enough. And my second question is around your payable that has increased significantly during FY '26. So could you please state the key reason behind this? It has increased linked to higher dependence on modern trade and e-commerce channels, where collection cycles are structurally longer?

Sir, can you please repeat that? Are you asking about payables or receivables?

Receivable days. Can I repeat my question again?

See, the receivables were higher, yes, you're right. CFO will give the exact number. You have -- sir, please.

Receivables, previous year, it was actually INR 37.52 crores. Now, it has gone up to actually INR 64.81 crores. Mainly in MRF actually, it has gone up by INR 26 crores, maybe just to -- subsequently, they have cleared the -- actually, after 31st March, actually in the first week of actually in the month of April, it has come down. But on the 30th April, it came down to INR 51 crores -- INR 51.67 crores.

Yes. So March to -- March is a transitory number. In April, that has significantly come down. But even if I take INR 51 crores and compare it with, let's say, previous financial year closing of INR 35 crores, it has gone up. And primarily, it is because of the reason that you mentioned, which is our salience of organized trade is increasing, and organized trade, there is receivables, but these are all large listed entities that we are working with, most of the customers, right, in all the large organized -- and there is -- absolutely, there is -- we don't see any risk. And in terms of number of days, these debtors, is not more than 3 weeks. There's nothing which is at risk at this point.

Okay. And my last question is, sir, I just wanted understanding about how Heritage is transforming into a full FMCG company. So what are the biggest operational changes underway to support this transition? Because despite strong brand positioning, a large part of revenue still comes from milk -- liquid milk, which remains a relatively lower-margin category. So, over what time frame can the business genuinely start [ assembling ] an FMCG-style margin profile?

This is Brahmani here. Thanks for the question. I think we are very much thinking in the line of the vision that we have for 2030, which is to be the most admired dairy nutrition company, and we're working strongly towards that. I think I can't give you exact numbers, but Q1 itself is looking very interesting for us because our value-added product performance is improving significantly, given good weather and given the fact that we're working with channels which are also new age in nature. So I think we're working positively in that direction. And we aim to increase our value-added product contribution towards our overall revenue by 2%, 2.5% year-on-year going forward in the next couple of years. We are also happy, as mentioned earlier, to see that some of our nutritious products are growing really fast in the market. We're seeing very good traction in paneer, which is very nutritious by itself, north of 30% in terms of growth as of last financial year. Even sales such as high-protein paneer are doing well in the market, especially through new-age channels. We're also happy to share that our yogurts are doing well in the market. We did about 100 tonnes of sales of our high-protein yogurts over Q4, which is good traction over what it was previously. We're also seeing good traction in probiotic buttermilk, which has -- which is sold in 500 ml packs and which is north of about 25,000, 30,000 liters per day in terms of sales. So we're really committed to our vision of being not just growing in value-added products and improving value for all stakeholders, but also growing in nutritious products and differentiating ourselves. And another step in that direction has been the partnership or the acquisition of majority shareholding in Peanut Butter and Jelly, or Get-A-Way Ice Creams. On the other hand, we are also very committed to our purpose, which is doubling farmers' incomes every couple of years. And I believe that this is a strong relationship that we have with farmers that's helping us secure our procurement going forward, as well as share more and more of the benefit with them across our geographies.

We'll take our next question from the line of [indiscernible].

A couple of questions. One is, when I look at the milk WPI chart, milk WPI is up from 180 to 192 over the last year, which is like a 3%, 3.5% increase versus our procurement prices have gone up by 8%. So I wanted to understand why is the difference there.

Could you please repeat the question, please, once more, latter part of the question or maybe the entire question?

Yes. I was saying, the milk WPI is up from 186 to 192, which is a 3% to 3.5% increase year-on-year, but our procurement prices have gone up by 8%. So I wanted to understand why is the difference there?

See, there is -- the WPI is something that we have put on the charts as reported from a particular source. It may not be the exact number that is happening in the market actually. It's a country with various representations. So we'll have to look at exactly the weighted average for the regions where we are operating, number one. And number two, the wholesale price index is one way to look at it. But another way to look at it is actually the commodities and commodity prices. So if you look at, whether it is S&P or butter and all of that, the inflation, which you can look at NCDFI traded values, you will see that the inflation is roughly in the range of 8%. The raw milk prices for us is a reality, and that's something that is not just reported by Heritage, but also by media in general. You can look at dairy new sources, which will give you a better perspective. But you can't compare a national average with the regions where we are operating.

Got it. That's helpful. And my second question was, can we say that margins have bottomed out in this quarter? Because you are seeing better supply of cow milk that you stated earlier. You should see a ramp-up on ice cream, which is a higher-margin business. And you've taken price hikes and planning to take more price hikes as well. Can we say margins have bottomed out?

This is Brahmani. So I think when it comes to -- so margins are a function of 2 things, right, increase in growth, especially in value-added products for our industry, as well as procurement prices. When it comes to the former, we're seeing very good traction already in this quarter, this summer, unlike the previous summer where it was a washout and there were insistent rains. It's hot across our core markets, and we're seeing really good traction in terms of volumes when it comes to value-added products across the board. It could be curd. It could be buttermilk. It could be some other drinkables, and not just that, even in other products, which are value-added in nature. So typically speaking, volumes should improve during this point in time, given a good peak season. But we are just at the beginning of the season. So we need to wait and watch how things pan out both on the external conditions side and on the procurement side.

We'll take our next question from the line of Keshav Garg from Counter Cyclical PMS.

So firstly, I wanted to understand about the balance sheet. We can see some goodwill, other intangible asset, intangible asset under development, which were not there last year. So if you could just tell us that what are these regarding?

This is Prabhakar, CFO. In the month of, actually, January, we have invested in Peanut -- PBJL company. So in that regard, actually, there is a purchase price allocation, whatever the price that we have paid, actually INR 9 crores. Then there is an agreement between these 2 parties to acquire actually additional 20%. So, that is a potential acquisition. Both together, the first and second quarter, it's going to be around 71% of the acquisition. In this regard, actually, there is actually -- whatever the assets -- for purchase price allocation, we have engaged a consultant to value the business. So there is actually -- then tangible assets are INR 1.2 crores. And intangible assets, I will tell you the -- a broader numbers actually -- 1 minute.

So goodwill is a result of that?

Yes.

Understood. Sir, my second question was that when do you foresee our value-added products contribution exceeding 50% of our revenue? And let's say, for the next 3 to 5 years, what kind of volume CAGR we are looking at? What is the aspiration for the EBITDA margin? At what level -- in a normal year, not very good, not very bad, what is the steady-state kind of EBITDA margin that you have in mind? And how will that -- for every, let's say, 5 percentage points increase in value-added product contribution to our revenue mix, how much does our operating margin moves up, everything else remaining the same? And sir, lastly, sir, is there any advantage or disadvantage of being in, let's say, Punjab, which is not contiguous to our South Indian geography where we are in all the adjoining states? And since the revenue is very marginal, is there any gain in exiting those operations? Or is the aspiration to become a pan-Indian player?

Yes. Okay. Thank you, sir. You have asked a lot of questions. I hope I remember and answer you -- answer all the questions. So first is with respect to value-added products, I think our Executive Director already mentioned this in her comment earlier that we are looking at expanding value-added products between 2% to 2.5% every year. 2% is what we have delivered in the last 4 years. And last year, actually, in fact, in FY '26, we have expanded our value-added product contribution by about 3.3%, right? So that's an exceptionally good year as far as value-added products is concerned. But I think on an average, you can take about 2.5%. So if I take value-added products inclusive of ghee, which currently stands at around 40% roughly, it will take another 4 years or so for us to reach about 50%, right, maybe maximum 5 years. But I think we should be able to get there in 4 years' time. This is the first question. Second is with respect to EBITDA, what you mentioned. So if you recall, last year, our EBITDA was about 8%, and this year, it's about 5.9%. So we had roughly 2% -- 2.1% shrinkage of EBITDA, right? Now, we know that in the milk business, there is a cyclicality of plus or minus 2%. We have seen this. Actually, you're all analysts, so you can do the analysis yourself. If you take long term, last 2 decades, you will see that it goes up plus 2%, minus 2%. This cyclicality is something which is very difficult to get away from this business. Now our median EBITDA is roughly around 7%. So in a good year, we go to about 8% or 9% EBITDA. In a bad year, we are going down to about 5% EBITDA. Now, what is to be noted here is that we have -- the fundamentals of the business have improved, which is the reason why -- I know that this is not a result which you all would have expected or actually will agree to. But actually, if the business fundamentals had not improved with this much of inflation, we wouldn't have been able to deliver 5.9% EBITDA. So, actually, we have improved. So the way I look at it, it's about 90 basis points better than our usual delivery actually, so -- which means, at this point in time, if I look at a positive swing, this can go to about 9.8% also, right? But the key point that we are looking at is that the median EBITDA that we have, which is a normal year of 7%, every year, we are trying to improve it. So I can say that in the last couple of years, we must have moved it close to about 100 bps, which is -- so now our median is probably around 8%. We are trying to push our median upwards. Our objective is to take the median towards a high-single digit, which is about 9%, so that in a bad year like this, our EBITDA will be around 6.5%, 7%. And in a good year, we'll even cross 10% or 11%. That is our effort, right? And you will see this happening significantly year-on-year. You will see this happening primarily due to 2 levers. Lever #1 is value-added product contribution increasing and lever #2 is operating leverage. Now operating leverage is not just with our factories' capacity utilization going up, but it is also improving performances in weaker regions like Maharashtra and North of India. Now, I'll come to the last question that you asked, which is, why are we present in Punjab? See, our presence in Punjab is limited to Chandigarh Tricity, right? And Chandigarh Tricity is a good market for us. We are selling our products there. See, our strategy is not to spread thin. Wherever we are present, we go deep. So, in Haryana, for example, we are there in Hisar, but we are not there in Rohtak. So if you go there, actually, you see, you will not find Heritage in Rohtak, but you will find us in Hisar. We are there in Ambala, but we are not in Kurukshetra. So there are cities where we are present. But wherever we are present, we are present very, very strongly. We are either #2 or #3 player. So there is salience in the business. That's the reason why we are there, and we are building our strength over a period in time. I hope I've been able to answer.

Sure. Sir, so is the aspiration to become a pan-Indian player or a strong regional player?

At this point in time, we are going deeper and deeper and deeper in the regions where we are present. We are taking very strong positions in certain value-added product categories. For example, we are already nationally top 5 players in curd, buttermilk, paneer, yogurts, ice cream. These are all products where we are betting, and we are building our strength. Ghee also, now we have become nationally top 10 player, as is our milk. Milk also, we are among the national top 10 players. So there are products, bets that we have taken. And in these bets, we want to get strong. Similarly, in the regions or locations where we are, we want to become extremely strong. And that's the way we work. We do not believe in spreading thin. So even in Maharashtra, you won't find us in Nagpur, but we are there in Thane. But in Thane, you'll find us more and more. So there are regions where we go deep.

[Operator Instructions] We'll take our next question from the line of Rajat Setiya from iThought PMS.

Sir, 2 questions. One is, what is the reason for lower fat sales in this year? And secondly, on the milk volumes, you said volumes are coming in. And if you can comment on the pricing, raw material milk pricing, if you can talk about it, that would be great as well.

Sure. So see, the fats actually is lower because of bulk fat decrease. Yes, once again -- I'm giving a full year picture, right? Last year, roughly -- so the bulk fats have declined by about 70%, yes? So we used to have INR 125 crores of revenue in bulk fats. This year, the bulk fat revenue, I think CFO read it out earlier, is only INR 38 crores, whereas our consumer fats revenue is touching close to INR 300 crores in revenue. It has grown at 48%, which is ghee and salted butter, right? So that's actually good news for us. So consumer business has grown at 48%. The bulk business, our commodity business has declined by 70%. Overall, if I add both, then the fats have declined by 11%. But otherwise, it's actually a strong positive for us.

Sir, one small follow-up here. So the reason why bulk fat sales have come down is because of the rising consumer sales or some other reason as well?

So there are 2 reasons. One is, actually bulk butter prices were good, very, very high. Butter prices were very high last year. So if I had surplus butter, I would have actually sold in bulk butter and would have been even profitable. There could be others who would be doing the same. But because we had milk constraint -- and somebody asked this question, did you have enough milk for your sales? So we prioritize consumer business because that is what is repeatable. It will keep happening next year, the year after next and forever, it will come, right? So we prioritize consumer business or our branded business. And because we did that, we did not go for the opportunistic sale of bulk butter, where we could have actually booked some sale and booked some profit also. We rather focused on driving our consumer ghee and consumer butter sale, right? That's the reality.

Got it. And sir, on your milk prices?

Tax provision is lower because the profitability has come down as compared to the previous year. Another reason is...

No, no, sorry. No, no, the milk prices, procurement prices, what is the [ scenario ] right now?

Procurement prices, one second. Procurement prices for the last year same quarter was INR 43.20. This quarter, it is INR 46.67. And please note, the way we report our procurement prices is landed to our factory. So the way you should understand is -- yes, chilling center. The way you should understand is that it is procurement price given to our -- farm gate price given to a farmer, plus the operator commission, which is actually the village-level collection center expenses, plus the inward freight is added to it, right? So, that stands at INR 47.67, so it is an increase of -- INR 46.67, which is an increase of INR 3.47 or 8% for the quarter. And for the full year, it stood at INR 44.72 versus previous year full year price of INR 41.92, which is an increase of INR 2.80, and in percentage, it is 6.7% increase.

Next question is from the line of Hitaindra Pradhan from Maximal Capital.

I hope I'm audible. So, a follow-up to [ previous person ], I just wanted to understand the procurement prices, if you can explain what it is linked to? I mean, what you indicated is, it is basically we procure from farmers, farmer network and all, but it is not directly like linked to the WPI index or national prices and it is kind of regional. So if you can talk about that because in last 2 years, it has increased by INR 5, whereas our milk sale price has increased by INR 3. So just wanted to understand, on the procurement side, how can -- what it is benchmarked with?

See, it's -- at the end of the day, it's -- in each village, there is a supply-demand economics play, right? It's a simple math. If I don't pay that price, then the milk goes somewhere else. So it's not like you are the only operator there. In each region, we have different competition. So like Tamil Nadu is one of our largest procurement regions. There, we compete with large private dairy companies like Hatsun Agro, Milky Mist, et cetera, as well as the cooperative, Aavin. So in each region, there is a price that is -- price discovery happens because of the different prices offered by different companies. Same is the case with Maharashtra. Wherever we are operating, there are multiple players. So price discovery happens at the village level. And we have algorithms which tell us when we are having shrinkage of volumes and all of that, and then to sustain the volume, we have to give the price so that the milk keeps flowing, right? And of course, it's a small -- even though it's a very large industry, it's a small world. Everybody knows everybody's price. It's not a secret. So I know -- we know the prices of all the players who are operating in our region.

Got it. The price discovery is faster and there is like competition.

Yes, yes, because the moment anybody increases price, the price circular is circulated. It comes in WhatsApp. Everybody can see the prices.

[Operator Instructions] Next question is from the line of Kiran from Green Investors.

Congratulations on the INR 4,500 crore revenue mark. So I just have a couple of questions. One, what is the share of the conventional GT business versus the new trend of e-com and quick-com? And what is the delta margin between these 2 channels or markets, whatever you call it?

Yes. So general trade contributes about 80% of our revenue, and modern trade contributes -- modern trade and e-commerce, quick-commerce contribute about 20% of the revenue. And in terms of margins, they are comparable. Of course, it's -- the right number to look at it is product to product, region to region because the mix actually makes a lot of difference. For example, even as we speak now, fats for us make loss. We make about 6 percentage loss in fats. And the contribution of sale of fats through organized trade is much higher because of which the weighted average margins come down, or for that matter, quick-commerce. Quick-commerce, a large percentage of sale is still milk, which -- milk has got lower profitability compared to value-added products. So, all these mix being kept aside, the margins are comparable.

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

Just one question. What is the trend that you're seeing on the fodder cost for the farmers? Do you see the fodder cost for the farmers inflating? Or how is the trend you're seeing now? That's it.

So if I understand the question that you're asking, the farmer -- yes, the fodder cost, as on today -- if you remember the last time when I shared 3 months ago, during the summer, the fodder is getting a little weaker. The availability gets weaker. The second input, which I would like to share with everybody, is that we have fortunately a good surplus on the energy crops like corn, the maize what we have. And we do not have much of exports as on today. Prices are relatively helpful to us. That means the farmer is having energy surplus forage. But at the same time, the difficulty is coming from the protein side, the fodder, which having a similar availability, but the prices are on the higher side. So overall, to conclude on your question is, fodder side plus the feed side, we are in a very good situation. Only the prices are a little towards the higher side since November 2025 and continuing until today. But we are expecting to have some reduction possibly in this quarter, possibly by next month itself.

Next question is from the line of Resham Jain from VVD Asset Managers.

So you mentioned that your paneer sales is seeing a very good growth. But while manufacturing paneer, you get whey as a byproduct. So what are you doing with whey, and any plans to enter into whey protein? Or is it too small right now to get into it?

It's something that we are considering. At this point in time, we are using our whey for various things, including we also have certain drinkable that we sell in the market such as Gluco Shakti. This competes with -- even though it's very, very small at this point in time, but we are doing some products. But of course, yes, let's say, whey powder and all are things that we are looking at, at this point in time. It's -- see, we need to look at -- see, we are -- CapEx -- I think a gentleman asked in the beginning about our CapEx philosophy. Our CapEx philosophy, we take balanced and measured risks. And so, we balance our CapEx with projects which have got short gestation such as curd, paneer, et cetera, very short gestation because the ROCE of curd is very similar to milk, right? So -- and it generates quick free cash flow. And we match that with long gestation projects such as ice cream, et cetera. So there is a -- we look at -- so there is a plan that we have in the long range, and you will see these things coming up. Timing is what we'll have to look.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Dr. Rao for closing comments. Over to you, sir.

Thank you all for your continued interest in Heritage Foods, and looking forward to interact with you in the course of coming months. Thank you. Good day.

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