Q1 26/27

Jul 17, 2026

Summary

Record revenue grew 18% YoY, led by 40% VAP growth and a record 49% broader VAP revenue mix. Elevated milk and packaging costs compressed margins, while uncertain supply and weather drive ongoing phased pricing actions.

Ladies and gentlemen, good day, and welcome to the Heritage Foods Limited Q1 FY27 Earnings Conference Call. As a reminder, all participant lines will remain in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal the operator by pressing star then zero on your touchtone telephone. Please note that this conference is being recorded. I will now hand the conference over to Ms. Garima Singla from GoIndia Advisors for opening remarks. Thank you, and over to you. Thank you. Good afternoon, everyone. I am Garima Singla, and it is my pleasure to welcome you on behalf of Heritage Foods Limited. Thank you for joining us today for Q1 FY27 earnings conference call. This call is being hosted by GoIndia 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. Brahmini Nara, Executive Director, Dr. M. Sambasiva Rao, Whole-time Director, Mr. Srideep Kesavan, CEO, Mr. A. Prabhakara Naidu, CFO, Mr. J. Samba Murthy, COO, Dr. Brij Mohan, CEO at Heritage Nutrivet Limited, and Mr. Umakanta Barik, CS and Compliance Officer. I now invite Dr. Rao to present the company's business outlook and performance, after which we will open the floor for Q&A. Thank you, and over to you, sir. Thank you, Garima. Good afternoon, everyone, and thank you for joining us today. Financial year 2027 has begun with another quarter of disciplined execution for Heritage. Despite the challenging environment for the dairy industry, we delivered the highest quarterly revenue in the company's history while continuing to strengthen the building blocks of our long-term growth. Throughout the quarter, we remained focused on our strategic priorities, namely reinforcing our procurement network, expanding our value-added products portfolio, investing in manufacturing capabilities, and building new growth platforms. Our integrated farm-to-consumer model continued to differentiate Heritage by ensuring reliable milk availability while supporting the rapid expansion of our value-added products portfolio. This disciplined execution was reflected in our financial performance. Consolidated revenue increased 18% year-on-year to 13,381 million rupees, marking another important milestone for Heritage. EBITDA stood at 619 million rupees with an EBITDA margin of 4.6%, while profit after tax stood at 150 million rupees, translating into PAT margin of 1.9%. Although elevated milk procurement costs continue to weigh on the dairy industry, resilient demand across our value-added products portfolios, calibrated pricing actions and disciplined execution enabled us to deliver another quarter of healthy growth while continuing to invest for the future. Every successful dairy business is built on a strong and resilient procurement network. During the quarter, milk procurement prices increased 7% year-on-year to 46.61 rupees per liter, reflecting continued supply tightness across key milk-producing regions. Despite these industry-wide challenges, Heritage increased milk procurement volumes by 2% year-on-year to 18.10 lakh liters per day through its sustained investments in farmer engagement, vet services, cattle nutrition programs, and timely payments. These initiatives ensured uninterrupted milk availability while further reinforcing one of Heritage's most enduring competitive strengths. On the demand side, milk sales volume remained stable while average milk selling prices improved 4% year-on-year to INR 58.68 per liter, reflecting the strength of the Heritage brand and sustained consumer trust. The benefits of these investments are becoming increasingly visible in the evolution of our business mix. Value-added products continued to be the primary growth engine during this quarter, with VAP revenues growing 40% year-on-year to sorry, INR 5,636 million. Importantly, this performance was driven by healthy underlying volume growth across categories, with paneer volumes growing 33%, curd 26%, ice cream 25%, buttermilk 60%, and lassi 98% year-on-year, demonstrating the growing consumer preference for our differentiated portfolio. Consequently, value-added products contributed a record 44% of consolidated revenues, compared to 36% in the corresponding quarter last year. Including our consumer pack, ghee, and butter portfolio, the broader VAP portfolio grew 39% year-on-year to INR 6,322 million, contributing a record 49% of consolidated revenues versus 41% a year ago. This continued improvement in our product mix reflects the premiumization of our portfolio and our steady transition towards a more branded value-added business. Our ice cream business also continued to build strong momentum during the quarter. It crossed INR 550 million, growing 65% year-on-year, with Alpenvie, our new brand, delivering robust growth of 44%. GETAWAY also delivered an encouraging performance, with revenue growing 196% year-on-year, supported by improved product availability following capacity expansion while achieving a near break-even bottom line. Supporting this momentum, our newly commissioned ice cream facility ramped up well during the quarter, reaching approximately 40% capacity utilization. The facility now manufactures both Alpenvie and GETAWAY portfolios from a common platform, enabling faster capacity absorption, improving operating leverage, and providing sufficient headroom to support future growth. Together, these developments reinforce our strategy of building differentiated high-growth brands across premium dairy and nutrition-led categories. Beyond our core dairy operations, our adjacent business also delivered encouraging performance. Heritage Nutrivet reported revenue of INR 728 million, representing a robust growth of 37% year-on-year, despite elevated input costs across the animal nutrition industry, while delivering a PBT of INR 20 million. This performance reflects the strength of the business model and the growing opportunities within the animal nutrition segment. We also continued to strengthen our long-term growth platforms during the quarter. Heritage Novandie Foods became a wholly-owned subsidiary, reinforcing our presence in the fast-growing high-protein yogurt category through Livo brand. We also increased our shareholding in Peanutbutter and Jelly Limited to 71%, reflecting our conviction in the long-term potential of the better-for-you nutrition segment and further expanding our presence in attractive premium food categories. Alongside these investments, we continued to build a stronger portfolio of brands. Alpenvie is undergoing a comprehensive brand refresh with a new identity and several new SKU launches. Nourish+ continues to gain strong traction, particularly its high-protein paneer variant, while Livo continues to perform well across organized retail. Sampurna A2 Curd, Chef's Choice Curd, and Organic Milk are also witnessing encouraging consumer acceptance and building salience across the markets where they have been introduced. Collectively, these initiatives are expanding our presence across premium dairy, nutrition-led, and differentiated food categories while reinforcing our long-term brand-building strategy. The quarter also brought encouraging external recognition. Heritage Foods received the Investor Relations Excellence Award in the F&B category from the Investor Relations Society, while our Vice Chairperson and Managing Director, Bhoneshwari Nara, and our Executive Director, Mrs. Nara Brahmini, were recognized among Fortune India's Most Powerful Women 2026. These recognitions reflect our continued commitment to strong governance, transparent communication, and long-term value creation. As we continue to invest for the future, we remain disciplined in allocating capital towards opportunities that strengthen our competitive positioning while maintaining a prudent balance sheet. Our long-term direction remains unchanged. We are building a larger, more premium, and more resilient branded value products category anchored on a trusted dairy platform. Every investment we are making today across procurement, manufacturing, brands, and adjacent growth platforms is aimed at improving the quality, resilience, and predictability of our business while creating sustainable long-term value for all our stakeholders. On behalf of the entire management team at Heritage Foods, I would like to thank our farmers, employees, distribution partners, customers, consumers, shareholders, and all our stakeholders for their continued trust and support. With this, I would like to conclude my remarks and open the floor for discussion. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on their touchtone telephone. If you wish to remove yourself from the question queue, you may press Star and Two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Sameer Gupta from IIFL Capital. Please go ahead. Hi. Good evening, everyone, and thanks for taking my question. First question is on the milk procurement outlook. We are now well into the summer flush or the cow flush. Any inkling to the milk production or procurement that has happened so far, are the milk procurement prices kind of easing or they have continued to remain firm? Any outlook you could provide on the upcoming overall flush also would be helpful, given that it is likely to be an El Niño year with deficient monsoon, plus also in an inflationary environment. That would be my first question, sir. Yeah. This is Sambamurty, CFO. I like to inform you that this time, actually, this season, generally we expect mini flush in April, May, which because of this weather condition, climatic conditions, that could not happen much. However, we have procured at about 18.1 lakh liters during Q1 and the prices have gone up, actually. So from if you take March to April to May to June, prices have gone up. Looking that now prices are now stable, but still we'll have to see that there is any challenge further in that based on the geography and weather conditions. Because it is dependent on your rain and some temperatures and all, different geographies are behaving differently. So that is where prices currently now increased, now looking at stable now. Then as usual, then we expect that in Q3, that October onwards, there is going to be a flush season. This Q2, actually, now we are observing that price is going to be stable or little bit increase or third. But apart from that, then whatever the quantity is required for us, actually, we are able to source it by expanding our network at the village level through Heritage procurement centers, by adding number of farmers, actually, each village level, and improving the throughput at that village level procurement volumes and working with the farmers and improving the farmer's level production, actually. So throughput from the farmer. So productivity per annum has come down, but throughput from the farmer, actually, we are trying to increase that and to get more milk in Q3 as well. So that is the condition. Got it, sir. So what I gather is that the mini flush in April, May you said, right? Typically happens. Yes. That hasn't happened and typically prices which should have come down have not come down but firmed up, and you still expect October flush to be stable to inflationary, which may not be the case normally. Is this a correct understanding? Yes. Got it, sir. I understand that you will not have any procurement challenges, which brings me to my next question. When I am looking at milk procurement for Heritage, what I am noticing is that it has been flattish to negative for the past four quarters. Any guideline here as to what is happening? Is it a conscious choice to not procure much given the inflation or you increase your third-party milk procurement using up old stock inventory? What exactly is happening here? Yeah. Sameer, this is Srideep here. We do very measured material balancing planning. If you recall, last year was not very good as far as the volume growth was concerned. The procurement was in line with that. As Mr. Sambamurty just explained now, in this year, as the volumes have gone up and we have had good performance on the sales side, demand side, we have grown the procurement volumes in line with that, in spite of let us say, surprises. We should remember that this is nothing to do with only Heritage. The industry is actually facing a little bit of a shortage of milk on the supply side, and this is something that all companies are reporting. The industry has been facing this for the last several quarters, and our lack of growth procurement is also in line with that. Got it. So basically, you are saying that the procurement is growing in line with consumption, and that is likely to continue. That is right. Like Mr. Sambamurty said, we are investing in growing our farmer procurement network. We are investing in expanding our village-level collection centers, farmer productivity, et cetera, because what is going to help us in good stead in the long term. Got it, sir. I was actually looking it in conjunction with the VAP growth also because that also will require milk procurement volumes to go up. That was why the question was there. See, what we should understand, that is why I use the word our milk procurement is in line with material balance planning. Because see, value-added products, for example, if it is buttermilk or let's say any of the drinkables or if it's ice cream, the amount of solids and fats required is what we have to look at. It's not always one is to one. Got it. I get it. We are able to manage it at the materials level. No, got it. I absolutely agree. Fair. Last question, if I may squeeze in. VAP growth of 40% this quarter, how much would be from price hikes and how much would be volumes? Any blended level number can help. Yeah, it is largely all volume-driven. We have had price hike of about 5% in value-added products, weighted average. 5.12% is the weighted average price increase across value-added products. The balance 35% is all volume-driven. If you have seen our largest value-added product, which is curd itself has grown at about 25%. Paneer has continued to grow at the trajectory of 34%, 33% too. Yeah. 26% is the curd growth, 33% is paneer growth. Yogurts, of course, there is no base, and we have done about 150 tons in this quarter. Whether it is drinkables, buttermilk, for example, has grown at 108%. So it is largely volume-driven growth, and prices contributed about 5%. Got it. Just on this one, curd, how much of value-added would be curd now as a percentage? I don't know what is the purpose of that question, Sameer, but curd as a percentage contribution to the value-added products will continue to decline because curd grows slower than the rest of the value-added product category, right? Currently, it is at 68.9, so it is about 69% of our value added. So it used to be about 75% sometime back. That was the purpose. I remember it used to be 75, and just wanted to gauge how the contribution- Yeah is trending. There is no other intention, sir. Thank you very much for answering all this. Yeah. One should expect that curd as a percentage contribution to value-added products will continue to dip. Yes. It is dipping, clearly. Again, thank you everyone for answering these questions so patiently. I will come back in the queue for follow-ups. Thank you, Sameer. Thank you. Ladies and gentlemen, in the interest of time and fairness to others, we request you to restrict to three questions per participant and rejoin the question queue. We take the next question from the line of Abhishek Mathur from Systematix. Please go ahead. Yeah. Hi, sir. Thank you for the opportunity. Sir, this growth in the value-added products of about 40% or so is quite exceptional in the light of the recent trajectory that we have been on. While you have indicated the category-wise volume growth in VAP. Still, if you can give some more color on how we are able to achieve a 35% volume growth. Is it to do with geographic expansion or distribution expansion, or are we taking some share? What exactly is driving this 35% volume growth in VAP? If you can shed some color on that. As a corollary, we have in the past spoken about a 20%+, 20%-25% growth in VAP. Does that guidance change in the light of this recent delivery or is that intact? That's my first question. Thanks. Yeah. Thank you, Abhishek. This is Srideep here. We should look at growth over a long period in time. On a year-on-year basis, there might be a little bit ups and downs because of weather influences, et cetera. We should also acknowledge the fact that we are cycling a low base of last year because investors will recall that last year, quarter one was heavily marred by rains and adverse weather. So we are cycling a low base as well, number one. When it was raining last quarter, we told you that underlying business was pretty strong. There is nothing wrong, and if we had decent support in terms of decent weather, the performance would come back. We had delivered in the subsequent quarters of last year as well. The long-term trajectory, what one should expect is that, and this is something that we have mentioned in the past as well, is that we are aiming to grow in the mid to high teens. 16% to 17% kind of growth is what we are aiming to deliver, which requires milk to grow at about 7%-8% and value-added products in the range of 25%. This is what you should expect in the long period in time, and this on a sustained basis, we should be able to deliver. You also asked about the underlying factors. Primarily, you can say that 90% or 80% of the growth is primarily due to distribution expansion, new distribution points opened in existing geographies. We have not opened any new geography whatsoever. 20% to 25% of the growth is on account of consumer traction increasing, which is where we have gained market share. In most of the organized channels where we are able to measure our market share, where we get quantitative data as to our market share, we have made significant gains in market share in this quarter one. That is something that in every category. We have gained market share in curd, we have gained market share in paneer, we have gained market share in buttermilk. This is something that we celebrate as well. 80% is due to distribution or increased availability, 20% is because of increased consumer traction with our brands getting stronger. All right, sir. Thanks for the details. Just a follow-up. This market share gain that we have talked about, is it from the unorganized sector or is it from the other listed dairy peers, organized peers that we are talking about? No, of course. All dairy growth, not just for Heritage, for every single branded company in the country, all growth comes from unorganized sector. That is a given. I was mentioning market share gain in the organized channel. In the organized channel, there is only organized brands. When we are gaining share, we are gaining share from other branded players. Understood, sir. Very clear. Just a quick second question. Any pricing action, any hikes that you have taken in the month of July so far? That is it from me. Yes, we have taken pricing. As Mr. Sambamurty elegantly put in the beginning, we are actually going through a phase of prices remaining firm and flush being weak. While we wait for the buffalo flush to come in October, November, at this point in time, we do not see prices easing, which means that we have to pass on the increased raw material prices to our consumer. There is no other way. We are doing it successively in each market. Even this week also, we have seen price increases across several of our markets. Great. Got it, sir. Thank you and all the best. Thanks. Thank you. We take the next question from the line of Pratik Kothari from Unique PMS. Please go ahead. Hi. Good afternoon, and I think excellent delivery on the VAP side. My first question on gross margin. If we compare ourselves to last quarter, Q4, the procurement price that we report is almost stable. The VAP share has gone up materially. Even we have taken some price hikes between the two. But still gross margin has come down. Is this a mix change that is driving this? Ideally, you would have expected gross margins to have started improving now. Pratik, it's a very valid and very right question to ask. On a weighted average basis, the numbers are not really telling the story. Our weighted average milk price was INR 46.61 paise in this quarter, compared to INR 46.67 paise last quarter. So it looks like it is flat. But the reality is, cow milk last quarter, which is Q4 of FY 2026, was INR 42.10 paise, and cow milk now is INR 43.02 paise. So if I just look at cow milk, it has gone up by almost INR 1. And buffalo milk was INR 61.38 paise, which has gone up to INR 65.99 paise. So that's a significant increase in buffalo milk. But we saw in this quarter a heavy decline in buffalo milk volumes. We actually had over 20% of decline, degrowth in buffalo milk. It was very difficult to get buffalo milk. Because of the mix change and mix going towards cow milk, the weighted average is looking like that. But see, the gross margins are impacted primarily because many of our regions are purely on cow milk. So those regions, like cow milk has actually gone up by INR 1. And that has seriously impacted, number one. Number two, if you look at it, the milk prices have gone up by about 2.1% in this manner, if you look at it. But about 0.5% or so impact is also because of SMP that we consumed in this quarter. Number one, in higher quantities, and number two, at a higher price per kg. This also is another impact. So net-net, we have had two point- Packing material. The other third impact that we have had is packing material. Thank you. Packing material on account of the war. The packing material also had a significant material impact, almost 30 basis points of bottom line impact here. All of these put together have worsened the gross margin. If you see the gross margin declining by about 2.5% compared to last year, it is only because of, one, mix change. Number two, the SMP, and the third is the packing material. Correct. Sir, we have called out a couple of areas where we wanted to first break even and then make money. So one is the consumer packs, and two is the two new geographies which we have seeded, which is Mumbai and north of India. Could you just touch upon where are we in that journey of at least first breaking even there, and how do we see that? When does that break even? Over what time period, and where are we in that journey? Okay. See, in ghee, last year, same time, we were negative about 12% in EBITDA, and now that EBITDA number is about -8.5%. So despite the entire business looking worse off compared to last year, ghee is actually better off by almost 4%. But it is still negative. Secondly, the reasons that you called out. Again, the losses have reduced. So while the overall profitability has declined for the company, the losses in the loss-making regions have reduced, which means they are on the right trajectory. So if you calculate the delta, it is quite significant. If those regions have performed in line with the company's profit decline, because those regions also had raw milk price increases, right? If they also declined in line with the raw milk increases, then we would have had additional INR 1 crore of bottom line hit. So that was avoided. You are right, Pratik, in asking that question. The negative businesses have improved. It is just that the positive businesses have declined because of our ability to, or rather, delay in passing on the raw milk increase to consumer. Sorry. Last one, sir. This has been a pain point, and we have kind of called it out and sorry for asking again, but this liquid milk growth volume-wise, et cetera. We have been in this band for a while now. I know even you guys are as worried, but any breakthrough, anything that we are seeing to kind of solve this? I should admit that this is the main problem that we need to solve. If liquid milk volume growth comes back, it supports overhead absorption, and the numbers would look very differently. It is something that we are working on. Maybe you could talk about distribution network expansion, CA. Yeah. Samarth is there, and regarding this milk, actually, we are now focusing on the distribution network expansion, almost through adding that fresh distributors and Heritage Happiness Points and all. Now we have almost known in the quarter, compared to previous quarters, we got about 1 lakh liters addition, liters or kgs, 1 lakh liters. We are expanding it and focusing on expanding it, basically on the network distribution, network expansion. Even within that also, then we are also focusing on the throughput per distribution point. So that also there. Then we can see now month-on-month growth is there in the liquid milk. Like you take that March to April to May to June to even July, there is a growth actually. I think, yeah, it is going actually in the right direction. So that is it. Yeah, thanks, Mr. Samarth. The numbers that we report here is an average of the quarter. In March and April, we took the prices, which actually came with a little bit of decline in volumes. We usually see that. The team with distribution expansion was able to claw back. This is always a work in progress, but you are right in calling it out. This is the highest priority for us. Right. Great. Thank you. All the best. The annual report also was very good. Thank you for that. Thank you. Thank you. Ladies and gentlemen, in the interest of time and fairness to others, we request you to restrict to two questions per participant. We take the next question from the line of Vignesh Iyer from Sequent Investments. Please go ahead. Hello, sir, and thank you for the opportunity. My first question is on the price hike part of it. I heard your earlier commentary and considering how the situation is and the mini flush season that was expected didn't turn out in this quarter as well. What kind of price increase is in plans to be taken for the upcoming quarters? Also, can you tell me if you took any price hike in quarter 1? Was it at the start of the quarter, or if you can give us a rough timeline of that? Mr. Vignesh, this is Srideep here. I didn't get the last question. Could you please repeat? Yeah. I want to know if you took any price hike in quarter one, and if you could tell me if the price hike was taken on the latter part of the quarter or the start of the quarter then. All right. Yes, Mr. Vignesh, so yes, we had taken up prices towards the end of quarter four of last year. Through quarter one, so we got the benefit of that in quarter one. For milk, for example, our prices were 4% higher than same period last year. That said, and same like I mentioned, 5.1% for value-added products, et cetera. It doesn't mean that all pricing was done at one point. There were certain markets in which price increase was done in middle of May. There were certain other markets in beginning of June, et cetera. All markets did not go up at the same time. It's also a function of competitive scenario. Right. Also, any plans to take price hike in this financial year? Is it more depending on how the price expectation will happen from here on? No, like I mentioned, as an answer to the previous question, we are taking price hikes as we speak. Even this week, we have increased prices in certain markets. We are continuously increasing prices, not just for milk, but also for value-added products. Okay. Just one more question from my side. I am sorry if you have already answered it. What is our target for the VAP part of business for this year? Do we have any internal target to reach VAP as a percentage of revenue? For the last several years, we have been trying to improve value-added product contribution by about 2% to 2.5% every year. Which means in a four-year period, we would like to see value-added products grow by 10%. Let's say our contribution was about 39% in last financial year. We would like to end that around 50% by FY 2030. That's a goal that we have. Of course, this year you have seen that we have grown. The contribution has expanded much beyond that 2.5%. But it's also a function of milk not growing as much. Got it, sir. That is all from my side, and all the best. Thank you. Thank you. We take the next question from the line of Kshitiz Solani from Yes Securities. Please go ahead. Hi, sir. Congratulations on a good set of numbers. I just wanted some color on the margin for your milk and your VAP products individually, if that would be possible. Good afternoon, sir. This is Prabhakar, CFO. Milk margin for Q1, 3.03% EBITDA margin. VAP margin is 8.06%. Got it, sir. Within the VAP products, what would be the highest margin product for you guys? Within that- It is usually the ice creams which are most profitable. Got it. Sir, just one more thing on the procurement costs. Can you just give me a best case and a worst case scenario of what you think the procurement prices could be after the October flush? Yeah. I think we will wait and explain after it happens. Okay. Kshitiz, we would say is that this is a cyclical business, and it's a very large industry. It's very difficult to predict. Best case, we are hoping that the buffalo flush is good and the availability is great and prices come down. Worst case is, it doesn't happen, prices continue to climb. Got it. That would also mean that post the October flush, when we are in January, we will see further increase in the prices, right? That would mean that for FY 2027, if I take a base case, the prices will continue to be a bit higher. Is that a fair assumption? Yeah. Yeah. This is Kamini here. What I'd like to say is that things are looking quite unpredictable as we've seen in Q1 itself, and as we continue to see in Q2. If you've been following all newspaper reports and conversations in the agri space, I think across regions also things are very different, trends are very different. We're seeing rains in certain areas. We're seeing deficits as of today, especially in the Southern Peninsula. It's very different across the country, and that might be very different a couple of weeks from now. I think for us, at this point, given the fact that weather plays such an important role in really anticipating procurement price, it's quite difficult for us to say how things may look two quarters from now. Having said that, I think we are doing what we can do as an organization to secure our milk procurement at the right price. As my colleague, Mr. Murthy, had said, one thing that we continue to do is continue to add the number of farmers that are pouring milk to us within the existing procurement regions as well. We have added close to 5,000 farmers in Q1, and our intention is to add another 5,000 farmers in Q2 itself. We want to increase the volume that they pour for Heritage, primarily because we work very closely with them by supplying cattle feed which is subsidized, artificial insemination programs, improving the health of their animals, et cetera. We will do no matter what the external condition is, we continue to do this work that will continue to help us secure our milk volumes that we require for milk as well as value-added products growth, which are looking very encouraging this year. I hope I have answered your question. If I could just add one. This is Srideep here. What we are also doing in the meanwhile is irrespective of the procurement scenario, we are continuing to grow our business in terms of our volumes, in terms of our brands, in terms of our consumer acquisition, in terms of our consumer love and retention. That is what is most important, which means this procurement price will not remain like this forever. It is cyclical business. It will come down, and that day we will have tremendous consumer franchise with us. Just think about that. The volumes are much higher. We have strengthened our portfolio actually, in the meanwhile. That's the important point to remember. Thank you. We take the next question from the line of Parth Soda from Trinetra Asset Managers. Please go ahead. Yes. Am I audible? Yes. Hello. First of all, Hi, Parth. Thank you for the opportunity. Yes. My question is: at what stage do you believe the future product mix will begin transferring into the structurally high EBITDA margin? Yeah. It is a constant work in progress. I do not think that there is any one point, and because of our ambitions, we will continue to push. We have several internal milestones, but there is no one day when it will change. It is a constant work in progress. I will give you two or three data points that you can reflect on. One is that, let us say the EBITDA that the CFO spoke earlier, milk is 3% and value-added products is 8%. Already you can see VAP is higher EBITDA compared to milk. Last year, same time, this is Q1 of FY 2026, milk EBITDA was 5.8% and VAP EBITDA was 9.7%. This means while milk EBITDA declined by 2.8% because of the raw milk price increase, 2.8 percentage decline in EBITDA, VAP declined only by 1.7%. VAP was able to withstand the raw milk increase better than milk. The second is I draw your attention to the P&L statement that we have put out for the quarter. You can see the operating leverage kicking in already. If you see the operating cost, which is what is shown as the other expenses in the P&L, as a percentage of revenue, Q1 of FY 2026, which is last year, quarter one, the operating cost was 9.64% of revenue. Now it is 9.01% of revenue. We have gained operating leverage of 0.63 percentage because of the higher value-added product revenues contribution, all improved. Second employee benefits used to be 7.21% of our revenue. It is down to 6.74 percentage of revenue. That is about 0.47%. Together, these two components, which contribute the operating leverage, have improved our bottom line by 1.1%. This is not it all. As value-added products continue to grow and our revenues continue to kick in, this leverage will continue to improve. The only number which has changed is raw material costs have gone up by about 2.54%. Of course, depreciation and financing costs because of some of our new facilities coming into play. Okay. Got it. Thank you so much. Thank you. We take the next question from the line of Hitendra Pradhan from Maximal Capital. Please go ahead. Yeah. Thanks for the opportunity. Sir, just wanted to understand that the VAP EBITDA margin was around 8% this quarter. Being summer, I assume the summer product portfolio would have been the sales and the mix would have been higher. Going forward in Q2, Q3, what is the trajectory here, sir? I mean, just expected this margin to be slightly higher. If you can give us some sense and cut around to that. It's very difficult to give because now the mix will change. You're right in saying that some of the summer products, let's say buttermilk and all will come down in salience. There are several parts of the value-added products which will sustain also. For example, paneer is a non-seasonal part of this. Paneer is a significant contributor to our revenue now. For example, this quarter, about INR 52 crore of our revenue has come from paneer itself. That's non-seasonal. Ice creams are also because we are continuously growing. Even though it is a seasonal business, we are sustaining. You can imagine that sequential numbers may not look so bad. There are several other parts of the value-added product, even curd, because of our strength, has become less and less seasonal. Also add one more thing, which like we explained earlier, we are taking pricing up also. Prices are going up. There is some EBITDA expansion, but some raw material cost is also going up. Very difficult to predict or give you an outlook on exactly how Q2 will be. But we are doing everything we can to improve our situation. Yes, sir. Fair. Sir, the final and the second question is, the El Niño thing, what we hear also is that can also disrupt the post-October, and that can bring in unseasonal rain also. That usually also impacts the yield and the flush season. Is that understanding correct? If so, if that is correct, then would it be prudent to take more price hikes in the next quarter on the milk portfolio side? If you can give us your thought process there. Yeah. We will take a balanced view as we keep watching every quarter, every month, which way to balance the farmer interest, consumer pricing, margin improvement. Objective being ensure consistent supply of milk by giving remunerative price to farmer, and do not load consumer price in one go. We give some lag, we give in phasing, and then partially absorb in the margins for a quarter and then pass it on. We don't disturb the ecosystem. It's a very balanced way of handling the model, keeping all interest in view. Definitely, if the procurement prices go up, the pricing action will be there. If procurement prices go down, the margin expansion will be seen. It is cyclical. Every year we see the ups and downs. One season or one year, if it is low production, the farmers get a higher price. That encourages them to take more interest in dairy in the following season. The milk production improves, additional care was taken towards the animals, and additional yield comes through productivity improvement. That following year, the prices will go down a bit because of the glut kind of scenario. This we have been seeing over a period of time. Government of India also will not be silent. Just to give you a peek into history, if you see in the last 15 years, there were years where the scarcity of milk was very high in India. Milk prices went up. Then government intervened and allowed duty-free import of milk powder from Australia, New Zealand, Europe, and then controlled the consumer prices. There were years where we had the glut scenario. Farmer prices crashed to as low as INR 20, INR 22 per liter of milk. Then government encouraged export of commodities by giving incentive to exports. There were years where government kept a neutral position, no import, no incentives. Various situations are handled by government also over a period of time. When situation goes out of control in terms of scarcity, high scarcity, we may see import of duty-free commodities also. If glut comes, the government may encourage exports by giving incentives. We are not operating in an isolated environment. It's a public interest is always seen by Government of India. State governments also intervene. We have to keep all the factors in view, including farmer, consumer, and other stakeholders in the company. A balanced way of reacting to every situation keeps us moving in the right direction. Thank you. We take the next question from the line of Nishita Shaklesha from Sapphire Capital. Please go ahead. Yes. Am I audible? Yes, please go ahead. So I just wanted to understand. You mentioned, you gave the milk margin and VAP margin separately, and you also mentioned that our VAP growth is going to be 20%-25% going forward, which is going to be higher than milk. So going forward, can we expect our EBITDA to improve? Because currently it's at 4.6% level. So when can we expect it to go back to the 6%-7% level? If you can give some sort of guidance on that. Yeah, Nishita, this is Srideep here. Raw materials attribute three-quarters of our revenue, so it's still quite significant. Hence, a large percentage of our EBITDA will still be driven by raw material. We still haven't reached a stage where EBITDA of value-added products can grow in spite of raw milk price volatility. We still haven't reached. We are hoping that we reach. We are working towards a situation where our value-added product salience in consumer basket reaches a level where we are able to price it irrespective of raw material prices. As we speak now, what you should expect is that. Excuse me, there is some noise in the. Hello? Hello. Nishita, there's some sort of background noise coming from your end. Could you please move to a quieter room? Is it better now? A bit better. Please go ahead. Maybe you could mute till- Yeah you want to speak. Right. Yeah. Talking about EBITDA improvement, our objective is not a 6% EBITDA. That's not what we are aiming for. We are looking at high single digits EBITDA. In fact, our average or median EBITDA in the last several years has been 7 or higher, 7.5, et cetera. We are aiming for high single-digit EBITDA, and that while value-added products is definitely one aspect which will help us improve. But primarily, raw milk coming down will be a significant driver. Okay. Understood. My next question is, what kind of CapEx have you planned for this year, FY27? Hello? Yeah. At this point in time, we have two projects that are being executed. One is a paneer project and another one ghee. We have some other investments into raw milk procurement side also, minor CapEx. All of it should add up to about INR 250 crore per year. Thank you. Ladies and gentlemen, in the interest of time and fairness to others, we request you to restrict to one question per participant. We take the next question from the line of Aditya from Securities Investment Management. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. Sir, which are the major raw materials in our feed business, and what kind of cost inflation we are seeing in that? Secondly, sir, this rise in procurement prices, is it majorly due to the higher summer season which we are witnessing, which is leading to drop in yields or the higher feed costs have also played a part? Yeah. Thanks very much for the question. This is Dr. Brij Mohan. Just to answer your first question, there is a very high increase in all the ingredients which are going to the cattle nutrition, and they are increasing month on month. It started somewhere in quarter 3 of last year and it is moving until today. Quarter 2 as well looks quite heavy on the cost part. Secondly, due to the cyclical weather condition, you are aware of the ethanol industry impact on overall consumption of corn. Rice milling also is slowed down. That is not giving enough raw material for the cattle feed. An increment in the cost, especially for the packing materials, has put most of our margins in distress. At the same time, we also have a good competition from other industry like chicken industry and egg industry. Overall, it looks that the higher prices will continue for the ingredients pushing further out on the margins. At the same time, we have passed on these to the consumers, especially consumer in the sense to our dealers as well as our farmers. Some of that we had absorbed ourselves and improved our productivity, increased our volumes, and also enhanced or expanded our geographies. Overall, I can say that quarter 2 looks a little stronger than the quarter 1. Yes, pressure is there on all of us on the margins. Thank you. We take the next question from the line of Viraj from Enigma Investments. Please go ahead. Yeah. Hi, Srideep. Thank you so much for answering our question. Sir, just one question. If we look back a year before this, all price hikes increased. Our understanding was that the business has significantly improved from what it was three years back, and our normalized margins are in the range of 7%-8% or probably even higher than that. Assuming that this is temporary, and we do not know whether it is or not, would you say that that statement is still true, and with some price hike that we take over next one year and slightly lower raw mat prices, if at all that they happen, that statement still is true for, let us say four quarters, six quarters out? Thank you, Viraj. This is Srideep here. If you look at, you are taking a very long-term view, right? Out of curiosity, I was just looking at what was the raw milk price of quarter 1 of FY 2025. In quarter 1 of FY 2025, the raw milk price was INR 41.38 paise. INR 41.38 paise, which means compared to quarter 1 of FY 2025, two years later today, the raw milk price is INR 5.30 paise higher. We procure roughly around 18 lakh liters of milk. You can imagine that that is about INR 9.5 crore per month. That is the kind of money that has moved. That is in just two years. Our PBT, our profitability is not impacted so much because we have so many numbers have changed in the meantime, whether it is in terms of VAP contribution or in terms of operating leverage or in terms of prices going up as well. What we have to also remember is that I will also call out one more number for you, because you raised this question. You go back one more year behind, which is quarter 1 of FY 2024. Quarter 1 of FY 2024, that number was INR 44.78. I am just reading these numbers. Quarter 1 of FY 2024 was INR 44.78 paise. Then quarter 1 of FY 2025, it came down to INR 41.31 paise. Now we are sitting at INR 46.61 paise. If you look at it like that, in three years' time, it has gone up by INR 2 or INR 3, which is okay. Another way to look at it is actually if you look at isolate and look at cow milk, and cow milk is what is actually significantly contribute to our business. It was INR 40.58 paise in FY 2024, came down to INR 37.51 in FY 2025, and which is now INR 43 in FY 2027. Which means cow milk has increased by about INR 2.50 paise or INR 2.60 paise. That is, even if I take INR 2.60 paise increase over on 18 lakh liters of milk, we are talking about INR 5 crore per month. That is the kind of impact. This is a moving business, which means that if you look at two years down the line or three years down the line, the same price could be INR 48 or INR 49 or INR 50 also. But in the middle, there could be years where it might go to 50 and then come back to 48, et cetera. One should look at the long-term trend. That long-term trend is about 3.5%-4% year-on-year increase. Our intention is to shift our business more towards value-added products so that our net revenue grows ahead of this 3.5%-4% milk price inflation in a long term, so that we are EBITDA accretive and our EBITDA continues to trend upwards going forward. At this point in time, I should say that we are in the trough of it. When the raw milk procurement prices come down, you will see the margins expand very widely. That is not the normal, again, I should remind you, because normal is always the trend, something that goes in the middle. As long as the business is able to demonstrate that it is able to procure milk even in an inflationary situation, as long as it has demonstrated that it can grow when the opportunity emerges, and as long as it can demonstrate that every single year it can expand value-added product portfolio by 3% or 4%, I think that our business is strong. It will ride out the cycles. Thank you. Ladies and gentlemen, due to time constraint, this was the last question. I now hand the conference back to Dr. Rao for his closing comments. Thank you all for active engagement and interaction with us. Looking forward to catch up with you in the next quarter's call. Thank you. Good evening to all. Thank you, sir. On behalf of Heritage Foods Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your line.