Q3 25/26

Jan 29, 2026

Summary

Q3 revenue grew 8% YoY, but constrained milk and butter supply drove cost pressure. VAP mix improved, and margin recovery depends on pricing, seasonal demand and better supply conditions.

Ladies and gentlemen, good morning, and welcome to the Heritage Foods Q3 nine-month FY2026 earnings conference call hosted by Go India Advisors. As a reminder, all participant lines will be in the listen-only mode, and you will get an opportunity to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Diya Kaswa from Go India Advisors. Thank you, and over to you, Ms. Diya. Thank you. Good morning, everyone. I am Diya Kaswa, and it's my pleasure to welcome you on behalf of Heritage Foods Limited. Thank you for joining us today for Q3 and nine M FY2026 earnings 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, 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, 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 for Q&A. Over to you, sir. Thank you, Diya. Good morning to everyone on the call. At the outset, on behalf of the management team at Heritage Foods, I would like to extend our New Year wishes to all our shareholders, farmers, employees, customers, consumers and all stakeholders. We wish everyone a healthy, prosperous, and successful year ahead. Now turning to quarter three of FY2026. The quarter is marked by an unusually industry supply environment, even during what is typically a seasonally strong flush quarter. Milk shortages, elevated procurement costs, and butter supply tightness continued to weigh on operating performance, leading to margin pressure despite steady demand conditions. Procurement and raw material costs rose sharply during the quarter, driven in part by industry-wide butter tightness. Attractive Global Dairy Trade prices led to significant butter exports from India, resulting in domestic butter shortages and firm pricing. For the first time in the last two years, constrained raw material availability even during flush quarter necessitated bulk butter purchases at elevated market prices in November, impacting overall profitability. At the same time, milk procurement volumes were impacted by supply-side constraints for the first time in several years. YTD milk procurement volumes declined marginally by 0.82% to 16.86 lakh liters per day for nine months of FY2026, following three consecutive years of 9%-10% year-on-year growth. Q3 procurement averaged 16.73 lakh liters per day, down 9% year-on-year, reflecting milk shortages. However, procurement volumes showed sequential stabilization during the quarter, supported by our farmer-first philosophy. We continue to prioritize timely payments, feed support, and on-ground engagement, reinforcing long-term farmer relationships and ensuring continuity of supply during a challenging period. On the sales side, milk sales volume grew 2.1% year-on-year to 11.94 lakh liters per day, while net milk realizations improved to INR 57.31 per liter, reflecting pricing discipline and sustained brand trust. Ongoing efficiency initiatives across routing, chilling infrastructure, digital tracking continued to mitigate logistics and handling costs. Despite multiple headwinds, company delivered resilient top-line performance, reporting consolidated revenue of INR 11,192 million, registering 8% year-on-year growth, crossing the INR 11,000 million quarterly revenue mark for the third consecutive quarter. This performance reflects resilient top-line execution supported by sustained consumer demand, value-added product-led growth, and an expanding retail footprint, even as elevated input costs constrained profitability. EBITDA stood at INR 629 million, while PAT was INR 346 million. Margin compression during the quarter was primarily driven by a sharp escalation in milk procurement prices, which increased by 9% year-on-year, outpacing consumer price realizations despite calibrated pricing actions undertaken by the company. Following the notification of New Labour Codes, the company recognized a one-time increase in provision for defined benefit obligations under Ind AS 19, that is employee benefits, resulting in an incremental provision of INR 27.42 million on a standalone basis and INR 27.78 million on a consolidated basis during the quarter. The same has been recognized as an employee benefit expense in the current reporting period. Value-added products remained central to our growth strategy during the quarter. Value-added product volumes grew 6.8% year-on-year, with almost all categories delivering positive growth despite adverse weather conditions. Strength was visible across curd, paneer, drinkables, ghee, and ice cream, supported by strong consumer engagement and market expansion, which improved the quality of sales mix. Including ghee and butter consumer packs, value-added product revenues grew 22.6% year-on-year, contributing 38% of total revenue, compared to 33.8% in the corresponding period last year, underscoring sustained premiumization and mix improvement. From a strategic growth perspective, capacity additions remain firmly on track. The Hyderabad ice cream plant is progressing as planned, with trial production underway now and commercial commissioning expected in the current quarter. The flavored milk plant is also expected to be commissioned in the current quarter, positioning the company well to capture incremental demand across fast-growing categories. I am also pleased to share that Mrs. Brahmani Nara, Executive Director, was honored at the Business Today Most Powerful Women in Business Awards 2025, and Mrs. Nara Bhuvaneswari, Vice Chairperson and Managing Director, received the Outstanding Dairy Professional Award 2025 from the Indian Dairy Association, reflecting the strength of leadership and governance at Heritage. I am also pleased to announce Heritage Foods Limited has been recognized among India's top 50 manufacturing companies for its practices. Looking ahead, near-term cost pressures remain. We are confident that margins will progressively normalize, supported by improving supply conditions, higher value-added products contribution, and continued disciplined execution. With that, now I open the floor for questions. Thank you very much. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sameer Gupta from India Infoline. Please go ahead. Hi. Good morning, sir, and thanks for taking my question. Firstly, sir, till last quarter, we were expecting a normal flush, but we've seen milk prices rise even on a sequential basis. I understand you mentioned that there were supply shortages, but can you just elaborate on the major reasons as to what resulted in this? The reason I'm asking is I just wanted to assess if these are more recurring things or more like a one-off. May I take that? Yeah. Good morning, Sameer. This is Srideep here. Thank you for your question. It was a bit of a surprise for all of us. Till, I should say, the month of August, we were very hopeful, and a lot of mixed news was flowing in that the flush would be normal, and these things we would not know until it happens. If you recall, Q2, when we announced the results, we said that it was a period of excessive rainfalls. In fact, many of the regions where we operate saw upwards of 20%-25% of excess rainfalls, which actually has caused a double whammy this year. On the consumption side, many of the key weather-related value-added product categories were impacted in terms of consumption momentum. The same excess rainfall actually caused stress at the animal level, which is possibly what has caused productivity decline at the farm level. This was observed not just in one procurement region, but we procure from across 9 states in the country, and we felt this across. Usually, in the flush season, we receive a lot of milk. This year, if I can just give some numbers, last year, from Q2 to Q3, we had a 1.8 lakh increase in milk. Just to give Q2, last year was about 16.44 lakh liters of milk, and Q3 of last year was about 18.4 lakh liters. So 2 lakh increase from Q2 to Q3. This year, Q2 was about 16.1 lakh liters, and Q3 was 16.7 lakh liters. Only 60,000 liters has increased. That's primarily the big impact that we're talking about. Is it going to be like this? Usually, no, because usually after a season of constrained supply it eases because prices are very firm at this point in time. It is highly profitable for a dairy farmer to produce milk today. So we expect dairy farmers to increase production, and that should eventually sequentially bring down the prices. How long will it take? We are not sure. We are expecting the mini flush season or the cow flush season in the South India, which starts from May onwards. We expect that at least to normalize because the prices in South of India is very firm at this point in time. So with that, we expect things to ease out, but we'll have to wait to see how it happens. But one thing we are observing now is the impact of climate is palpable in our industry. You will read upon a lot of reports in this regard in the media. I hope I've been able to answer the question. Yes. This is very helpful. Just to reiterate, basically excessive rainfall is the only reason. But usually what we have seen is that excessive rainfall also results in good groundwater, and the next year typically results in a better year in terms of everything, in terms of agri production, in terms of milk production, et cetera. Something that happened last time. See, we can't really predict as to other factors, but this sole factor alone should result in better milk productivity. Is that a fair understanding? I would say so, but see, the dynamics are so complex with over a dozen variables. It is very difficult to predict. We adjust that. Up to 5%, 6% of milk, up to 5%, 6% of rainfall excess is good because you get a lot of green fodder and the farmer income also improves. But beyond that point, it creates stress for everyone. Possibly, that is what I am. We are waiting for more scientific reports to come in, and then we will be able to update. But what we felt was a palpable shortage of milk. Got it. Fair. And just another related question. I remember that during the analyst meet earlier this last year, you had indicated a 7%-9% kind of an EBITDA margin range. And this was taking into account the weather vagaries and milk price volatility. Now, nine months is 5.9% for standalone and 6.3% for consol. Would you still reiterate this margin guidance, or do you think that one should basically trim it downwards? Sameer, the only word I would like to call out here is guidance. When we said 7% to 9% is our targeted range, I must have used the word targeted range and not guidance. We would like to keep our EBITDA towards the 7% to 9% range, which means that at this point in time, which I feel is the lowest point we would have hit, we are still about 0.7%, 0.9% below that level. So which means that we need to work harder on an apple-to-apple basis, improve our business performance by about 1%, so that now we can move. Currently, even this year also, you must have seen that the EBITDA has declined by nearly about 1.8%, which means that actually, if I can improve the business performance on a like-for-like basis by about a percentage point, the similar raw material situation, we should be around 7% and a better raw material situation, we should be around 9%. That is what I meant when I said what I said. There is an impact of EBITDA on account of various other factors which we need to work on as well. Got it. I will come back in the queue. I have more questions, but I will come back in the queue. Thanks for all this. Thank you. We have the next question from the line of Saumil Mehta from Kotak AMC. Please go ahead. Yeah, thanks for the question. Sir, can you just quantify, while the quarterly procurement prices are very high, what were the exit prices and what are the pricing trends you are seeing at least for the month of January and any price hikes we have taken in liquid sales for the regions where we operate? You are asking about exit price, right? Yes, the pricing trends in specific month of December and the January pricing. Yeah. January, I wouldn't be able to comment. So December, I will be able to tell you. Just give me 1 minute. Have you got the weighted average procurement price for the quarter? Hello? Yes. Sorry, I was not able to hear you. Yeah. The month-ending cost of milk price in the month of December, weighted average price was Rs46.01. Okay. If it gives you a sense of how sequentially that has increased. Because for the quarter, the reported number that we have put is about 45.57. But December is 46.01, which means that you can see how it has climbed up from October, November, December. We expect the prices to further harden in the next 30 to 45 days. But should ease off, like I mentioned, once the mini flush or the cow flush in the south starts from May onwards. Sure. In terms of our end product prices, any price hikes you have taken, or at least we envisage to take at least in the forthcoming quarters at this point in time? Yeah. For the quarter that went by, which is Q3, while the raw milk prices increased by about 8.9%, the market milk prices on a weighted average basis across our regions, we have been able to increase by about 4.9%. We have passed on. In absolute terms, if I can just give you the number, the absolute milk price has increased by Rs2.67 per liter, which is about 4.9%. That's as much as we could pass on, which brought down the gross margin in milk itself by about 12%. That has been the biggest impact. The impact, everything is dependent on how much milk is absorbed. How much milk had to absorb of the raw material increase. Value-added products also, on a percentage basis, we have taken up prices by about 6.6%. Weighted average value-added price per liter now is about Rs75 compared to Rs70.40 last year. Ghee also, we have taken up prices by about 15% compared to last year. We have taken significant price increase compared to last year. But weighted average, if you look at all of this put together, the revenue has not increased enough to compensate for the raw material increase. Sure. My last question, what would be the carrying inventory for the bulk fat? I'll ask CFO to answer this, please. Give me a second. Sure. Bulk fat is nothing. Without looking, I can tell you that the fats we are carrying at this point in time is very nominal. Maybe 300, 400 tons, which is what would be less than a month's cover, I believe. 390 tons of butter. 390 tons of butter is exactly what we are carrying. We do not have any butter. Sure. Thank you so much and all the best for subsequent quarters. Thank you. Thank you. We have the next question from the line of Rehan Saiyyed from Trinetra Asset Managers. Please go ahead. Yeah. Good morning, your team, and thank you for giving me the opportunity. Sir, I have a couple of questions. First, on your ice cream plant at Shamirpet. You have said that Shamirpet plant expected to commence commercial production by March 2026. What peak capacity utilization should we assume over the next 2 to 3 years, and how margin accretive is this facility at such a state? Yeah. This is Srideep again. We are expecting the commissioning to happen towards the end of February or beginning of March, as we had promised earlier. It is well on track. As we speak now, trial runs are happening. We are just waiting for the commercial production date. In the first year of operation, we expect a capacity utilization of about 40%-45%. 40% is what we are expecting, and this is as per business plan. We don't expect any surprises unless the summer goes bad and ice cream business is impacted. As we speak now, ice cream is a product category which has grown strongly for us in Q3. We are entering Q4 with a year-on-year growth of about 21% on ice cream, so that's a very strong number. If you look at it, Q2, the growth was about 16%, 17%. Every quarter we are increasing the growth rate of ice cream, which is actually good news. We are expecting to enter the summer season with a very strong growth rate as well as volumes. In terms of how value accretive it will be, on an EBITDA basis, it is actually a very profitable business, ice cream, as you would know. Yeah. There is also the asset. It's a new asset investment with its depreciation and all that will come in. It will take at least a year or two for the profitability to normalize. Okay. You have said right now that your ice cream business is really doing well in the last two to three quarters. You have also given the commentary in the last quarter that 20% CAGR over the that you can grow paneer, curd, and ice cream categories are expected to grow at 20% CAGR over the next seven years. How is Heritage prioritizing capital and marketing spends across these categories to maximize their returns on ROCE, ROI basis? Except for ice cream, it is the nature of the product that it is seasonal. Yeah. You cannot increase the capacity on an incremental basis. Except for ice cream, most of our value-added product categories, our capital investment over the years has been incremental to keep our plant utilization a very high percentage. As we speak now, the key categories for us as far as value-added products is concerned is curd, paneer, buttermilk, ice cream that you called out, flavored milk, as well as ghee. These are the products where we have made capital investment. Curd is something in which every year we make capital investment so that our plant utilization stays at around 90%. Paneer is something in which we have, even this quarter also, we have grown paneer by about 30%. Paneer is something which is growing very strong for us. We have some CapEx in the pipeline, which will get commissioned in the second or third quarter of next financial year. Oh, okay. Fair enough. One more last question. If you can understand a bit understanding regarding your, like, am I audible? Yes. Go ahead. Yeah. I want a bit understanding regarding your southern market. If you see that organized dairy penetration is expected to rise from 40% to 60% over the next decade. How is Heritage Foods realistically targeting it in its core southern markets to cater it? Overall dairy. I believe your question Yeah is regarding overall dairy, right? Yeah. Yeah. Okay. See, we are very sharply focused on our core markets. The size of dairy industry is huge. Even in the markets where we operate, the headroom for growth is tremendous. If I can just give you an example, the penetration of curd, packaged curd, in a state like Andhra Pradesh, which is actually a very high curd-consuming state, is only 25%. Okay? Okay. 75% of curd that gets consumed in Andhra Pradesh is in the unpackaged form. In a city like Hyderabad, it is about 40%, is the penetration of packaged curd. So the headroom for growth for us is tremendous, and our own core markets are delivering so much of growth. Our priority at this point in time is doubling down and going deeper. With cold chain, cold chain is one of the biggest enablers of our business. With cold chain improving, what we are seeing is that the retail outlets that are stocking dairy, especially value-added dairy, is expanding manifold. Maybe five years ago, the number of retail outlets that used to stock dairy were very limited because you had to buy dairy, you will have to either go to a milk booth or you have to go to a modern trade. Today, on average, retail outlet has started stocking dairy products, and this is the biggest opportunity that we are capitalizing on. The headroom for us is tremendous, and we are working on expanding our distribution footprint as well as consumer traction for this. I hope I've answered. Sure. It's a very simple strategy. Stay focused on where we are strong and keep building strength. Okay. Yeah. Thank you for detailed answer, and I shall remain in the queue. For the benefit of all investors, see, the advantage we have is that we are dealing with products and categories which don't need explanation. It's not something that you need to explain what this product is. It's something that consumers are already consuming, as in something that people are familiar for thousands of years. It's just that we are improving the product delivery in terms of quality, taste, and convenience, which is what is switching people from unpackaged to packaged. Apart from other aspects such as trust built on purity and transparency. Yeah. Okay. Thank you. We have the next line of Pradyum Choudhary from JM Financial. Please go ahead. Yeah. Hi. Just a couple of questions. The first one is on, you mentioned that margins should progressively improve from here on. But if I look at your commentary on the procurement price, we are expecting the procurement price to further harden from here. So why do we feel that the margins have bottomed out? Are we expecting improvement in our selling price also? Currently, we mentioned that last quarter the selling price had increased by INR 2.9. Are we expecting a further increase here in the current quarter? Thank you, Pradyum. This is Srideep again. You picked on that point when I said the margins probably would have bottomed out and probably should improve. This is an estimate at this point in time, and we will have to see how this plays out. There are two or three reasons why I mentioned what I said. One is raw material prices will increase, at least in the very short term. Okay? Let us talk about 30 days or so. That is a given. We were hoping, number one, to pass on some of this to the consumer through higher pricing. That is one. Number two, we are also entering summer, which means actually already in many of the regions and markets where we operate, the temperatures have started hitting 30 degrees. Many of our value-added products, especially the more profitable ones such as curd, buttermilk, ice cream, these are all highly seasonal. The contribution of these products or the salience of these products in our kitty in Q4 will be much higher than that in Q3. So it is an improvement of the weighted gross margin as well as our ability to pass on some of this pricing to the consumer. But you are right, procurement price, at least in the near short term, will increase. This is something that we are cautious about. But our effort at this point in time is that as we grow volumes on the consumer side, we need to keep growing our procurement in line so that we do not have milk shortage. That is our highest priority. As we enter the season, we will require at least a couple of lakh liters of milk from the current levels. So our teams are focused on getting this milk at this point in time. Margins will be a result of how well we grow our value-added products. Sorry, just to follow up here. When was the last price hike we took in milk? Just to understand how much of it is yet to be passed on. Are we planning to take any further, or have we already taken any further price hikes in the current quarter? We operate in close to 8,500 villages, and this is across some 15 or 18 regions, as we call it, as in divided among all the nine states we operate. At some point in time, some price is always changing, right? It is not like on one particular day we change the price. This price movement is a continuous phenomenon. I will not be able to give a date on when was the last time we changed. All right. Let me just put it another way. The absolute increase in selling price we are expecting in the current quarter, would it be higher than the absolute increase in the average procurement price in the current quarter? We would like to match it, is the way I will put it, and the weighted average improvement would be beneficial. Understood. My second question is on the slow growth in value-added products. You mentioned that we took a 6.6% price increase in value-added products, and despite that, I think the VAP grew by around 14% for us compared to earlier it used to grow at 18%, 20%. This is the third consecutive quarter of slower VAP growth. While I understand the first half was due to cooler temperatures, any particular reason to point out here in Q3 as well, the VAP growth was quite slow, especially if we look at the volume growth. Yeah. See, value-added products, primarily curd growth was lower this quarter. Curd growth came down to about 10%. Usually, we grow curd around 13%, 14%. The curd growth was lower. We also saw muted growth in drinkables, primarily led by buttermilk and flavored milk. The growth was muted. The drinkables grew only at 16%. See, we used to grow, and rather actually our attempts and objective is to grow value-added products at 20% to 22%. The low 20s is the targeted growth rate of value-added products. If it has to clock that kind of number, then our core value-added products, which is curd, et cetera, has to grow at about 14%, 15%. Then the smaller value-added products such as drinkables and ice cream and all of that need to grow at around 30%. Only then you get a weighted average like that. Q3, weather-wise, was soft. It's something I spoke about primarily due to excessive rainfalls and lower temperature. On a weighted average basis, the average temperature across our region was about one degree lower than not just last year, but even last 10-year average. So that impacted the weather-dependent categories with curd and the core value-added products coming to about 14%, 15% and the smaller categories such as ice cream and drinkables going to about 30%, which is what we expect in Q4. Paneer holding strong at around 30% as it will continue should give us a weighted average of about 20% kind of value-added products. But the key point to note, if I may follow up, is that value-added product contribution to our revenue has expanded by 1.8% in this quarter, which is you can say roughly around 2%, which means that it is in line with the value-added products contribution improvement over the years. We've been growing value-added product contribution roughly 2% year on year. Understood. Last couple of questions. The first one is, there are two new plants that are starting. One is on the ice cream side and one on the flavored milk side. If you can tell me for your revenue potential from these plants once they are operating at full capacity, what sort of a revenue potential do these two plants hold? That gives me an idea regarding what sort of a value-added products revenue potential I can expect. Second, on the continued growth of other expenses, right? Previously also we've spoken about this and that continues to be a concern. How are we really addressing this part? How much of our other expenses, I think we incurred close to around INR 117, INR 118 crores of other expenses in Q3. How much of this would be related to the new plants starting up? Thank you. Just quick answers to both. The ice cream plant has the potential to deliver about INR 500 to INR 600 crores of revenue. However, it will take about six to seven years for us to realize that, right? Our current revenues this year, we might close around INR 110 crores. So that's a 4x or a 5x kind of multiple is possible because it's not just with volumes, also because of revenue per liter increase over a period, and it might take about seven years for us to get there. Flavored milk, on the other hand, has the potential to grow up to over INR 120 crores in revenue. We are targeting ourselves, probably in the next four or five years, we should be crossing the INR 100 crores mark with the flavored milk. So these are all significant categories which are profitable, which we are investing on. As far as the other expenses are concerned, primarily, I'll just call out two numbers while there are many smaller items. But the two big ones which has changed for us, one is the whole logistics cost, which as a percentage of revenue, has gone up from 2.7% to 2.9%, which is roughly 0.2 percentage increase, which you will see in the EBITDA decline also. The 0.2 percentage is impacted because of logistics, primarily because of revenue not growing in line with the cost and also our distribution expenses going up as we are pushing the distribution, right? So that's a small 0.2 percentage impact. The other expense which has gone up is our marketing investments this year. In quarter 3 of this year compared to quarter 3 of previous year has gone up by about 0.5%. Last year, Q3 was about 1.2 percentage of revenue. This year, Q3 is about 1.8 percentage of revenue. While this looks like a 0.5 percentage hit to the P&L, we consider it as a timely investment as we are getting on to high selling season. Our salience in terms of organized trade is increasing. Organized trade is already contributing about 18%, 19% of our sales, and we are seeing a higher uptick, higher stickiness, higher retention rate for our brands in these channels, thanks to these marketing efforts. This is something that we are consciously doing which will help us differentially take up prices as far as the consumer is concerned. So at 10.5%, other expenses as percentage of revenue in the current quarter, can we say that most of it is sticky in nature because a large increase has come from marketing costs, which will continue going forward as well. So the expense bit at least seems to be more sticky in nature. See, the way I'll put it is that marketing is the only cost which is absolute, and it's not a percentage thing. With revenues, let's say, for example, moving up by about INR 100 crores or INR 200 crores in the coming quarters, as a percentage of revenue, this marketing expense will continue to come down, right? See, it's an absolute spend. Let's say, for example, in a quarter, I spend INR 20 crores. So that will continue to come down as a percentage. In terms of other expenses, we also count operating expenses, which has also gone up, especially the conversion cost, which we feel as the volumes increase, the absorptions in our plants will be much better and that will also sequentially come down. Basically, the operating leverage- The startup related costs on the two plants which are starting, what will be the two plants which are starting, I'm assuming that- That will have no impact. Hello? Is there any impact of pre-operating expenses? I will hand over to CFO to answer that question. Yeah. Pre-operating expenses. Ice cream. I do not know why it is not there, actually, but it is not significant, actually, as far as ice cream is concerned, because in the month of February or March, actually, we are going to commission. So nominal, actually, then revenue expenditure has been taken into account, to be charged within that. Not very much. Nothing significant at all. Ideally, it will get capitalized because it is a total greenfield facility. Understood. Thank you, and all the best. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participants in the conference call, we request you to kindly limit your questions to two per participant. If you have a follow-up question, please rejoin the queue again. We have the next question from the line of Pratik Kothari from Unique PMS. Please go ahead. Yes. Hi, good morning. Sir, first on consumer fat, I think, way healthy set of numbers growth. You can talk about what is going right. One, you spoke about the price hike you took, but other than that, how is that brand developing there? I mean, we are seeing quite strong ramp-up there. Also the fat loss number for this quarter if you can share. Yeah. Thank you, Pratik. Our volumes have grown about 45%, and overall revenue growth is about 69%, and this is primarily in ghee. The bulk fat has de-grown 99.9%. Practically, there is no bulk fat this quarter. Unfortunately, the milk supplies that we had, raw milk procurement was just enough for us to meet the requirement for our own thing. There was no surplus butter generated. To meet the growing demand for ghee, we had to actually buy butter from the market, which happened at a very high price because the butter prices in the market were quite high compared to last year. In terms of prices on a per liter or a per kg basis, while sales side we saw a strong improvement. Weighted average basis prices went up by about ₹106. We have never seen this kind of price increase any time. INR 106 price increase per liter we have seen, liter kg, because I am combining ghee and butter together. It is not the right way to look at it because you should understand that there is a conversion factor of 81% to butter to ghee. If I just do a simple weighted average, 106 is the weighted average price on the sales side. The raw material side also went above 103%, INR 103. Which means actually there is no benefit at all. Because of which, even though the business shifted from bulk to consumer, the losses are pretty much similar, actually. About 9 crores? About 10 crores. 0.15. 0.15 compared to 9 crores last year. There is no difference. Except that we are just cycling much higher volumes now. Mm. Correct. Secondly, again, on other expense. It has been about seven quarters since- The good news is, I will just indicate. Yes. The good news is we have been able to establish a much higher consumer price in our ghee. The revenues are much higher. I just indicated the amount of the revenue numbers that I spoke about at a much higher volume level. Which means that with commodities easing, we should be in a very good position. We are just hoping for that. Correct. No, point taken. Sir, coming back on other expenses again. It has been about seven quarters since we have not seen the targeted VAP numbers or the consolidated revenue numbers. I understand that marketing is a good spend to have. We want to build that brand. But x of that, are there no levers where we can kind of slow down, cut costs at time when, one, we are not seeing growth, one where we are seeing increase in milk price to kind of manage our costs? Because for last many quarters our other expense has been growing at 20% year-on-year for I think maybe 10, 12 quarters now, despite no revenue growth or lower revenue growth rather. I understand you are investing for growth, but if that growth is not coming, do we not have any levers to kind of curtail this? of marketing, which I understand is a good spend to have. I agree. Pratik, couple of things I will call out. One is operating leverage, which is actually the most important thing in our business because while we call us premium, we are actually mass premium players. Our business is totally dependent on volumes. If you look at the volumes of this year, the volume growth is nothing great, actually. We need strong volume growth. Volume growth is what is going to completely offset our operating costs and the operating leverage has to kick in. For some reason or the other, this year has been from Q1. If you recall maybe two quarters ago, in the same investor call we mentioned that the Q1 was a washout. Complete, total washout because of rains. The rains continued into Q2. Somehow this is a very strange year, the way it is going. We are actually building strength because we know that the per sales point offtake has improved. Per consumer stickiness has increased. Per distributor sales has improved. We know the unit metrics are looking good, but we have not been able to convert that in terms of large volume growth. We need volume growth coming back in low double digits and revenue growth in mid-teens. Revenue growth is fine. 4%-5% of NR increase is fine, but we need volume growth happening in 10%-11%. That is when operating leverage kicks in. That is the reason why while I was answering a previous question, I mentioned that we can offset the cost by about 0.6%, 0.7%. The EBITDA on a like-for-like basis, today's EBITDA would be instead of 6.2 or something on consolidated basis, will be close to 7%, which I believe is a bottom out number. If we can do that, then we are working in a range of 7%-9% going forward. That operating leverage is what we seek, and I have nothing to hear. Sorry. We can't give any excuse here. We need to work harder to get those volumes. No, correct. But sir, if other expense is growing at 20%, the operating leverage will only come in if the top line starts growing beyond 20, right? If you still grow volume at 10, price at 4, 5, and consolidate 15, you'll still not see operating leverage kick in. No. I'm talking about while the operating expenses that we report, a good percentage of it is actually fixed in nature and we can't do anything about it. There are variable costs which will keep increasing, but the other expenses as a percentage of revenue will come down the moment volumes kick in. That's what I meant. There are other factors as well, which has gone little bit beyond our control. This quarter, we had close to INR 1.7 crores of GST. 1.2 INR 1.2 crores of GST impact. GST in the sense, we are not able to absorb the ineligible portion of GST charged to the P&L, because the dairy products GST has come down from- Right In the case of GST from 12% to 5% and paneer has become zero, those kind of things. The input GST, we are not able to recover, then the ineligible GST we are charging to the P&L. In this quarter itself around INR 1.2 crores is the impact on us on account of that. That I will consider as a variable number, which is what has softened the gross margins of paneer a little bit. The only option for us is to increase the NR. But bar accepting for these kind of things, many of the other things, other costs in the other expenses are fixed in nature, which will come down with operating leverage. Fair. We will wait for that. Thank you and all the best. Thank you. A reminder to all the participants, kindly restrict your questions to two per participant. We have the next question from the line of Rajat Parab from Systematix Group. Please go ahead. Yeah. Hi, Srideep, sir. This is Abhishek from Systematix. Thank you for the opportunity. Just wanted to check on this mini flush or the cow flush that you were talking about earlier. What would this be as a percentage of the main flush? How significant would this be? Because what I am trying to understand is, in case for whatever reason there is some kind of a tepidity or a failure to this also, is there a risk of milk procurement costs remaining firm till the next flush and do things like till October? Just wanted to understand your perspective on that. Yeah. Possible. A mini flush is witnessed over a period of decades in South India, where the cows are predominant. There will be two, three months of milk product improvement and some amount of price softening happens, is a standard feature. But these climate vagaries and related issues like diseases can sometimes impact. Like one year we had lumpy skin disease, which had impacted. Occasionally there will be some problems, but it is a standard feature of the cow. There will be mini flush in the April, May, June period in South India. That we expect to be normal this year. Particularly, the milk prices are very remunerative now to farmers. They would take greater care and production should come. The buffalo flush will typically occur in October, November, December period, which did not happen in the expected or standard way this year. Right. Understood, sir. Secondly on this, the price hikes that you have just detailed in your opening remarks. I understand from one of the earlier calls of one of the listed competitors that probably some of the other private dairies and probably some cooperatives have not taken price hikes. They have chosen to not take hikes while we have taken something like 4.9% on milk and 6.6% on ghee. Are we seeing some bit of market share impact of that in January, or is there a risk that we see in this current quarter mainly because of this? Yeah, that is it from me. Thank you, Abhishek. This is Srideep here. The volume growth, I am sure that you must have done analysis of all the operators of dairy, others who have declared results as well. Excepting some of those new businesses, the core apple-to-apple business for everyone has been soft this quarter. I think the industry will have to increase prices. It cannot remain like this. Everybody's cost has gone up. Everyone has reported higher costs in Q3. It's not just Heritage. We have passed on part of it to the consumer. We believe others also will do so. Usually, it is just before March that everybody passes on some bit to the consumer. We are waiting to see how this shapes up. I will not be able to specifically comment why they have not increased prices or why they have taken lesser price increase. I can only tell you our reasons. Fair enough, sir. That's it from me. Thanks and all the best. Thanks. Thank you. A reminder to all the participants, kindly restrict your questions to one per participant. We have the next question from the line of Resha Mehta from GreenEdge Wealth. Please go ahead. Yeah. Good morning. Thank you. I do have a couple of questions. One is, on the heavy rainfall or erratic rainfall kind of disrupting growth. That is well understood. But how does excess rainfall hamper milk production? Does it happen that artificial insemination or natural mating gets impacted or farmers become lax, they don't give animal feed to their cattle? How does this basically hamper milk production? Ladies and gentlemen, the line for the management has been disconnected. Please stay connected while we join them back. Ladies and gentlemen, the line for the management has been connected. Over to you, sir. months, where it gets a little bit reduction in milk. As well, Sorry, I missed that. What we are observing across Indian states now, that there's a sharp decline in the milk happening in our crossbred cattle. As you all are aware, we are not having the pure genetics. We are having the crossbred cattle. And after three or four years of Sorry, the interruption between, sir. mating cycles. Hello they usually go for decline. These are the two biggest factors. Sorry, the interruption between, sir. Fourth factor. Can you hear us? Sir, are you able to hear us? Can you hear us? Yes, sir, I can hear you. Can you hear me? Are we audible? Top of the call. Ladies and gentlemen, please stay connected. Nothing is visible here. No, we are connected, but I think voice is not correct. Vinayak is not able to hear us. No, we are. Yeah, we hear you. Hello? Can you hear us? Ladies and gentlemen, please stay connected. Yes, can you? No. Oh, okay. Which means, Diya, anyone from Go India, can you hear us? Yes, we can hear you. Hello? Hello? It has been one hour and nothing but connect. Hello? Hi, can you hear us? Sir, are you able to hear us? Yeah. Can you hear us? Yeah, now we got back. I do not know. You heard Dr. Brij's clarification on animal health and milk production drop? Sorry to interrupt. No, sorry, sir, I missed that. If you could repeat your answer because Yeah, sure. I am repeating myself. This is Dr. Brij Mohan from Heritage Nutrivet. We have observed that across Indian states we have the crossbred cattle, and as you know that major milk collection is happening from the cattle, not from the buffalos. These crossbred cattle, they are- Yeah. Ms. Mehta, can you hear me again? Yeah. I can. Please go ahead, sir. Okay. I am repeating again, but very briefly now, that Indian states, we have the cattle which are crossbred, and they are found to have decline in their milk yield after a couple of lactations. So 2 or 3 lactations, it goes down. Second is there are hormonal cycles, especially during the rains side. That time there are a couple of complications like mastitis infections, which are widespread, that reduces the milk yield. Hope I have answered your query. Okay. But then structurally, how can this get resolved and from a midterm standpoint, how can the milk shortage be addressed? Because seeing a 9% de-growth on milk procurement was really huge. How also in terms of how do we meet this milk procurement requirement considering the growth plans that we have. So my fear is that have we already lost out on some sales revenues because we were not able to procure milk and is that expected to continue? No. Okay. Resha, no. See, what happened structurally is we had sufficient milk in Q3 to service our needs. You just see the quantity we procured. We procured about 17 lakh liters of milk. If you see our average, our total sale of Q3 is roughly around 17 lakh liters. So we managed. But usually what happens is in Q3, we get about 19 lakh liters of milk. You see that historically, you see the last quarter 3. That surplus milk is what converts into commodities. It also brings down the prices, raw milk prices, it increases profitability. That butter, we use it for ghee, et cetera. That didn't happen. Right now, it doesn't mean that we don't have milk. To address your question, we have about 1 percentage share of the industry, right? It's a very humongously huge industry, Indian dairy. It's very difficult for one small actor to impact the whole ecosystem. It's impossible, nearly. What we are focusing on is to double down on what we do best, which is actually in the villages, in the farmers, with the farmers that we work with. We are trying to work on farmer productivity. On an average, 3 or 4 years ago, an average farmer that we used to work with, I'm not talking about Indian average farmer, an average farmer that we used to work with used to produce about 7 liters per day. Now it is about 10 liters per day. We might have hit a small air pocket that productivity has come down a little bit in Q3 of this year because of all these events, but we'll have to continuously work on taking this 10 liters to 11 to 12 to 13 kind of thing. That's what we can work on. This thing takes time. It cannot be addressed on a quarter-to-quarter basis. We'll have to expect the overall milk availability to improve, which will also improve our farmers. Our farmer productivity, we work with, let's say, 2 lakh farmers. These farmers are not going to produce 12 liters per day tomorrow. This is not going to happen, right? This is a long-term thing, and will take time. What we'll focus on here is that structurally, if you see, earlier somebody asked this question on what changed. EBITDA is down by about 1.8%. Let's look at it like that. We are about, at a consol level, 6.2% and on a standalone basis, about 5.4%. We are saying that out of this, we spoke about marketing and other costs were 0.6%, 0.7%, which can be offset through operating leverage, which is revenues and volumes coming back. This means on a like-for-like basis, we should look at this margin offset by that much amount getting into the next quarter and beyond. Right? There are other operating leverages, which I mentioned, I alluded to, one from volumes kick in, because we are still cycling much lower volume growth. We need the volume growth to come back, for which we are working. I think all the metrics are looking good. We also need a little bit of weather and other consumption, blues, everything, all of those things also to kick in. All in all these factors are what's going to stabilize, normalize our business in terms of margins potential. That said, a 1.5%-2% swing in EBITDA, because this is a cyclical business. This is an agri-commodity- Sorry, Srideep. Sorry to interrupt. My question was not on margins. I think that was well covered. My question was more on, so what I understood from what I- Sorry to interrupt in between, Resham. I would request you to kindly rejoin the queue for the follow-up question. I think a lot of time got spent in this connection issue, and I think all the other participants were given a fair chance to ask their questions. I've just also requested- I'll answer very simply that we are working with the number of farmers and the villages where we are operating. What we are trying to do is to recruit more farmers in the villages where we are operating. We're trying to get them to add more animals. We are also expecting, let's say the mini flush to play to our benefit. That's the only thing we can work on, right? We are working on the variables that we have influence over. So in the markets where we have taken price hikes, would our peers have also taken price hikes, or is it only us? I think Mr. Sambamurty, COO, will be able to answer this better. Yeah. We have taken it up and some competitors have taken it up, but most of the competitors have not taken up. But certain places, certain markets, they have also taken up. So it is not that everywhere others have taken it up. So some places they have taken it up along with us as well. So that is it. Thank you. We have the next question from the line of Haj Tobe from LHS Securities. Please go ahead. Thank you for taking my question. I just had a couple of questions, but I will restrict it to one. I just wanted to understand that the El Niño effect that is going to come into the weather. What is the expectation? Clearly, the milk supply is really low in the industry, as well as the prices are stiff and you are saying that this is what something that we can expect in the next 30 to 60 days as well. When we talk about the value-added product of how do you think that is going to do in this summer, as well as since we are not able to convert excess of the milk into the commodities now, how about the prices in the market? Will that be sold on lower price on the market? This is Srideep here. I will not be able to comment on El Niño. But yeah, excess of anything. In summer, if there is excess heat, also that affects milk production. Excess rainfall. Excess of anything impacts our business, right? Business has to operate in a particular corridor of comfort. That said, excess heat is good for our sales side, that is for sure. Products such as curd, buttermilk, ice cream and all of that should go well. Whether it is El Niño or not, we expect the summer to be normal. If it is a normal summer, I believe the growth that we will deliver will be strong, because we already have good indications of, even with soft weather, when the days weather would open up, our numbers are quite strong. If I can just say, we crossed for curd, for example, 400 tons is a big number that we crossed, and it is the first time we crossed that number in quarter 3. All other numbers are also strong. So we are entering the summer in a strong manner. Brahmani Nara here, Executive Director. I just wanted to add one more point that our numbers show a lot of positive progress when we look at scientific numbers such as brand health track, loyalty, awareness, et cetera. So a lot of effort is going in that direction to mitigate some of these external factors that is impacting our sales, and that has been quite positive. Aside from that, we are also seeing through platforms where things are measurable, such as e-commerce platforms, that the stickiness with the brand for our products in certain categories is improving significantly. Last but not the least, I think it is very important for us to a certain extent to de-seasonalize ourselves as a business, and hence the functional proposition is becoming exceptionally important for us. I think all along we have been very focused on fortification as a lever to be able to do it. We are also focusing significantly on probiotics. One of our variants of buttermilk is probiotic in nature and is growing pretty well, so that people consume it more for the functional benefits and not just seasonal reasons. Aside from that, protein is a huge, huge proposition for us, and dairy naturally is a great source of protein if R&D and packaging is done the right way and it is delivered to the consumer with a good amount of awareness. I am also happy to say that in the past quarter, we had launched Nourish+ Paneer, which is 60 grams protein paneer, a high-protein paneer, along with Nourish+ milk as well. The initial offtake has been very positive through new age e-commerce platforms. I think there are several levers that we are working on very consciously to sort of season-proof ourselves and to make ourselves a formidable brand, so we are less affected by external conditions. We are also putting in that effort and building awareness among our consumers. Thank you for that detailed answer. I would just like to have one follow-up in this that when we talk about the milk procurement, that we were not able to increase our milk procurement because of the industry problem that we are facing right now. I just wanted to understand since bulk commodity is not there right now on our balance sheet, so when we talk about value-added productions, will there be milk shortages that you expect in the coming quarters? Is there chances of that, or will we lose our sales because of that? Is that a possibility? No, that is not foreseen. We will find the sources of milk, and also we have enough SMP purchase and stored for meeting the requirements of next season. Perfect. Thank you so much. Thank you. Thank you very much. Ladies and gentlemen, that will be the last question for today. I now hand the conference over to Dr. Rao for the closing comments. Thank you, and over to you, sir. Thank you very much for your continued interest in Heritage. I am sure you got the essence of the quarter, and we look forward to meet you all soon for the next earnings call. Thank you again. Thank you, management members. On behalf of Heritage Foods Limited and Go India Advisors, that concludes this conference. Thank you for joining with us today, and you may now disconnect your lines.