Q4 23/24

May 31, 2024

Summary

FY24 operating income grew 17%, EBITDA 52% and net profit 84%; Q4 earnings accelerated. VAP growth and mix expansion are central to the longer-term 40% VAP contribution ambition.

Ladies and gentlemen, good day, and welcome to the Heritage Foods Q4 FY 2024 earnings conference call. As a reminder, all participant lines will be 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 the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this call is being recorded. I would now like to hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, Mr. Anuj. Thank you. Good evening, everybody, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the investor relations of Heritage Foods Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the fourth quarter and full year, financial year ending 2024. Before we begin, let me mention a quick cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now, let me introduce you to the management participating with us on today's earnings call and hand it over to them for opening remarks. We firstly have with us Mrs. N. Brahmani, Executive Director; Dr. Sambasiva Rao, President; Mr. Srideep Kesavan, Chief Executive Officer; Mr. A. Prabhakara Naidu, Chief Financial Officer; Mr. J. Samba Murthy, Chief Operating Officer; Mr. Upendra Pandey, CEO of Heritage NutriVet Limited; and Mr. Umakanta Barik, Company Secretary and Compliance Officer. Without any further delay, I request Dr. Sambasiva Rao to start with his opening remarks. Thank you, and over to you, sir. Thank you, Anuj. Good evening to everyone joining us today on this call. We are pleased to welcome you all to this earnings call for the quarter four and full year 2024. The financial results and earnings presentation have been uploaded already on the exchange list, and I hope you must have had a chance to look at them. We are pleased to inform you that Heritage Foods has reported robust growth in terms of earnings and profitability for the quarter, as well as for the full year. For the quarter four under review on a consolidated basis, the operating income was INR 951 crore, representing a growth of 16% year-on-year. EBITDA for the quarter was INR 70 crore, which grew by 68% year-on-year. EBITDA margins were at 7.39%. Net profit for the quarter was at INR 41 crores, representing a strong growth of 126% year-on-year, with PAT margins reported 4.26%. For the financial year ending 2024, our consolidated operating income grew by 17% year-on-year to INR 3,794 crores. EBITDA stood at INR 210 crores, representing a strong growth of 52%, with EBITDA margins improving to 5.52% as compared to 4.27% in the last financial year. Net profits for the year stood at INR 107 crores, which has seen a significant improvement of 84% on year-on-year basis, with PAT margins reported at 2.81%. Moving on to the operational performance. In the fourth quarter under review, milk procurement volume grew by 11.32% year-on-year to 1.59 million liters per day, while the average procurement prices dropped by 3.5 rupees per liter, that is 7.5%, to INR 41.7 per liter. Our milk sales volume experienced a steady growth of 3.74% year-on-year in quarter four to 1.11 million liters per day. While the average milk selling prices for the quarter rose by 1.78%, that is close to one rupee per liter, to INR 54.84 per liter. Value-added products registered a robust revenue growth of around 22% year-on-year in quarter four. We also had several new launches in quarter four. The products we launched include toned and skimmed milk in Tetra Pak under the brand name Farm Fresh and Lite Fit. A new ice cream variant, Vibez, launched during Valentine's Day. New variants of fresh milk, Gold and Super Gold, in Chennai. Flavored curd in two variants under brand name Shubh Meetha Dahi. We also expanded our distribution network further in quarter four by adding 432 milk distributors, 33 VAP distributors, and 11 fresh value-added product distributors. This expansion aims to improve product availability and reach a wider consumer base. For the financial year ending 2024, VAP witnessed a strong growth of 18.7% year-on-year basis. Value-added products contribution, including consumer packed ghee and butter, stood at 33.5% for the financial year 2024 and at 29.63% without ghee in consumer pack and butter in consumer pack. Coming to our subsidiary and joint venture, they also had a strong performance in financial year 2024, with Heritage Nutrivet, the wholly-owned subsidiary, reaching INR 160 crores in revenue in FY 2024, representing a growth of 50% year-on-year. Also a significant growth in bottom line from INR 1.6 crores to INR 7.4 crores, which represents a growth of 360% year-on-year. Our joint venture, Heritage Novandie Foods Private Limited, reduced the losses by INR 4 crores during the financial year from INR 17 crores to INR 13 crores. With this, we open the floor for question and answers and any interaction. Thank you. 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 the touchtone 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 afternoon and thanks for taking my question. Firstly, sir, on the milk procurement price. Now, there is a sharp reduction in this price this quarter, and the same is not yet visible in the selling milk prices, which usually follows with a lag. First of all, this milk procurement price reduction, is there something which is a one-off or this is more of a trend now because this was also expected in a way? If that is so, then do you expect some moderation in EBITDA margin then from the current level? It may still settle at a higher level, but just the fact that some of this may need to be passed on to consumers. Do you foresee that? Your thoughts here. Yeah. Thank you, Sameer. This is Srideep here. First of all, yes, we have seen milk prices drop in quarter four of the financial year. It is usually the case because quarter four is the end of a good flush season, and prices usually start to drop from November, December onwards, and it continues to drop. There is nothing unusual about it. In our opinion, this we have seen in all good flush years, except in the year before where we had an abnormal year. That is first, answering your question on why the drop happened. Second question, I think you are probably asking us if we will drop the consumer prices. No is the answer usually because the pricing up with a lag is a reality, but pricing down with a lag usually doesn't happen. We are not looking at any price reduction at this point in time. Third, the price drop, will it sustain? During the quarter one, usually the prices go up a tad bit depending on the availability of the milk, as we come off the flush season. We are seeing a little bit of prices climbing up a little bit, but I don't think that there is anything to worry because alongside that, we are also seeing the sales volumes increase and the value-added product contribution increase, as is usually the case in quarter one. We don't see anything abnormal happening at this point in time. Great, Srideep, thanks for that detailed answer. Second question is that I still see a large amount of fat sales this quarter, around INR 71 crores. Now, before there was the phenomena of bulk fat sales, this used to be a INR 30 crore-INR 40 crore quarterly number. Just a question here that, is it like your branded fat sales have gone up to that extent or there is still some element of bulk fat sales sitting in this quarter? Yes, Sameer. Srideep here. Yes, this quarter also we had bulk fat sale. But if you look at the quantities, while in quarter 2, we may have sold close to 2,000 tons. In quarter 3, that came down to 1,500, and quarter 4 was just about 1,000 tons. So the quantity has significantly come down. In fact, the closing stock of fats is now very much in our under control in the sense we have just about a month stock. So we do not anticipate any further bulk fat sales to happen. The sale of fat products on the consumer side has been steadily growing, while in quarter 1, we sold close to 560 tons. The same number in quarter 4 was close to 800 tons. So if you could note the trend on consumer side, the sales volume is growing steadily quarter on quarter, 560, 680, like that, eventually ending up with 800 odd tons in the quarter. Whereas in the commodity side, which is the bulk fat sale, has come down from 2,000 tons to 1,000 tons. And nearly we can say that it is now absolutely at- 800 tons. 800 tons is nothing. 800 tons is what we need for sales of consumer products. We are not carrying any bulk fat at this point in time. Just a follow-up here, Sri. This bulk fat, and correct me if I am wrong, this is usually sold at the existing fat prices with almost a zero gross margin. Is this understanding correct? It depends on when you accumulate it, at what price you accumulate it, and when you liquidate it. There is always- Assuming there is no price change during that time, would that be a fair understanding? Okay. If it is sold on the spot, you are absolutely right. You are bang on. But if you recall what happened early on in last financial year, the milk raw milk prices were very high in Q1. In fact, in Q4 of last financial year, the milk prices were very high. Last financial year, which is FY 2023, we exited with a good amount of bulk butter in hand, and that was held 2,000 tons of bulk butter in hand. That was, you can imagine at the peak raw milk prices. From then on, quarter on quarter the milk prices, raw milk prices, have come down steadily, which means that the butter was being sold always at a lower price than the accumulated price. That is the reason why the loss happened. But if it is a spot trade, you are right, that buying and selling would be at the same price. But that is not how usually it happens. There is a small lag. Got it. No, this was just for understanding. Yeah. Thanks. I will get back in the queue for info. Okay. Thanks. Thank you, sir. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. The next question is from the line of Kiran Kumar from Investwise. Please go ahead. Thanks for the opportunity. My question is on this milk growth, where we have grown 3.74% year-on-year. So majorly, which market had given us this growth? Is it overall all the geographies we operate, like Hyderabad? Hyderabad is our major area. Are other areas also contributed to this growth or only it is Hyderabad which we grew? Yeah, this is Somamurti. Milk, no sale volume has grown across all the markets. Growth is there all the market. Okay, not only in one market. Can you just tell me how much we grew in Hyderabad, which is our major market, which is a sustainable growth as I feel? Okay. While Mr. Somamurti gets that number, I do not agree with what you said that growth in Hyderabad is only sustainable. In fact, all the other markets are also equally sustainable. Our growth usually is higher in our- Yeah, sorry for my statement. What I meant was since we have the higher market share in Hyderabad, which gives you a better margin. I quoted in that sense, not in a different sense. It is Hyderabad also roughly the same growth, actually. My second question is on your future, means Q1. How are we trending in our sales, milk and other product sales? Is it like last year, I remember we had a bad season for our VAP products and all because of unseasonal rains, all those stuff. Is it better in this quarter or we are still experiencing the same? Sure. Do you want to know if we can answer later? We will answer later, Kiran. Okay. My last question is regarding butter provision. Did we exhaust our butter provisions which were made till Q3, or are we still carry forwarding some provisions in our books? Not yet, Kiran. One second. The butter provision around 4.5 crores we still carry. We have provided it. Okay. As on March 30. Yeah, that is all from my side. Thank you. Thank you. Thank you. The next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead. Yeah, thanks for the opportunity and congratulations for the great set of numbers. My first question was on the milk sales. We have seen a steady increase in the milk procurement over this financial year. But our milk sale has been in low single digit for the full year and most of the quarters. Our VAP sales have continued to grow pretty well in high double digits. Is it that the higher milk procurement is being directed towards VAP? Since those are higher margin products and milk sales growth will continue to lag the milk procurement numbers by a big margin. Yeah. Thank you, Ankit. This is Srideep here. Just to give you a sense of last four or five quarters trend of what has happened. In quarter one, we declared milk volumes de-growth of about 1.1%. In quarter two, volumes of milk grew at 0.8%. Quarter three was 2.3%. Quarter four was 3.8%. You can see that minus 1, plus 1, plus 2.3, plus 3.8. Which should give you confidence that the trajectory is good. The reason why it initially went to negative was because of raw milk procurement price increases. We had passed on close to about 11%-12% percentage price increase to the consumer. Whenever there is a significant price increase to the consumer, there is a little bit of a contraction of consumption. I am not sure, Ankit, if you had attended our previous investor con calls. We had mentioned that we had achieved the price increase partially through increase of MRP and partially through what we call as shrinkflation, which is basically reduction of grammage of the pack sizes. The number of packets that the consumer buys remains same, but the quantity purchased comes down a little bit. It is pretty much understandable when we take a price increase of 11%-12%, volume tapers a little bit. But the good news is that we have been able to turn it around and now the year has ended with a steady growth of about close to 4%. Now, specific question about difference in growth rates of value-added products and milk. One should understand that milk is largely organized. 40% of milk consumption in the country is in the organized sector and only the rest is unorganized. Hence, the growth that we see in milk is usually at the rate of population growth or growth of organization. Unless consumers start to drink a lot of milk, the consumption quantities increase. That is not the case as far as value-added products are concerned. Most of the value-added products are largely unorganized, and the momentum that we are able to get is because of the conversion from unorganized to organized, because we are able to provide highest quality products, because we are able to give consumers convenience, which they do not have with unorganized. For example, paneer, only 4% is organized. Curd, only 8% is organized. Naturally, value-added products will continue to have a higher growth rate, compared to milk. This you should expect going forward as well. That very well explains my questions. My second question was on, in the current quarter, given the kind of the heat wave which the entire country has experienced, how do you see the growth of VAPs, especially products like curd and ice cream in the quarter? What percentage of our total sales from VAP are we targeting for FY 2025? Yeah, Ankit, as we mentioned earlier, we are trying to defer discussions on current quarter to the next quarter. Sure. But any target that you can give for value-added product contribution for FY 2025? I think there is a lot of general opinions in the media from some of the leaders of cooperatives. I think you have a lot of information, but specifically to our company, we can't release at this point in time. But you can look at the past trends and understand what the potential could be. Sure. Thank you. Wish all the best. Thank you. The next question is on the line of Nirman from Unique PMS. Please go ahead. Sir, can you quantify the fat loss for the quarter? Do we expect any fat losses in the next year? Yeah, just hold on a minute. Sir, Vinod Bhakar here. Fat losses for the quarter. Quarter 4. Quarter 4, 13.4%. Both bulk and. Okay, sir. Do we expect this in the next year? What amount could it be? See, sir, this is Srideep here. Like we said, it is our intention to consistently bring the losses in fat quarter on quarter, and there are several strategies that we are working on to ensure it happens. First of all, the larger part of the loss is when we sell fat in bulk in commodities. Like I mentioned earlier in the call, currently the bulk fat that we are holding is very minimal. We do not expect too much of bulk fat sale to happen. Most of the sale should happen in consumer packs, which means that naturally, that will help us in reducing the losses, number one. Number two, we are also trying to reduce the time lag between accumulation and sales, which will also reduce what do you call the arbitrage, as far as the price systems are. Got it, sir. Secondly, we have seen a good uptick in the gross margins for the quarter. Can you elaborate what led to it and if this number is sustainable going forward? Sure. Thank you. I think specific numbers, I will request CFO, Mr. Prabhakara Naidu, to give. But on a very high level, one, the fat losses came down in Q4, and secondly, we had the benefit of raw milk price reduction, which happened in Q4. We also had the advantage of low-priced SMP that we use. Yeah. You will also see that the value-added products growth had gone up at around 22%. All of these help, and specific numbers may be different. Gross margin for Q4 is at 23.34%. Yeah. At 20.09. So his question is why. So Yeah. The raw milk prices, we have already indicated that it has come down. I think it is there in the investor note. The second thing is SMP. Whatever we have consumed is also at a lower price compared to because of All benefited because of the milk prices coming down. N. Brahmani here. Just to expand a little bit upon gross margins. Our intention as a company is to stabilize, if not improve margins. Hello? Hello? Pram, we are unable to hear you, ma'am. I guess there's a signal issue. Maybe she'll come back. Hello? Can you hear me now? Yes, Pram. Please. Yes. Yeah. Sorry about that. I had a connection issue. What I was trying to say is that we have displayed in our results also stability or improvement of gross margins over the last eight quarters, through a combination of different initiatives, as CEO Srideep had mentioned, focus on value-added products, better procurement mix, and more focus on growth of these higher margin products and also improvement in the increase in sale of consumer packed fat versus bulk fat. I think that's something we can expect going forward, a focus on stable and growing gross margins. Yeah. Thank you. My third question is just related to the JV. We've seen reduction in losses, but we've still provided an impairment of about INR 16 crore-INR 17 crore this year. Can you talk about that? You see, as per accounting standard, actually, when there are indications when company is continuously incurring the losses, we need to test it for impairment. We have appointed external consultant for valuing the company. We applied a DCF method. Based on the valuation before trying our carrying amount of investment in standalone financial statements, we are supposed to provide actually the higher of the carrying amounts more than the value, our share of value of the JV. That has been provided as of now. Okay, but then we- Sorry to interrupt, sir. Yeah, I'll get back on that. Yeah. Thank you. Yeah, just to add one point. It is true the losses have come down and business building is happening on a rapid pace by expanding the channels and outlets, markets, et cetera. But to present the true and fair situation of the company's assets value, investment value, it was recommended by our consultant to have impairment noted. So that has been carried through so that the health of the company is clearly reflected for the years to come. Thank you. The next question is from the line of Rohit from Samatva Investments. Please go ahead. Good evening, sir. Thank you for the opportunity. My first question is on the JV only. I just want to know what is the plan for the JV, right? The losses have decreased, I get it. But what is the plan next two, three years in terms of revenue growth, in terms of market reach, and by when do you see it breaking even, if your thoughts on that? Yeah, sure. Thank you. It is a single product category company which started focusing on yogurts in different forms, liquid, stirred, fruit, flavor, et cetera. We had an initial setback when the business commenced because of the COVID. This company was ready to commission at the onset of COVID. So two years, we couldn't place the products in the markets because of the physical constraints of reaching, et cetera. So we lost valuable time for the first two years after commissioning the business. But subsequently, it picked up. The volumes are growing. There was some issue in terms of reaching out long distance markets because of the cold chain requirements. Now all the requirements have been fulfilled. The business is picking up. We estimate another two financial years, including current year, to achieve breakeven as per the current movement of the business. That is FY 2026, we can see business in a very healthy state. We even trying to expand the product portfolio so that the volumes can come faster. It is a well-accepted high quality niche product. The only question of building volumes, how rapidly we can build to absorb the overheads and other costs. Got it. What have been the revenues for the last two years for the Repeat. Revenue is small. It is about INR 6 crores, INR 7 crores, INR 8 crores kind of thing. Got it. Sir, my second question would be, could you give me the number for curd sales FY 2024 and FY 2023? Both, yeah. Volume. Volume. Revenue. Revenue. Revenue. Revenue growth is about INR 820 crores, right? Full year. Yeah. It is close to about INR 820 crores, and which is growing at a rate of 16%. FY 2023 to FY 2024 it has grown 16%. That is right. Okay. Sir, my last question would be on the ice cream part. This year we have done around 70-80 odd crores. In terms of scale, there is a very big opportunity in ice cream. The next 3-4 years, how big can this segment be for us? Yeah, this is Srideep here. Ice cream is a category which is seeing a Every single value-added product category is growing, and our intention is to keep the growth ahead of the industry. Our understanding is that ice cream as an industry is growing at the rate of about 16%-18%. For us, this year we have grown at 38%, which I think, okay, fine. You asked me why did not we grow 40% or 50%, of course, it can be much better than this. It is our intention, if I could just give you the comfort that we intend to grow much faster than the industry. At this point in time, we are growing at double the rate of the industry because the size of the business, like you mentioned, is still small. Understood. Great, sir. Thank you so much, and wishing you all the very best. Thank you. Thank you. Thank you. The next question is from the line of Dhaval Dhama from DVD Capital. Please go ahead. Yeah. Hello, sir. Sir, my first question is, you have come a long way in terms of value-added products being 25%, 26% of the revenue, to now north of 33%, 34% of the revenue. In your mind, what is a sustainable number in terms of, let us say, what is your ambition when you talk about INR 6,000 crore revenue? What number can VAP be? Will it peak out at 35% odd or even 35%, 38% or 40% is possible? Just wanted your sense on that. Thanks for the question. INR 6,000 crore is the ambition that we have as far as revenue is concerned. In the same breath, we have mentioned that we want to have 40% of that revenue coming through value-added products. So we are sticking to a same number, which means that, internally for me, my effort is to ensure that 2.5% to 3% improvement happens every year. Which means that in 3 or 4 years' time, when we get to the INR 6,000 crore, we should be able to get to the 40% as well. Sure, sir. Sir, my second question is regarding sustainable margins. You have always mentioned that your margins in VAP are significantly higher than what it is in milk. When you say that, and the journey that we have traveled from 25%, 27% to 33%, 34%, and you want to take it to 40%, and obviously there will be some operating leverage. On a sustainable basis, as a company, from where we were, do we see at least 2, 3 percentage points higher margin as a, not quarter to quarter or even year to year. But I am saying on a sustainable path basis, do we see us becoming an 8%, 10% margin company over a longer term when this VAP goes to 35%, 38%? Yeah. This is Srideep here. See, this is all a little speculative and little bit of arithmetic, yeah. But what we know for sure is that in a sustainable long-term basis, value-added products will always have higher margins compared to milk, right? Primarily because by very fact that it is a value-added product means that consumer will pay a higher price, and we should be able to make higher margins in that. Now, the rest is you can do arithmetic. At some point in time, the gap between milk and value-added product was 5% to 6%. At this point in time, the gap has come down a little bit because we have taken up prices of milk quite a bit. So milk is actually now pretty much profitable for us. So the gap between milk and value-added product has reduced, and it is only now 2.5% or so. But still, value-added product will always give you a higher return compared to milk. So in our opinion, if currently we are at around 29.6% of value-added product without ghee and butter. The reason why we gave two numbers is that internally, we keep value-added products report without ghee and butter, because the margin profile of ghee and butter is different from the rest of the value-added products. So whenever I say that the value-added products return higher margins compared to milk, I am talking about value-added products other than ghee and butter. So the value-added product contribution today, other than ghee and butter, is 29.6%, and including ghee and butter, it is 33.5%. So that 29.6% is what we hope and aim to take to 40%. And that 10% swing should definitely help us improve the profit profile of the company as the bucket moves from, let's say, 5% or 6% EBITDA to about 11% to 12% EBITDA bucket. Sure, sir. And my last question is regarding CapEx. What will be your CapEx for this year and next? CapEx for the financial year completed was INR 136 crores. That is FY 2024. FY 2025 current year, we are planning around INR 150 crores. Sure, sir. Best of luck, and congratulations again. Thank you very much. Thank you. Thank you. The next question is from the line of Resha Mehta from GreenEdge Wealth. Please go ahead. Thank you. Congratulations on a very strong set of numbers, especially on the profitability side. My first question is on the growth rate. Last financial year, we have seen a high teen kind of a growth rate. Even in Q4, we saw that the growth rate kind of tempered a little bit at 16% versus 20% in Q2 and Q3. Now that we are cycling such a high base, do we see any moderation in our growth rate? Let's say going ahead, could this number from high teen go to a low teen kind of a number or any thoughts around that? Also, sir, this growth that we are targeting, are we confident of achieving the related procurement growth as well? That's the first question. Yeah. Thank you, Resha. This is Srideep here. Fortunately, we are in a very attractive industry, and this attractive industry is sitting in a very attractive country. That's possibly what our biggest strength is, right? The country GDP is expected to grow at 7.5%, 8%. In that, dairy industry, dairy sector is supposed to grow or expected to grow faster than that, right? All estimates given by experts all talk about 11%-13% kind of industry growth rate. Our intention is to continue to gain share and grow at a differential rate to our peer group. If you compare our growth rate with any of our competitors, you can see that we are a tad above them, which means that if industry is growing at 11%-13%, then we should aim to grow in high teens. We should continue to grow there. Right? I can give you the comfort of statement that we have and our determination to make it happen. The procurement Right. You know the procurement there? Yeah. This year we have grown our procurement in line with our milk market milk requirement. Every year, it's a steady work that we do. Every month, we open about 150 odd village level collection centers, which means that in a year, we open about close to 2,000 village level collection centers. And each village level collection center picks up close to about 180 to 200 liters of milk, which means that every month our procurement is growing in line with our milk requirement or milk demand. This is a lot of hard work, but I do not see any challenge or disruption in this journey. Right. The second one is on the margins. Again, a two-part question here. The first thing, milk prices have been largely subdued for the last 18 months, right? And while you did mention that, in Q1 they may inch up because of the seasonality factor, but otherwise they have been largely subdued for the last 18. In the past cycles, what we have seen is that whenever milk prices remain subdued for a very long time, the farmers, their behavior changes and they tend to ignore their animal health, which eventually leads to drop in productivity and then again milk inflation cycle. So, how are you reading things on the ground in terms of farmer behavior? And how do you see the milk prices shaping up, both from a long-term perspective? Yeah, Resha, this is Srideep here again. It's a very excellent question and very difficult question to answer because we are talking about large numbers and India is the largest producer of milk, with 6 to 8 crore people involved in it. So it's very difficult to predict. But if I could just call out a few things which could be in our favor, at least in the near short term. First of all, even when the prices have come down, you could say that it is just a bit lower than its peak, and it has not crashed. So the prices have come down, for example, in the last quarter by 7 odd percent. But it is still considerably a bit or higher than, let's say, Q3 of the previous financial year. Which means that as far as the farmer remuneration is concerned, it went up quite a bit, and it has settled down to a sustainable price, is the way I'll put it. So at this point in time, I believe that the producer is happy. Companies like us, we are able to make money, and we are able to give the consumers products at affordable prices. So the equation is actually very well-balanced at this point in time, and which is the reason why there is stability for the last many months. And we are hoping that the stability sustains for some time. But surely, external disturbances and disruptions can happen. But at this point in time, the prices that we are paying to our farmers is quite sustainable on both sides. You are not seeing in the markets where you procure that farmers have started neglecting animal health or anything of that sort, right? No, such things would be seen on news as well. We are not seeing anything. At this point in time, everything is very stable, touch wood. Right. Lastly, on the EBITDA margins, just a quantitative data point question here. If you could call out the EBITDA margins for liquid milk and VAP in Q4, and also for the full year. Also, have you taken any blended price hike in VAP in Q4? I will answer the second question. We have had market mix changes because of which the prices have changed. You will say that the net realization weighted average. Sorry. Blended average. Blended average. Yeah, blended average would have changed, but we have not taken any price increase as such. Okay, so for- Ma'am. In our FY 2024. May we request that you return to the- Resha, to your first question, I think CFO is answering. Good afternoon, ma'am. This is Srideep. For Q4, milk margin is 8.97%, and the VAP margin is 10.48%. For the full year? For the full year, milk margin 6.34%, VAP 9.75%. Right. Just a clarification. Sorry. No price hikes have been taken. Ma'am, may we request that you return to the question queue? There are several participants waiting for their turn, please. Thank you. Thank you. Ladies and gentlemen, in the interest of time and fairness to all participants, may we request that you limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. The next question is from the line of Sanika from Sapphire Capital. Please go ahead. Hello. Hi. Am I audible? Yes, ma'am. We would request you to please use your handset. Okay. Since you said that we are targeting the hike in growth, what kind of growth are you looking from the value side, and what kind of growth are we looking from the volume perspective? Yeah. This is Srideep here again. Sanika, this year, because the raw milk prices have stabilized, we are not expecting a lot of price increase to happen on the consumer side. So a large percentage of the growth will have to be driven through volume growth. That is what we foresee. Okay. I hope I have answered your question. Yeah. So like this 15%-20% growth, can we expect this kind of growth on a year-on-year basis going in quarter one and kind of 7.5%-8% EBITDA margin? For volumes growth, we have been delivering the level of volume growth and value-added products for some time. Milk is a product category where we need to accelerate the growth as well, and that also is an upward trend. There is a lot of work that we are doing both on distribution side as well as on the consumer side to make sure this happens. For example, you have seen in the report itself that we have added close to 400 plus distributors in the quarter, which is going to help us in quarter 1 and beyond. We are continually expanding our presence in the market through distribution initiatives. We have added tens of thousands of retail outlets. We have entered new channels of distribution. For example, in Tamil Nadu, we have opened several new towns where we were not present earlier. That is a continuous work that we are doing. On the consumer side, we are investing now consistently on the marketing side to create consumer demand, and that is also helping us drive differential offtake from the stores compared to our competitors. We are gaining market share as well at the same time. It is a combination of these which should help us continue the growth journey. Okay. Thank you, sir. Thank you. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead. Hi. Thanks for taking a follow-up. Just wanted some color on the current state mix in terms of sales. If exact data you cannot give, any flavor that you can share, it will also be great. This is for FY 2024 I am asking. Yes, Sameer, you are quite anxious to know, but we are also trying to be disciplined. I understand, sir. Our compliance officer is sitting next to us. Any flavor will also be helpful, sir. Just wanted to understand. It's been some time since we I can tell you that our core markets are growing at healthy numbers, and our non-core markets or frontier markets, which is all the developing markets, are growing much faster. That's all I can say at this point in time. It's a healthy mix at this point in time. Just a follow-up there. Any new states you might have entered in the last two years? This quarter, in the note we had mentioned that we have entered Odisha. Odisha is a market that we entered in this quarter 4 of FY 2024. Great, sir. I will probably take this offline then. Thanks. Thank you. Thank you. The next question is from the line of Govind Lal Gilada, who is an investor. Please go ahead. Good evening, sir. Thanks for the opportunity. I have got only one question, sir. Few days back, exactly on 28th, there was a webinar organized by CRISIL. In that, one of our official, I do not remember name, was represented in this webinar. Yes. So- Represented CRISIL? Hello? Please go ahead. Yes, please. There was a statement from one of our representatives who has represented in this CRISIL webinar that this year, dairy is at a growth story of decades. I want to just Can you elaborate on that decade of dairy growth story? Some elaboration can you give on this first? Sure. I don't remember who had a question last. Yes. I think that is a figure of speech. The idea is that this is what I was just saying sometime back, that India is expected to have a continued consistent GDP growth for next many years to come, and we are growing at a rate of 6% to 7%. Which means that if the economy is growing at that rate, then dairy industry is expected to grow faster. Here are the reasons why. Number one, large percentage of dairy sector is still unorganized. In fact, close to about 55% of the dairy sector is still unorganized. There is a constant shift that we are seeing from unorganized to organized. I had mentioned this answering to another question earlier. For example, products such as curd, it's only 8% to 9% which is organized. Ghee, only 18% is organized. Paneer, 4% is organized. Even milk, only 40% is organized. The shift from unorganized to organized is what is helping dairy grow faster than the economic growth of the country. Secondly, the consumers are becoming more and more health conscious. In India, 40% of consumers are vegetarian. The primary source of nutrition or protein for most of these consumers is milk or milk products, which means that actually, we are seeing that in India, the protein consumption still is way below the requirement. That is another thing which is going to drive growth of dairy products. The third reason is that dairy is very versatile. See, unlike any other food category or any other FMCG category, which only plays in one opportunity or one occasion, dairy plays across many occasions, from the morning tea or coffee till lunch or dinner, even snacks, even sweets. Sweets, organized sweets, is a fast-growing category. Ice cream is a very fast-growing category. Everything is made from dairy. The number of occasions that you count in a day you can have with dairy is enormous. Even ghee, which is a cooking medium, butter. It's boundless. Which is the reason why I think there was a general opinion that we are going to witness a very fast-paced growth in the dairy sector. Yeah. Thank you very much, sir. This is helpful. Thank you. The next question is from Thank you. the line of Krutika from Sharekhan by BNP Paribas. Please go ahead. Thank you, sir, for the opportunity. Just one confirmation. We said that the Q4 fat losses are INR 14 crores. So for the full year, they were INR 47 crores. Am I right? INR 14 crores. The second part, I could not hear you. Sorry. Bulk fat losses for the Q4, it was INR 14 crores. So for the full year, was it INR 47 crores, if I am right? Around INR 45 crores-INR 47 crores? INR 49 crores. Okay. Excluding the bulk fats, our margin for the year, would that be around 6.8%? Is that calculation correct? You said it is 5.5%. If we exclude these losses Krutika, this is Srideep here. Yeah. Bulk fats contributed close to around one percentage of the loss. Okay? Okay. It is slightly above 1.1%. Okay. So if you look at the margins without the bulk fats, then you can add that back. Okay, sure, sir. Also, sir, regarding the fat, what we are expecting for FY 2025. Are we expecting that the fat products sales will likely to decline because we have shown a very strong growth in FY 2024. For FY 2025, what are we expecting? Impact on the sale? Yeah. Revenues from the fat products, sir. Your question is on revenues or on volumes? Revenue. Yes. That is something that we are aware of. Hence, our intention is to continue to drive growth in the core categories where we are focused on, like whether it is curd, paneer, flavored milk shakes, ghee, cheese, milk, primarily. These are all the core categories that we are trying to continue to drive and sustain the growth rate that we expect. Okay. Sir, the last question. What will be the VAP volume for Q4 and for FY 2024? VAP volume growth for Q4 and for the full year. Volume growth VAP, it is about 20%. Okay. And value growth, 20% in Q4. And full year, it is 13% growth in volume and 19% growth in revenue. Okay. Sure, sir. That is it from my side. Thank you. Thank you. Thank you. The next question is from the line of Dhanil Desai from Turtle Capital. Please go ahead. Hi, Srideep and everyone, good afternoon. Am I audible? Yes, sir, please go ahead. Yes, sir. So Srideep, my first question is, I think we have been having discussion around fat losses or gain. And I think you have explained in earlier calls and interactions that it's very peculiar for every company to have very different profiles on that. And we are working on three or four initiatives to ensure that over a period of time, this fat loss or gain part is minimized. So can you update on that, whether it is introduction of kada milk or selling more butter and ghee or changing the milk buffalo and cow mix? If you can update on that and any timeline where we would be able to move away from these fluctuations on the fat side of it. Thank you, Dhanil. Actually, I am very pleased and surprised that you remember exactly the conversation that we had and the points that we discussed. Yes. There are three interventions that we can have. One is on the supply side, right? Supply side intervention is the shift of the proportion from buffalo milk more towards cow milk, which actually reduces the incoming fat into the company. We have actually made good progress on that in this financial year. Actually, when we closed, the contribution of cow milk has increased by 3%. Right? That is something that is significant, when we are procuring 15.5 lakh liters per day. The 3% is something that really makes a big impact over a period in time. You should realize that the fat difference between cow and buffalo milk is close to 2.5%, 2.5% to 3%. That's the first initiative. That's something that we have been working on for some time and it's yielding results. The second, I am not sure if you have received the investor presentation. In the presentation itself, we have shown that we have launched so many products which is higher fat products, which is helping us take the incoming fat out into the market. In addition, we are also growing our ghee sales steadily. Ghee and butter, which is in the consumer side. This is something that is growing steadily, and I called out some numbers earlier, that from 500, 600 tons per quarter, now it is 800, 900 tons per quarter. These are all the initiatives that we are taking to ensure that over a period in time, we tide over and we do not have this problem. Okay. Second question. Whatever our aspiration is of reaching let's say INR 6,000 crore number over a period of time. Are we factoring in growth in the existing states or it's also considering meaningful entry into newer states? If you can talk a bit about that. Yeah. It will be a mix of all. We will continue to, like I mentioned, we just entered Odisha market. So we are looking at adjacencies, both geographic as well as state, entering into a new state. But we are also looking at entering into newer markets in existing states, which is, India is so huge. So we are now expanding our reach into tier 1 cities, tier 2 cities, which is where we are seeing a lot of growth as well. So the geographic expansion definitely is in place, it's part of the plan, as well as going deeper in the existing geographies and cities where we are operating. Okay. But the larger part of growth will come from the existing geographies getting denser. Is that how you look at it? Yeah, you could say that. Okay. Got it. Yeah, that's it from my side. Thank you. All the best. Thank you. The next question is from the line of Aditya from Securities Investment Management. Please go ahead. Hi, sir. Thanks for the opportunity. My first question is on our inventory. So in this year, our inventory has reduced considerably. While if I look at your other two south-based players, they have almost doubled their inventory. They are talking about taking advantage of the low-cost milk situation which we are currently witnessing. What is our strategy on inventory, if you could elaborate? Yeah. Our inventory on butter has been much lower than the last years. That is to our advantage, we visualize. The other inventory of milk powder, value is low because the price is lower. Per ton price is lower this year significantly. The quantity required for our internal consumption is available. We are comfortable with the inventory buildup we have for company's requirements. We do not have any surplus inventory which we have to sell out in terms of butter, in terms of SMP. Just to add. Previously also we mentioned, I think it was in Q2 call, we had mentioned that we do not do speculative trades. We do not do that. We are not speculating and buying. Last year also, we bought enough to cover us till December, the SMP. This year also, it is exactly the same. Sir, but as a strategy, do not you want to take the advantage of these low prices which we are currently witnessing? Because Q1 or Q2, when the prices increase, you could take advantage of this low-cost inventory which the other players are doing, instead of buying from spot. It's a good question. At this point in time, monsoon is very good. We are expecting the milk production to be very good. If that happens, then it's a double-edged weapon. It can go either way. We chose not to do speculation. With good production, prices could come down further. We don't want to comment on that. The point is that, as you're investing in our company, I would like to assure you that we won't give speculative surprises. We're trying to build the business on a more robust, predictable model. Understood, sir. Sir, generally in Q1, we see a spike in prices, in milk procurement prices. Have we seen a similar spike this year or the increase has been very limited in the procurement prices? Secondly, this year, how is the cow flush progressing for us this year? As we discussed earlier, Q1 discussion we'll have next time please. No, sir. The procurement prices in APMC, how are they been trending as compared to Q4? The prices are stable. But in Q1, always there is a little bit of price increase which happens. So we are witnessing that. Nothing out of the ordinary. Yeah. Understood. Okay. Thank you, sir, for answering questions. Thank you. Thank you. Ladies and gentlemen, that is the last question for today. I would now like to hand the conference over to Dr. Rao for closing comments. Thank you all for participating in this earnings call today. I hope we were able to answer your questions satisfactorily and at the same time offer insights into our business. If you have any further questions or would like to know more about the company, please reach out to our investor relations managers at Valorem Advisors. Thank you. Thank you. On behalf of Heritage Foods Limited