Q3 23/24

Jan 31, 2024

Summary

Q3 revenue rose 20% YoY and net profit 96%, supported by VAP growth and softer milk costs. Bulk-fat disposals caused INR 15.5 crore of Q3 losses; management expects steady growth and is pursuing VAP pricing and mix improvements.

Ladies and gentlemen, good day and welcome to the Heritage Foods Q3 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 this conference call, please signal an operator by pressing * then 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal. Thank you, and over to you, Mr. Sonpal. Thank you. Good morning, everyone. 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 third quarter and 9 months ended of financial year 2024. Before we begin, let me mention a short 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. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We firstly have with us Mrs. N. Brahmani, Executive Director; Dr. M. Sambasiva Rao, President; Mr. Srideep M 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 Mr. President, Dr. M. Sambasiva Rao, to make his opening remarks. Thank you, and over to you, sir. Thank you, Anuj. Good morning to everyone joining us today on this call. We are pleased to welcome you all to this earnings call for the third quarter and 9 months ended for the financial year 2024. The financial results and earnings presentation have been uploaded on the exchanges, and I hope you must have had a chance to look at them. Let me take you through the financial performance on a consolidated basis, followed by the operational highlights. For the third quarter under review, Heritage Foods registered a revenue of INR 941 crores, representing a growth of 20% year-on-year. This was driven by strong volume growth in value-added products due to higher rate of consumer acquisition and retention, continued market expansion, and availability improvement. EBITDA for the quarter was INR 52 crores, which grew by around 60% year-on-year. EBITDA margins were reported at 5.52%, which is an improvement of 70 basis points compared to Q2 of this year, as we were able to take advantage of a good flush season accompanied by softening of raw milk prices. Similarly, net profit for the quarter was INR 27 crore, which grew by 96% year-on-year, with PAT margins reported at 2.86%. For the nine months ended for the financial year 2024, our revenues grew by 17% year-on-year to INR 2,843 crore. EBITDA was INR 139 crore, representing a strong growth of 45%, with EBITDA margins improving to 4.9%. Net profit for the nine months was INR 66 crore, which has seen a significant improvement of 65% on year-on-year basis, with PAT margins improving to 2.32%. Now, moving on to the operational performance. Our milk volume sales registered an improving trend of year-on-year growth, with volumes growing by 25,000 liters per day, which is 2.32% over the previous year same period. The consumer price increases we took in Q1 and Q2 resulted in average milk selling price increase of INR 2.71 per liter, taking it to INR 55 per liter in this quarter. In terms of milk procurement, we continued our strong growth with a 14.3% year-on-year growth, reaching an average of 1.63 million liters per day. The average milk procurement prices reduced by INR 0.57 per liter to INR 43.09 per liter in this period. The Value Added Products portfolio continued on its strong growth momentum of 23% year-on-year, amounting to INR 245 crore with a growth across all product clusters. The overall contribution of Value Added Products to our revenues stood at 26.5% for the quarter. To further boost milk sales and revenue, we introduced new variants of Super Gold, a mid-high fat variant; and Gaadha Doodh, a mid-fat variant. Now, we open the floor for question and answer session. Thank you. Thank you very much. We now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and 1 to ask the question. 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. Just one, actually. I see there is still a large component of fat sales in this quarter, and last quarter there was an indication that large part of our bulk fat, which was procured in the previous flush season, has been liquidated. Just wondering if this is a new normal wherein our fat percentage in overall sales has actually increased now for the next few years. Also if you could help me with the element of fat losses which have been booked in Q3 and also year-to-date. Thank you, Sameer, for that question. On the specific usage of the word new normal, I wouldn't use that word at all. We had a very strong flush season, which has resulted in milk procurement growth, which has been very strong for us. That resulted, which means that the milk procurement has grown much faster than the sales volume growth, and that has resulted in bulk fat accumulation. As a policy of the company, we do not take a speculative view, and we have liquidated the fat at market prices. That does not mean it will remain like that forever, because the moment we come off the flush, the milk procurement will normalize and it will match with our sales volumes and the return to normal would happen. In terms of the specific question on the losses that are specific to bulk fat disposal, this quarter, we had INR 15.5 crores of losses on account of bulk fat disposal, which is roughly about 2% of our earnings. So without bulk fat disposal, you can presume that our EBITDA and profit margin would have been 2% higher. Sir, just a clarification on this. This is basically when you are assuming that the gross margin is zero on this product because if you are buying and selling in the same quarter, I am assuming there is not going to be a lot of price fluctuation in the buying price and selling price. There won't be much price fluctuations, but there is always a price difference. The reason is that the price at which you will sell a commodity is not the same as the price at which you sell a branded consumer product. So our realizations in consumer product sale is much higher compared to our commodity sale. Especially in a flush season where there is a lot of fat available, which is bulk butter available in the market, obviously, the prices also would be softer, but we would rather not take a speculative view and liquidate it and keep our inventory clean than speculate and keep it for the future. I hope you appreciate that. Just one follow-up, sir. So when you say INR 15.5 crore losses, basically this is more of an accounting allocation rather than actual losses. Is that understanding correct? No, we have actually sold this butter. Actual loss. Actual loss. Got it. We do not have this butter anymore. Our inventory is clean. You can look at the Got it, sir. That's all from me. Thanks. Thank you. Next question is from the line of Vandit Dharamshi from Alpha Investco. Please go ahead. Congratulations on a great set of numbers. I have two, three questions. One to start with, if you can speak about how do you intend to scale up the Heritage TUCH app? I think we have that app, and a lot of other competitors are really scaling up their app delivery-based subscription-based model. So we as a company, do we intend to focus on Heritage TUCH app, per se? Or how do we see that going forward? That's the first question. Sure. We have had great learning in working with Heritage TUCH app. While it was an amazing tool in terms of creating a direct-to-consumer connect as well as building subscription base, what we also realized was there is a plethora of mobile applications that are there, and a large number of consumers were uninstalling this. So we figured out a better and more effective way of building a direct-to-commerce business. We are at the early stage of doing this, and this is leveraging the WhatsApp commerce model. We are at very early stage on this. We have done a very successful pilot in Bangalore, and now we are extending that in Hyderabad and many other markets. We already have more than 1,000 plus subscriptions that we have acquired through this, and we intend to scale it manifold. Okay. If you can just speak more about the WhatsApp commerce model in terms of how are we reaching to the customer, what will be the customer acquisition cost, if any? Yeah. The customer acquisition cost roughly will be around INR 400. The model that we have implemented has got a very high retention rate. It's upwards of 98%, which means that it's actually a very profitable model for us. But like I said, we have just done some pilots and we are in the process of scaling up. WhatsApp is an app I hope that nobody will uninstall from the phone. That's far more sure way of reaching a direct consumer compared to our own application. Understood, sir. And second question, sir, if you can speak about how are we placing ourselves in the modern trade channel. I think last time when we spoke, we did around 10% of our sales from modern trade channel. So this quarter, what is the sales number, and how do we place ourselves? Because I think in few states, I think our products were not available when I happened to check. So in the state of Tamil Nadu, to say so, but how are we placing ourselves, sir, in modern trade channel? Yeah. So I presume when you say modern trade, you mean to say e-commerce and modern trade, right? No. We've never spoken about. Roughly our contribution is about 11% from e-commerce and modern trade in terms of revenue, and the mix would be different in different states, like you rightly said. It will be slightly higher in our core markets, it will be slightly lower in other markets. But the good news is that in every market that we are present, including Maharashtra and Delhi, NCR, we are growing our presence in modern trade channels, including even Tamil Nadu also. In the last one quarter, we have made significant progress in terms of rest of Tamil Nadu. Chennai, we always had a good presence in modern trade channels, but in rest of Tamil Nadu also, we have deepened our presence, and this will only continue to improve. Okay, sir. Last question from my end. It's a bookkeeping question. If you can just give a state-wise revenue split for this quarter versus last year. It's more or less same. Like last year to this year, there's no change. We are sharing this on a one-to-one basis. We can perhaps get back to you. Okay, sir. Thank you so much. Best of luck. Okay. Thank you. Thank you. Next question is from the line of Mitanshi from Abacus Asset Managers. Please go ahead. Hi, am I audible? Yes, ma'am. You are. Okay. Hi. Sir, I was just wondering, is the promoter looking to sell stake in the company? I don't know why you have the impression. This is Brahmani Nara here, Executive Director. As a promoter family, we are tied to the company, and in fact, given the availability of resources, et cetera, if anything, it would be the opposite- Okay as a promoter family. Okay. Thank you so much. Thank you. Next question is from the line of Resha Mehta from GreenEdge Wealth Services. Please go ahead. Yes, sir. Thank you. So, one is again on the fat losses. So for 9 months total, we have booked around INR 27 crores of fat losses. Is that number correct, or is that a little bit on the higher side? It is close to INR 33 crores. It is INR 32.62 crores. You may recall during the last quarter, I had said about INR 17.5 crores, and this quarter is about INR 15.5, so roughly around INR 33. INR 33. And how much more are we looking at from a Q4 standpoint? Any directional sense? Yeah. Resha, last quarter itself, we explained the principle in which we do. If the incoming fat is more than the outgoing fat, what we are doing is that we are keeping only 2 months of stock, whatever is required for our current business or current quarter operations, and the rest we are liquidating at spot prices. Because the prices could go up or go down. As far as investors are concerned, this is a far cleaner model because this is more, what you call it, there's no speculation involved, right? It's a more predictable model. Going by the same principle, at this point in time, we are holding only about 2 months of stock, which means it's not like we are sitting on a stock that we need to liquidate at a price or something like that. We are coming off the flush, so basically by about mid of February, the flush, the volumes would come down, and we've already seen that coming down, which means that the input and output should more or less match, which means that the surplus that we generate, which will come down, and it's already coming down. So it's a gradual process, and this happens every year. Last year, we may not have seen this because we did not have flush, and the contrary of not having a flush was that the raw milk prices had shot up. This year, even though we had the problem of a surplus fat, the good news is that the raw milk prices came down, which actually helped despite the losses that we had to book in the bulk fat sale, we were able to improve our margins. There's also something that I'd like to talk about, that our consumer pack sale of fat products, whether it is ghee or table butter, are all registering strong growth. For example, table butter for us is growing at 60%, ghee is growing at about 25%, 26%. So which means that as we grow our consumer pack sale, over a period in time, we'll be on net deficit as far as fats are concerned. Over a long period in time, that's how we intend to solve this problem. Understood. So 2 months stock is what you all are working with. Fair. The second question is basically on value-added products is something that has been driving our top-line growth as well. Right? We've done very well on the top-line growth, right? Over the last several quarters. Right? But value-added products, clearly the margins were just a tad bit higher, like 250, 300 bps higher versus the liquid milk, like at around 8 odd percent or so. Right? While ideally they are supposed to be double of liquid milk products, but we had the strategy of driving top-line growth for value-added products. Can we see a scenario now that maybe let's say instead of growing a 20% top line, why not we grow at let's say 15%, but with the aim of trying to get higher margins to the tune of, let's say, 7% odd or so, and maybe value-added product margins going up will be a contributor to the overall company margin. What are your thoughts on basically this balance between top-line growth and margins? Risha, I think we have had this discussion when we met previously also. We are working towards the interest of long-term shareholders. When we think about long-term shareholder wealth creation, we have to build a robust business model that will deliver consistently and predictably over a longer period in time. If I look at value-added products, while 23% is the revenue growth that you are seeing, 19% of that has come on account of volume growth. 19%. That is quite significant volume growth that we have been able to register on value-added products in Q3. Only 4% has come on account of prices. We could have increased the prices in line with, whereas in milk, we have increased prices by about 8.5%. If we had taken value-added products prices along the same line as milk and taken it up to 8.5%, my volume growth would have come down. What is sustainable for the company is that today I have got a much wider consumer base than I had in the same period last year. I have experience and we have data that shows us that we have got a much higher consumer retention, the frequency of purchase of our products across many of the channels wherever we are able to procure data, especially from the modern trade channels and all that, we are happy with the frequency of purchase has gone up. We have gained market share, a significant market share gains for our value-added products in cities like Bangalore and Chennai. These are all things that we can always encash at any point in time. I also understand, we are more focused on market share versus the bottom line, at least as far as value-added products are concerned. On the flip side, how do we think about, let's say when you actually want to start focusing on bottom line on value-added products, and increase the prices of value-added products in line with the industry, how would the consumers react? Because they have been used to, let's say maybe a slightly discounted value-added product from Heritage versus the market, or is my understanding not correct here? Oh, no, sorry. The understanding is slightly wrong. We are only comparing ourselves to ourselves. When I said 4.5%, 4% price increase, we are talking about our prices compared to last year same period. In any market, for any product, Heritage always sells at a premium compared to any other competition. Especially the cooperatives of the large national brand. You can check it online wherever you are on BigBasket or Swiggy or whichever apps that you have. Our prices are always higher compared to our competition, and yet we are gaining market share. It is just a timing issue. We shall take the right decision at the right time to take the prices up. We are not saying that, no, we are going to keep the prices constant or artificially low for a longer period in time. This year, summer actually was a washout. As you may recall from the Q1 earnings call, we had mentioned that this first quarter summer was washed out due to excessive rains and cold weather which prevailed over North India. That is the reason why we did not increase prices during summer. Most of our value-added products are summer dependent. Usually summer is the time when we take the prices up. There is an opportunity this summer which will come up. The only difference is that we are sitting on a much wider consumer base compared to last year. So the net incremental gain that we will have will be much bigger compared to had we taken the prices in the off-season. Thank you. Resha, sorry to interrupt you. I will request you to come back for a follow-up question. I request all the participants, please restrict to two questions per participant and join the queue again for a follow-up question. The next participant is Alisha Mahawla from Envision Capital. Please go ahead. Hi, sir. Good morning. Thank you for the opportunity. Just taking forward what the previous participant was asking, why you said that currently the focus for value-added products is more on market share? What are the other levers we have to reach the aspiration of 7%-8% margins, which we have been calling out since last couple of quarters? Right. We had mentioned a couple of levers that we are working on. One is the Value Added Products growth. Value Added Products growth increasing in contribution by about 10 percentage, reaching a 40 percentage mark is an ambition that we are working with, which should help us improve our steady state bottom line by about 1 percentage. Second thing is, there are lots of value creation opportunities or energy saving initiatives that we are working on, which helps us reduce our operating cost and increase the margin spread. These are two things that we are working on, which will help us structurally improve the performance of the company, in addition to, of course, the ups and downs which are driven by the volatility of the commodities. Got it, sure. The bulk fat losses, which is INR 15 crores for this quarter, this is largely the butter inventory only, or the losses for butter inventory is a smaller component now? Sorry, I do not think I understood. Could you please repeat the question? The bulk fat losses for the quarter of INR 15 crores. We were liquidating our butter inventory since the start of this year. Is this all with relation to that only? No. Let me just clarify. The difference of incoming fats from the raw milk that we procure and the outgoing fats is resulting in surplus fat generation, which is getting liquidated as bulk butter. What we usually do is we convert them into butter and after keeping 2 months of inventory, whatever we require for our internal use, the rest of which we are liquidating as bulk commodities. Just to expand, there was an option of holding it for some time. Butter's shelf life is more than a year. It can be maintained in the cold stores for next 6 months, 9 months, 1 year, and sell when the prices move upwards. That is an option. Or sell it off on the spot prices during the quarter without any element of speculation. We have almost sold out all the surplus generated in the 9 months. We only have couple of months internal required stock, and some more get generated in this quarter, maybe for the first 6 weeks or 7 weeks in this quarter. Second half of the quarter, we expect procurement volumes and sale volumes to match without leaving any surplus generation. The surplus fat generation is gradually coming down as demand is increasing and procurement volumes are coming down. We end the year with limited butter stock available for the consumption in the coming months. Hope this is clear. Got it. Understood. Just one last question. We had an aspiration to reach revenues of INR 6,000 crores. By when do we expect to touch this target? See, I think what we should look at is that we can look at our performance in the last several quarters and not just this quarter. In fact, you can look at our steady performance post-COVID has been in high teens. You can do the extrapolation yourself. Got it. You can also do the same. I think it looks- Okay, great. likely in the next 2 or 3 years. Okay, great. That is clear. Thank you. Thank you. Next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead. Yeah. Thanks for giving me the opportunity. Sir, my question is on the milk prices. Your thoughts on the same, and if there is any stability, should we expect even the milk volume to gradually pick up in the quarters ahead? Yeah. See, one is the industry availability, right? Industry availability you can say will influence 3%-4% in terms of plus or minus 3% or 4% on either side, which is the difference between a bad year and a good year, right? Last year, at the same time, was a very exceptionally bad year where the industry volumes had shrunk. This year is a normal year. I will not say an exceptionally good year, but a normal year where there was sufficient milk available. So industry volumes definitely impact our ability to procure. But on top of it, we have been consistently building our procurement network. Every quarter, we have been telling you about the procurement network expansion, which is now standing at close to about 11,000 villages, 198 chilling centers, et cetera, which is also helping us expand our capacity to procure volume. We don't see that procuring the volume that is required for our business is a challenge. Okay. In terms of the overall milk as a product for you, when can we see the growth rate improving over there? Are you talking about milk volume growth? Yes. Yeah. Milk volume growth, see, as I mentioned, in quarter 1, we had taken price increases on milk because of the exceptionally high raw milk prices and another result in losses. Those significant price increases that we have taken in Q1 had pushed milk to stagnant levels or even a small degrowth. You may recall from our Q1 earnings call that we mentioned milk was at -1% in terms of volume growth, which steadily improved to +1% in Q2, and now we are standing about 2.4%. These are quarterly averages. You can imagine that month on month, we are seeing steady growth in terms of milk volume performance as well. Okay. Thank you. Thank you. Next question is from the line of Sunil Kothari from Unique PMS. Thanks for the opportunity, sir, and congratulations for the quarter-on-quarter improvement in the efforts we are taking. My question is a little broader. As you said, for a long-term value investors and to create a sustainable value, we have some strategy, and that is why we are increasing our continuous volume procurement, and over time, we want to match them with milk sell and value-added products. But in between this fat is giving challenge. Do you have any solution, maybe a little longer timeframe? What is the solution to this? Because every year we are losing 30, 40 crore because of this. A little bit more explanation on this will be really helpful. Yeah. This is something that we are working on. This is a challenge in the dairy industry, the material balance, which is balancing the input versus output. For us, the solution lies not in controlling the input, but actually changing the mix of the output. Currently, the mix of the output for us is, let us say, milk, value-added products, and consumer fats on one side, and then you have the bulk fats. We are working on an effective strategy which will increase the output through the consumer products, whether it is milk, value-added products or consumer fats, whether it is ghee or, let us say, table butter and all of that. I think we have been consistently reporting for the last many quarters and over many calls that our value-added products, including consumer fat, ghee and all, are registering strong growth. We roughly sell about 300 tons of ghee every month. If that 300 tons of ghee, if instead of that, it becomes 600 tons of ghee, then we will become net deficit in terms of butter is concerned. We are slowly working on changing the mix so that we are actually in a deficit scenario and not a surplus scenario. But the surplus is also a function of milk availability, and this has been an exceptionally good year as far as the milk availability is concerned, which resulted in surplus milk and hence surplus butter. This may not be the case all the time. Last year, we were not in the situation where we did not have actually surplus at all. True. Sir, broadly, I think you being in industry, you must be observing other players also. Their procurement cost is slightly, not slightly, far lower compared to ours. Are we changing our some strategy or maybe from buffalo milk to cow milk, how that shift is happening, when that will be reflected in our procurement cost being lower? Because that is also hurting us more or less, very highly. Yeah. The procurement prices that we pay is very similar to any of our nearest competitor. We cannot go to a village and procure milk if we are paying less or higher. Of course, we can procure a lot of milk if we pay higher than competitor, but that's not warranted. Most of the procurement happens on parity pricing. That said, there is a difference in the mix by region. For example, all of us, whether in the peer group, you must know all the companies that are there, we are all procuring from six or seven or eight states. Right. The mix or the ratio of mix would be different for different companies. We have certain percentage of milk coming from Andhra Pradesh, certain percentage coming from Maharashtra, Telangana, Tamil Nadu, et cetera. The prices in each of these states are different, and the weighted average price would look little different compared to our competitors. Secondly, the prices that we declare as far as our raw milk procurement prices are delivered to our plants, which involves freight and incentives and all. Whereas, I think some of our competitors might be reporting farm prices. There also you will find INR 1.5 to INR 2 difference. Otherwise, at a farm level, in the same region, the procurement prices are all comparable. Yeah. Just to supplement that, Sunilji, our share of cow milk is growing over a period of time. That would bring down the average cost of milk. Secondly, the price fluctuation in different states happens at different points in time. In a particular state where we have high volume, the price may be higher in one season, lower in another season. This average will not be constant over a period of 2, 3 years if you see. One year, Maharashtra price went as high as INR 40 a liter for cow milk, and it came down to as low as INR 25. So in that year, if a particular company is procuring more in Maharashtra, the INR 40 per liter would influence the average cost. In other years, when other season, when it comes down to INR 30, it would be showing for the same company a lower average cost. The mix of cow and buffalo ratio and the mix of milk coming from different states in different seasons will give you different signals. Overnight shift is not possible because you have relationship with farmers, you have infrastructure built. So we gradually balance the mixes, both from cow milk, cow and buffalo, also from territories. The territories are not very stable. It keeps fluctuating. So it is a seasonal scenario. Every season, one ratio will be different from other. True. Sir, last question is on, we have some other objective of reaching some size of procurement, million liters per day, whatever numbers. Already we are really growing well across 16 lakh liter per day also. So sir, over a time, we will be moving more towards cow milk, that is certain? Yes. We are expanding mostly in the cow milk areas now. Yes. Enhancing the ratio of cow milk in our mix. Great, sir. Thank you very much. Thanks a lot. Sorry. No problem. Go ahead. Yeah. Thank you. Yes, sir. Thanks a lot. Thank you very much. Thank you very much. Next question is from the line of Amit Garg from Nirma Capital Private Limited. Please go ahead. Yeah. Hello, sir. My first question is regarding the volume growth. After being stuck in similar region for 3, 4 years, last couple of years have been very good for us as far as milk procurement is concerned. In your view, if our company has to grow 13%-14% or even 12%-13% volume growth over next 2 to 3 years, what are the few strategic things we need to do as a firm to make that happen? Rest, everything will fall into place if we get this procurement piece right. Yeah. Amit, thanks for that question. Let me solve the chicken and egg for you, because we all think that it's procurement that leads our sales. It's the other way around. Actually, it's the sales that leads procurement because we procure the milk that is required for our sales purpose. Right? And procurement expansion happens by adding more village-level collection centers, VLCCs, in the regions of interest. And each average village-level collection center usually brings about 25 odd farmers and roughly around 200 liters of milk. Suppose, let's say, for example, my strategy next year is I need to increase my procurement by about 10 percentage or about a lakh liter. Which means that I need to add as many village-level centers to get me the milk. I hope I am able to explain that if I add 500 to 600 village-level collection centers, I would be able to get the 1.2 lakh liters of milk. And this we are able to do strategically because we have, as we were explaining earlier, different states have got different price scenario, and different states have got a different ratio of cow milk and buffalo milk. If the company's interest or rather objective is to grow the procurement network in, let us say, cow milk dominated areas and where prices are lower, we will go and set up these village-level collection centers in those regions, and we will procure that. To give you some statistics, in the last 2 years alone, we have added about 2,200 village-level collection centers. And this village-level collection center is going to remain forever, which means that we have permanently added our ability to procure 4 to 5 lakh liters of milk. Right? And next year, depending on the requirement that we have, we will add as many village-level collection centers are required to get this milk. Sure. Thank you so much, sir, for that explanation. Second, sir, if my understanding is right, if I just add this INR 15 crore fat loss that you had, we are doing already at like almost 7.5%. Not 7.5%, but close to 7% EBITDA margin for our company. Assuming we are on a steady state basis, we will keep having some losses. Is it fair to assume that at this level of sales, we are between 6.5% to 7% steady state EBITDA margin on a normalized quarter without fat losses? You are right. Your first number was correct. We are at 7.5% EBITDA margin at this point in time without bulk fats. Even though bulk fat losses will come down in Q4, it may not become zero. Right. But yes, your assumption is right. But that said, Amit, I should tell you that, this is at this level of raw milk prices. Raw milk prices could change over a period in time. So our work is not done. We still need to increase our value-added product contribution. We still need to take up the prices that Resha was alluding to in value-added products. So we still have that 4 or 5 percentage pricing opportunity in value-added products, which we will realize during summer. We still have to reduce our cost of operation. We still have a long way to go. Thank you so much, sir, and best of luck. Thank you. Thank you. Next question is from the line of Sameer Gupta from India Infoline. Please go ahead. Hi, sir. Two follow-ups from me. Firstly, this process of selling all the extra fat that we have procured except for keeping 2 months of inventory, is this a process change that we have done in recent times, or is it something, a practice that we always used to follow and maybe during COVID and exceptional years, we have changed? The reason why I'm asking is that if there is such a situation, we can expect much more margin stability in future versus the past. Yeah, we had this problem, but the size was smaller in the earlier years. Size of surplus fat was smaller because our volume of sale and volume of procurement was closer to each other. This last financial year, we have accumulated anticipating the shortages in this year, but this year has become a normal year. Some of the fat was available at the opening of the financial year on 1st April. We have significant 2,000 tons of stock at the opening stock for the financial year. That got impacted significantly this year, besides the higher procurement volume during this quarter when the demand was low. This is a combination or convergence of 2 years fat happened in one year, main part of the last years and this year also something happened. That's why it looks significantly high during the current year. Next year onwards, as we are entering into, again, the season of sales, summer season, balancing should be achieved sooner. We have to see how the flush pans out in the third quarter again. Third quarter this coming year will not have opening stock burden of last year kind of scenario. If I could just add the specific question, Sameer, about policy. See, the company always maintained this policy of carrying only 2 or 3 months of stock. Last year was the only aberration, because last year the volumes had shrunk so much that we were not very sure, and you're all aware of how the procurement prices went up, shot up. So it was a call for safety that prompted us to keep some stocks, which actually resulted. We never had these kind of extreme swings from a year of shortage to a year of surplus kind of thing. That's what has caused this. But the policy has always been for the company to liquidate excess stock. Got it, sir. This was not visible earlier. That is the reason. It is visible significantly because of accumulation of last year's stock added into this financial year. Got it, sir. That is very clear. Another follow-up, the fat products sales that you report in the presentation, does it only pertain to the bulk fat, or it also includes the branded fat, that is ghee and table butter that you sell under Heritage brand? You only mentioned butter and ghee. No. This fat includes everything. This includes everything. But if I were to call out only consumer fat sale, what is the number that we put on the investor presentation? Yeah. Let me just call out. Currently in the quarter that we just closed, our consumer fats were close to INR 93 crores. INR 93 crore is the consumer branded? Yes, INR 93 crores is the consumer. Sorry. Sure. I will come back to you. I am just looking at numbers here. Just give me a minute. Sure. Excuse me. Can I for the quarter. Yeah. Can you repeat please? Yes. Please go ahead. 94. That consumer pack sale during the quarter, it is INR 41 crores. In 9 months it is INR 108 crores. Yeah. So correction there. Thanks a lot, Samarth, for stepping in. 93 crores is the cumulative sale, out of which 41 crores is consumer sale and 52 crores is bulk commodity sale. Very clear, sir. That is all from me. Thanks. Thank you very much. Next follow-up question is from the line of Vandit Dharamshi from Alpha Investco. Please go ahead. Thank you for the opportunity again. Sir, in the previous comments, you said that going ahead, our cow milk mix will move slightly higher, and that should improve our procurement price. If you can just speak, what percentage improvement can we see in the procurement price over the next two years, three years, whenever, as the cow milk sales or the cow milk mix reaches to a certain level? If you can give the level where we are today and where we will reach, and what will be the improvement in the procurement price. Yeah. We are seeing 2%-3% shift from buffalo milk contribution to cow milk contribution year on year. If this is expected to continue, you could probably say currently we are about 80-20 in terms of ratio. 70 full year. Yeah, full year. Okay. If you take 9 months, it will be more like 70-30 or 70 to 28 or whatever. The difference in prices between cow milk and buffalo milk is roughly around INR 15 a liter. If you have a 10% swing from one to the other, that will impact about INR 1-INR 1.5 per liter. That is the kind of impact that could be there, over 2 or 3 years timeframe. Understood. Thank you so much. Thank you. Next question is on the line of Shreyansh J. from Swan Investments. Please go ahead. Can you hear me? Sir, can you please speak a little louder? Hello, are you able to hear me now? Yes, sir. Go ahead. Sir, I have a very basic question. From what I understand, sir, the shelf life of fat or SMP, as you call it, is normally about 15 to 18 odd months. I am just trying to understand why do we then every quarter sell at prices which is below our cost? Because we understand these go through business cycles. I am just trying to understand, can we not hold the stock for about 12, 15 odd months, and then accordingly sell it? You can obviously sell it as a VAP, or then if it does not get sold, then sell it bulk commodity rather than selling at distressed prices every quarter. See, like any product, butter also stored in bulk starts to deteriorate. Even though it might have a shelf life of 12 months, the quality of the butter deteriorates as the time goes. Secondly, there is a carrying cost, right? These are, when it sits in an inventory, it is hundreds of crores. There is a working capital that is involved. There is a cold room that we need to keep running, electricity consumption and all of that. All of it is speculative in nature because we really don't know where it is going. See, we are dealing in an industry which produces close to 200 million tons of milk. Our contribution or our share in this play is very small. Even the largest dairy brand in the country only has 10% share. The forces that we have to face as far as the volatility of commodity prices are huge. There is also global volatility that we have to deal with. I don't think it is really worth the effort. We are not in the business of speculation. Let's say tomorrow, if our value-added products go up and we really need this butter, it is always available in the market and we can buy then. Because eventually what we want to build is a business which is dependent on sales requirement and- B2C. Yeah, B2C. It is more predictable in the sense we will be able to explain to you that this is a sales price and this is prices of the commodities that we have purchased to produce those sales. Okay. My second question is, if I look at your business, sir, what portion of your business will be non-south for you right now versus 5 years back? Non-south. I could say about 10% is non-south. What would this number say 5 years back? We will have to come back to you on that. But I can tell you that for our business, value-added products are growing faster than milk. Within value-added products, non-curd products are growing faster than curd. Similarly, our non-core market Hello? I think I lost you. Hello. Vandit Dharmshi, please stay connected. Ladies and gentlemen, please stay connected. Sir, sorry, we have lost your line. Can you please repeat the answer once again? Yeah. So I think I already answered. I mentioned that non-south would be about 10%. I just added further saying that non-south is growing faster than south. Okay. And sir, just to get a sense of the non-south market, do you have to I just want to understand what kind of additional things that you are requiring to do to get those sales? Can we request you to repeat the question? We couldn't hear you clearly. His voice is fluctuating high and low, patchy. Yes. And maybe you're using handset? Yeah, I am using a mobile handset. Hello. We couldn't hear you. No, sir. If you could just send your question to Valorem, we will get back to you. Okay. Thank you. Next question is from the line of Avinash from Nafasan Management. Please go ahead. Avinash, can you hear us? Hello? Am I audible? Yes. Hi, sir. Congrats on the good set of numbers. I can see that the value-added products has grown year-on-year. But could you just give us the margins, how is the margins reflected for value-added products for this quarter, previous quarter and same quarter last year? Thank you. Just a moment. EBITDA margin for the current quarter Q3 is, value-added products is 9.9%. Corresponding year, 9.37%. 9.3. Last year. Sir, one follow-up question. Are we expecting Do you have any target margin that we have in mind for value-added products? How do we progress from here? Are we seeing mid-teens? What do we have in mind? See, ideally, the value-added products still have a pricing opportunity of 3% to 4% from the current level. That should give us upside in the coming quarters. Thank you, sir. Thank you. Hello. Go ahead, now I am audible. Avinash, do you have any follow-up questions? No, nothing. Thank you. Thank you. Next question is from the line of Ramesh Chota, individual investor. Please go ahead. Thanks for the opportunity. I have a couple of questions. One is on, can you just tell me what is your current growth in Q3? Yeah. Hello? Growth is 15%. Okay. Is it on volume growth or since we have taken multiple price increases in last year, this 15%, does it have price impact also in it? No, this is volume growth. Value growth is 18%. Okay. I know so many had asked about fat losses. One small question on fat losses. How much tonnage of fat did we liquidate in the current quarter? Quarter percent? Current quarter. Quarter 5. Including. No, not including which is all bulk butter which we sold. Only butter. Yes. Butter 0.678 metric tons. 1,700 tons bulk sale. Okay. You said total consumer fat sale is around INR 93 crore in quarter. Does it include this bulk butter sale or is it excluding that bulk butter sale? No, I corrected. INR 93 is inclusive of everything. The consumer product sale is INR 41 crores, roughly half of it. Okay. You meant INR 93 crore is complete butter fat sale in the current quarter. Is my understanding right? Half of it is consumer and half of it is bulk, roughly. Okay. I got it. And one futuristic question. What is our outlook on next season? Since Q4, Q1 being our seasons for VAP growth and all. Last quarter, Q1, we were having industrial slowdown, which Shibit had already told in Q1 investor call. So what is our outlook for next season? Are we going to have a 20% or 25% growth in VAP? As we have in this quarter. Is it like that or suddenly is there a slowdown in the market? See, the only thing which is outside of our control is how the milk production happens, right? Because the sales- Right is mostly in our hands and are growing that steadily. So you can continue to expect steady growth of our volumes and revenues going into next year. As far as the- Okay milk supply is concerned, supply side, at this point in time, the indications are that it will be a normal occurrence. We are not expecting terrible shortage or huge price increases. But then it has to be seen. So are we targeting that next year, some 15%-20% growth in overall revenue or the milk volumes currently are growing at 2.5% for you. Are we continuing targeting 2.5% to 3% next year also? No. See, you're probably comparing volume growth with revenue growth. Right. Because 2.5% is a volume growth. Yeah? Milk volume growth. Yeah. Are you talking about volume growth or revenue growth? Mainly the value growth. What I am saying about is. 7.6% Yeah, revenue is a function of price increases plus volume growth, right? It's a function of both happening. There could be years when volume growth is slightly muted, but the pricing growth is higher. There could be years when pricing growth is slightly muted, but volume growth will be higher. Irrespective, what we are committed to is keeping the top line growing at a steady pace. Okay. My question was slightly different. Since the current year, we have not taken much price increases. Unlike last year, since we had a milk shortage and we are Ramesh, sorry interrupting. There is a slight disturbance on your line. Can you please speak through the handset? Just a minute. Actually, I'm using handset, actually. I'll just go to a better place first. Am I audible now? Ramesh, sorry to intervene. Just to save time, I think there is a little bit misunderstanding of the context. This year, Okay See, there are two pricing we are talking about. One is raw milk pricing, which is actually the input commodity for our business. The second is market pricing, which is actually all our, whether it is milk or Value Added Products. There were a lot of discussions around value-added pricing, milk pricing, and all of that, so maybe that's been a little bit confusing. Just to give a context, last financial year was a year when India faced a severe shortage of milk, which resulted in raw milk prices going up, which actually put a strain on profitability of not just Heritage, but many other dairy companies as well. This, we are speaking about three to four quarters back. These high prices of raw milk or input material prompted us to increase market prices of milk in quarter one of this year. In fact, we had started increasing prices from March of this year, which was Q4 of last financial year itself. We continued to take prices across markets from March of 2023 till about July of 2023, which is actually Q1 and Q2, were quarters where we took market prices up. Primarily, we took prices up in milk and we took nominal price increases in Value Added Products. Subsequently, in quarter three, what we have seen is that we had a regular flush season, which means that supply side improved significantly compared to same period last year. That resulted in raw material prices coming down. So we are in a situation where we took up market milk prices higher, to compensate for raw milk price increases earlier. So we are at a higher market milk price situation with lower raw milk price input. I hope this is clear. I got it. Thanks for explaining. Next financial year could be a situation where we may not take too much of market milk price increases because we are already at a higher price as far as the consumers are concerned. Some of the previous people were asking about the outlook in terms of raw milk prices. We hope the raw milk prices hold steady, or we will have nominal increases as we get into the lean season. Got it. One last question. I attended the last call yesterday, day before yesterday. They were entering a greenfield project in Maharashtra. Does it have any impact on Heritage volumes in Maharashtra? No, there is competition always every state. People keep coming, joining, and everyone procures milk. Everyone offers the same price. I do not see any specific reason for impacting only Heritage. Thank you. Thank you for the opportunity, sir. Thank you. Thank you. The next question is from the line of Babu Raju, individual investor. Please go ahead. Hi, sir. Thank you for giving me the opportunity. Am I audible? Yes, you are. Go ahead. Congratulations on good set of numbers. I would like to check, I know the long-term target is 8%, the margin. Currently, we are at like 5.5%, and when you will be able to achieve that number? I think it was well explained during the call earlier by Sridi. We are already around 7% plus without the fat losses. We will try to achieve as early as possible, but won't put a timeline because it is influenced by multiple factors and it may not be fair to put numbers and timelines in anticipation. Our aspiration is to reach there as soon as possible. Sure, sir. Thank you. Thank you very much. As there are no further questions, I would now like to hand the conference over to Dr. Rao for closing comments. Thank you very much for all your participation and interesting questions. We look forward to see your continued engagement with Heritage Foods. Thank you once again. Thank you very much. On behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.