Q2 23/24

Oct 20, 2023

Summary

Q2 revenue hit a record INR 979 crore, up 20% YoY, as VAP grew 18%; butter markdowns weighed on gross margin, while falling procurement prices supported an improving outlook.

Good day, and welcome to Heritage Foods Q2 and H1 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 when the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I will now hand the conference over to Mr. Anuj Sonpal. Thank you, and over to you, Anuj. Thank you. Good morning, everyone. A very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. I 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 second quarter and first half of the 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 and rely on information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements when 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 in today's earnings call and hand it over to them for opening remarks. We firstly have with us Mrs. Brahmani Nara, Executive Director; Dr. Samba 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. Madhavan Parekh, Company Secretary and Compliance Officer. Without any further delay, I request Dr. Samba Rao to start with his opening remarks. Thank you, and over to you, sir. Thank you. Thank you, Anuj. Good morning to everyone. Very pleased to welcome you all to this earnings call for the second quarter and first half of financial year 2024. The financial results and earnings presentations have been uploaded on the exchanges, and I hope you must have had a chance to look at them by now. Let me take you through the financial performance for the quarter and review first. Heritage Foods achieved its highest ever quarterly revenue, which on a consolidated basis stood at INR 979 crore, representing a growth of 20% year-on-year. This was driven by continued strong growth in value-added products. EBITDA for the quarter was INR 47 crore, which grew by 18% year-on-year. EBITDA margins were reported at 4.81%. The net profit for the quarter was INR 22 crore, which grew by 18% year-on-year, with PAT margins reported at 2.29%. For the first half of the financial year 2024, our consolidated revenue grew by 16% year-on-year to INR 1,902 crore. EBITDA was INR 87 crore, representing a strong growth of 37%, with EBITDA margins improving to 4.6%. Net profit for the first half was INR 39 crore, which has seen a significant improvement year-on-year of 39%. Now moving on to the performance on the operational front. The value-added products portfolio witnessed strong growth of 18% year-on-year, contributing INR 258 crore to the overall top line, with the overall VAP contribution standing at 26.8%. The average milk procurement during the quarter under review was 1.48 million liters per day as compared to 1.46 million liters during Q2 of the previous financial year. While the average milk procurement price during the quarter stood at INR 43.22 per liter, which increased by INR 2.67 per liter over quarter 2 of the financial year 2023. An average milk sale price increased by INR 3.89 per liter year-on-year. Revenues from the sale of liquid milk for the quarter stood at INR 571 crore, which grew by 8.5% year-on-year. Additionally, we successfully commissioned a new production facility at our existing B. Kothakota plant in Chittoor district of Andhra Pradesh with the capacity to process 65,000 liters per day. During the quarter, the company launched new products like premium buffalo milk with 7% fats and 50 ml and 100 ml ghee jars. Lastly, on the distribution front, we continued our efforts on enhancing our geographical reach and added 437 new distribution points in the general trade. Now the floor is open for interaction. Thank you. Thank you very much. We will now begin the question and answer period. Anyone who wishes to ask a question, hit the star and 1 on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Are requested to use handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue ascends. Participants, you may press star then 1 to ask a question. First question is from the line of Aditya from Securities Investment Management. Please go ahead. My first- Sorry, Aditya, I shouldn't interrupt you, but we are losing your audio. Can you come in a better reception area, please? Yeah. Better now? Yes. My first question is regarding the gross margin. On a QOQ basis, our procurement prices have dropped by INR 1.3. Even then our gross margins have reduced. I know the VAP share is lower in the second quarter compared to the first quarter, but still some benefit should have been seen in the gross margins. Could you just elaborate what happened? A connected question to this is, there has been a sharp jump in our fat revenue as well. Is this one of the reasons why the gross margin has not expanded that much? The second part of the question, Aditya, is concerning fat sale. Is that right? Yes. Right. Thank you very much, Mr. Aditya, for this question. Yes, we saw that towards the end of quarter 2, the raw milk procurement prices had started coming down. In fact, we registered a marginal improvement on account of that. But most of quarter 2 still was managed with high raw milk procurement prices. Because you are looking at the quarterly numbers, you are not looking at the month-on-month improvement. But I can assure you that towards the end of the quarter, actually, there was significant improvement in terms of gross margins. That said, a couple of other factors have impacted. For example, you know that in the first quarter we had value-added products contributing close to about 50%, whereas that has come down in quarter 2, as is expected. That is one. Number two, we have also had higher losses on account of fat sale, which amounted to about INR 11.8 crores for this particular quarter. That is another factor which also impacted the gross margin. Out of this INR 11.8 crores, we were continuing to liquidate the inventory of butter that we were sitting on. You may recall that we had close to about INR 360 crores of inventory at the beginning of the financial year, which have substantially reduced and impacted us again now. As we speak at the close of Q2, the liquidation of butter, as the prices came down, has happened at a loss as well. That is the other factor which is impacting. Overall business, if I look at in isolation, the consumer business that we are doing, that is growing, and that is growing strongly in profitability as well. Got it, sir. Sir, actually, let's talk about how the flush season is so far. There have been reports that the rainfall has been uneven this year. Considering that, do you expect a better flush season this year compared to last year? How are the procurement prices trending? Yeah. This is J. Samba Murthy. As mentioned by Mr. CG, the procurement prices started now coming down end of September, from mid of September onwards. There is a drop actually if you compare with Q1 to Q2, there is a drop of procurement price at about INR 1. Further, we are expecting further drop which is going to be there in Q3 as well. Procurement prices are coming down overall. The procurement volumes are going up and building. That is why overall demand side, commodity demand side, also commodity like butter, SMP, the demand also is going to take off again, converting it, and commodity prices also coming down, because of this flush season. Hoping that further prices will come down during this quarter, Q3. If I could just add to that. What CG was actually truly exactly what's happening in the market. Overall for the business, the good news is that the raw milk prices are coming down. The flush season is looking very normal. This is going to be a very normal procurement season for us, which means that continues on the raw milk procurement side. Whilst on the commodity side, the commodities are softening. Good news is that we are very low in terms of stocks that we're sitting on. We are actually very well poised to enter the flush season at this point, yeah. Got it, sir. Sir, how are the cattle feed prices looking? Are they also seeing a downward trend? Because if the cattle feed prices remain high, the milk prices wouldn't see a drop. Can you just elaborate on the cattle feed prices trending now? I will request Mr. Upendra to take this question. Yeah. What we see is that in next one or 2 months time frame, cattle feed prices will be stable. Maybe from Q4 onwards, there may be some corrections, but at least in this quarter, it should remain stable. Got it. One last final question. Just quickly on liquid milk sales. The last 3 quarters, the growth in liquid milk sales in volume terms has not been great. Could you just elaborate what is leading to this? In fact, in the first quarter, we had reported a decline in de-growth in market milk volumes, which has actually turned around. If you have seen that we have reported 1% positive growth in this quarter. For us, actually from a -1% to +1% is actually a good swing of about +2%. The -1% that we recorded in Q1 was primarily because of sequential price increases that we had to take to correct the profitability or to bring it in line with the raw milk prices. That market situation has stabilized. Now all the expansion that we are doing in terms of distribution is what is helping us grow. You should imagine that a number which was at minus 1%, if we enter it with a quarter average of plus 1%, which means that through the months of July to September, it must have been an upward swing. I can very well assure you that number is double that number at this point in time. We are continuously growing milk volumes as we speak. in Q3 as well, we expect that trend to continue. Things are stabilizing and much better now. Right. Moving forward as the procurement prices come down, will you pass on some of this benefit to the customer? See, usually market milk price correction happens in terms of MRP, which is the consumer price. But the net realization of the company is net of what we spend in the market to achieve our sales. Because we have the comfort of margins at this point in time, we have the luxury to spend a little bit more in terms of market expansion. As far as consumer prices are concerned, I don't think that we will be doing any correction. Got it. Thank you. Thank you. Next question is from the line of Viraj Mehta from Equirus PMS. Please go ahead. Yeah, hello sir. My first question is that your procurement is kind of not growing and it is at around 1.48 million liters per day. This is very contrary to what you said at the start of the year with high single digit to low double-digit growth in volumes. So can you please elaborate on this? Yeah. See, currently now, overall procurement is about 14.43 lakh liters. Last year it was 14.62 lakh liters, which is including the skim milk. Skim milk we purchased and converted into milk powder, essentially, and that also taken into the procurement. So the difference is actually we are growing and the difference basically because of what is skim milk actually. This time we have not purchased, we have not converted because we are having milk and internally our own milk, we are consuming it. So that is why the difference actually not visible. Otherwise, we have grown by 9.8% actually in milk procurement volume without skim milk. And coming to our own procurement, yeah, that is all. And sir, if I look at the operating margin of- Viraj, sorry, but your volume is coming a little low. Can you speak a little louder? Sure. Sir, if I look at the operating margin for our company, the kind of improvement we have seen in our peer example, and I am not even talking the absolute number that some of the peers are reporting double-digit margin. I think just the improvement in margin for some of the peers is significantly higher than ours. We are still below 5% in margin. On top of that, I am worried that you are saying that we have cushion of margin. Sir, at 4.5% or quarter to 5%, I see no cushion of margins. Our aspirational number, as you had said some months ago and even few quarters ago, was 7%-8%. There is no cushion of margin. Can you please throw some light on this? Okay, sure. Sure, Mr. Viraj. See, I am speaking with the perspective of today, right? I understand that you are looking at the numbers that got reported in retrospect. Probably that is the reason why the perspectives are slightly different. I shouldn't have said what I said because I am speaking with the insight that I have of what is happening today. Let me just clarify. First of all, you have seen that in terms of PBT, we have improved from, let's say, about 2.55% in Q1 to about 3.14% in Q2, which is actually improvement of about 0.6% or 60 basis points. You can see that. But if you recall, in Q1 also, we said that out of the INR 360 crores of inventory that we were sitting on, primarily butter, we had liquidated part of that, and we had incurred close to about INR 10 crores of losses in terms of booking, in terms of mark-to-market prices. Subsequently in Q2, we had an additional loss of about INR 7 crores on account of the same. See, this was a business call at a point in time when the raw milk procurement prices were going up and it was sequentially going up. Every single week, prices were going up and we had shored up inventories to face a difficult year. The milk production became normal starting from April, May itself, and the prices started coming down, which is why, as per accounting practice, we have booked those losses against the mark-to-market prices. Now, if I were to, our profits are just 3.14%, whatever we have reported. But assuming that in a continuing normal business, we do not have these kind of commodities going up and down. As we speak now, Mr. Viraj Mehta, let me assure you that we are not sitting on any inventory of commodities. Not much of inventories of commodities as well as you would have seen this on balance sheet, the raw materials have come down to INR 180 crores. Now, assuming that we take this out, this means that our profitability in Q1 would have been 3.62% in terms of EBITDA, and in Q2 would have been 3.86%, without the butter losses that we have incurred. Now, the reason why I said I have the cushion right now is because 3.86% also is a weighted average of the profitability in Q2 across 3 months. Whereas as the Chief Operating Officer said sometime back, the prices have started coming down in the month of September, which means that our profitability is sequentially improving month-on-month after that. We are expecting the prices to further come down in Q3, which means that the Q3 should actually report much better than this. This is the reason why I said what I said. But coming back to, because you also mentioned about comparison with other companies. We wouldn't like to compare ourselves with other companies because none of the companies have a comparable structure, apple to apple. Different companies are operating in different regions, which might give competitive advantage in certain times, competitive disadvantage in certain other times. Different companies have different portfolio structure, which will also have its own advantages and disadvantages. As far as we are concerned, what I would like you to hold us accountable as a company is that we are committed to growing our value-added products. And you must have seen that in every quarter we have registered significant growth in value-added products. And this quarter, again, we have grown value-added products by 18%. Good news is, with raw material prices coming down sequentially, and if we are able to sustain the level of growth that we are recording at this point in time. So you know that in H1 itself, we have registered close to about INR 2,000 crores of revenue. If we're going to keep this kind of very high revenue and if profits normalize, then we are going to eventually book the profits that the street expects. Sure, sir. Thank you so much for your explanation. Just one last thing, sir. By what time, as in 5 quarters, 6 quarters, couple of years, or what revenue target do you have at which you think you can do that 8% margin? That's speculative. But let me tell you that in the coming quarters, we expect the profitability to improve for sure. This is what we are seeing. Basis our growth momentum. This is basis the value-added products that we continue to grow. Every month it is growing for us. So I know that this is actually improving. Raw material prices are coming down. But by when we will reach that 8% will be totally speculative to say at this point in time. Sure. Thank you so much. Thank you. Thank you. Next question is from the line of Sameer Gopalakrishnan with Edelweiss. Go ahead. Hello, am I audible? Yes, I hear you. Hey. Hi. Good morning, sir. Just wanted to understand this gross margin thing a bit more in detail. You mentioned that there was a fat loss of around INR 12 crores this quarter. If I remember correctly, in the last quarter also, we had booked a provision because of the fat prices coming down, and that had affected our previous quarter margins also. Unless there was a sharp markdown again in Q2 versus Q1 in fat, this INR 12 crore wouldn't have arisen. Is my understanding correct? Yes, your understanding is absolutely correct. Sharp is a very strong adjective to use, but I would say that there was a further markdown in Q2. If I could just put the numbers, we had an additional close to INR 7 crores of additional price reduction in Q2 on account of this. Yes, you are right. In Q1, as per accounting standards, we had booked notional losses basis of mark-to-market price. But in Q2, we actually liquidated the fat. You must have seen that close to about INR 72 crores is the revenue that we have booked on account of fat sales as well. The eventual loss that accrued was higher than what we had provided for, and that's what got booked. Got it, sir. Just to get this number right, INR 12 crore losses in Q2 of FY 2022 or Q2 of this quarter? Yeah. Yeah. The total is INR 11.8 crores. You could say that out of that, about INR 7 crores, INR 7.02 crores is on account of one quarter. Losses that you're seeing is our regular consumer sale, which is our ghee and other things, which also we were trying to ramp up and we cut down the prices in line with the market. Okay. Got it, sir. Second question, a follow-up on this. Basically now there is a future inventory which you said is around INR 180 crores on the books, and if milk procurement prices are going to go down as per expectation. Yeah Probably again, a loss on this inventory. Probably in the third quarter also, this issue will impact our margins? No. Okay. See, there could be a little bit up or down, but INR 180 crores of inventory is on account of everything that we are holding at this point in time. Out of which, bulk butter, I will give a minute. 20 crores is the bulk butter inventory. Hardly anything. What was this number, let us say, the start of the year? This INR 20 crores? More than INR 100 crores it was. Got it, sir. I have a second question. I think a lot of it has been asked and answered, but just on the outlook on milk flush. I understand that the initial push in this direction has been good, but just on the outlook on milk flush, given that there is a larger rainfall deficit in the Southern Peninsula area, which is primarily the region where we operate, are we still very confident of seeing a normal milk flush this year? Yeah. Procurement side, overall it is good. Now all the parts of our operating areas, procurement is increasing, and prices also, as we mentioned, that it is coming down, and everywhere our growth is there in the procurement areas. There is no thing that there is no procurement in south or other parts. Everywhere it is increasing because of good rains, actually, good monsoon we had and continuous rains. Got it, sir. That is it from me. Thanks a lot. Thanks, everyone. I will come back in the case of any follow-ups. Thank you. Next question is from the line of Resha Mehta from GreenEdge Wealth Services. Please go ahead. Yeah. Thanks. On the fat sales, historically, if I recall correctly, over the last several years, we have all booked fat losses annually. I was going to ask if you could call out what has been your losses over the last five, six, seven years. Sorry, Resha. We are losing you. Okay. Is this Resha, we got the question. Can you allow us some time and we will come back to you on that? Resha Mehta is asking, what has Hello? This season is a bit different from earlier years because we have accumulated the fat stocks over a period of seven, eight months and disposed in this quarter. That has caused the one-time bulge of this loss. Otherwise, it would be one year it will be little lower, one year it will be little higher over a period of five, six years, ranging from, let us say, INR 20 crores to INR 45 crores per annum kind of loss. Sorry, the highest. It ranges from INR 20 crores to INR 45 crores per annum. Different years behaves differently depending on the milk availability, commodity prices. But actual year-wise, we will take some time to pull out and give you. This year it is only looking like that because we just went through a very high procurement price, then suddenly it has all come off. The turnaround in terms of prices has been significant, which is why it is so starkly standing out. Right. If you look at your historical average of 20-45 crore of losses annually, right? So I think this year also, we are pretty much on the upper end of that, right? So maybe we can expect a little bit of more fat losses in the coming quarters? No, it was not booked in the earlier periods as the stocks were sold in a short time of one month. Okay. That is not the- Right. So in H2, basically Q3 and Q4, do we expect a lot more of fat losses, like let's say INR 10 crores-INR 20 crores put together? See, we do not have, at this point in time, any more butter that we need to dispose of. Whatever we are having is, you could say that input is pretty much matching with output because we are continuously liquidating whatever stocks of fat we have. That said, I wouldn't like to speculate in terms of what would be the change in prices and what kind of losses we will have. Of course, our intention is to sell all our consumer packs in profit, and our consumer sale of whether it is ghee or butter and all are growing month-on-month basis. So if that happens, and if we are able to sell most of our fats in terms of consumer packs, then the losses would be very minimal. If that doesn't happen, and if we have to liquidate and if it's a falling market, then we might continue to have a little bit of losses booked month on month going forward as well. But we will not have, like President Samba Rao said shortly, confidently, we don't have the accumulated nine months or 10 months of- To dispose of anymore. It's only whatever transaction will happening on a month-on-month basis. Understood. Very clear. Second on the milk sales growth, which has been very tepid at around 1% volume growth. So is this because of the high milk inflation over the last 15 months? Do you see consumer sentiment being muted, at least on the liquid milk front, and that is why also, we may have had to take more promotions and higher trade margins to boost volume growth there, and this in turn has impacted our gross margins? No. In fact, actually, milk margins have improved tremendously. Let me assure you that, whatever we are spending in terms of driving milk growth is in line with what we have always spent. There is no excess spend there. But the volume growths have come down. There was shrinkflation. Yeah. The numbers have come down because of two reasons. Number one is because of prices going up and consumer appetite had come down. Number two is we had achieved some of the NR increases by reduction of pack sizes. We call it a shrinkflation effect. And many of the packs, we have actually shrunk by almost 10% or 15%, which means that the number of packs that the consumers are buying remains the same, but volumes have shrunk by about 10%, 15%. So combination of that is what has caused the volumes to come down. And now we are growing the numbers, you could say about upwards of 6% is the kind of volume growth that we are seeing. But in terms of transaction growth, most of the packs are growing in a very healthy double-digit transaction growth. Got it. And also, what was your milk procurement price in Q2 of last year? This Q2? Yeah. INR 3 minus INR 257. 40. INR 40, 37 paise. Yeah, INR 40, 37 paise. Which is 43.22 now. Got it. It is 43.22 right now, right? Yes. Lastly on the EBITDA margins. I think we had kind of embarked on that journey of reducing 10% of total cost or thereabout by gaining efficiency, trying to reduce distribution costs and also reducing conversion costs. Where are we in that journey out of the ambition of 10% cost reduction? How much have we achieved and how much more room is there? We are progressing on that. Several initiatives are now operating full swing, and we should say that we must have covered about one-third of the journey in that. Right. So the balance journey is to be covered over the next six months or 18 months, or what kind of a time period? No, at any point in time, we have several projects that we are running in terms of value creation initiatives, which many of them will come online in Q3 as well. So that's a continuous process as far as we are concerned. Thank you. Sorry to interrupt you, Resha Mehta. I request all the participants please restrict to two questions per participant. Thank you. I request all the participants, please restrict to two questions per participant. The next question is from the line of Pratik Kothari from Unique PMS. Please go ahead. Yes. Hang on. One moment, please. Pratik, sorry, but your audio is not coming clearly. Is this any better? Yes, perfectly better. Thank you. One question, please. When we look at our, from the supply chain perspective- Pratik, sorry, but again, your voice is breaking. May I request you to come back in the question queue? Sure. Thank you. Next question is from the line of Manoj Kashyap from Aryan Capital. Please go ahead. Hello, am I audible? Hi. I just had one question that I wanted to ask. What is the share of cow milk and buffalo milk procurement in this quarter? 81, 19. Cow 81, buffalo 19. Just for this quarter, I wanted to know what was the share of cow and buffalo milk procurement. Roughly around 80/20 is the ratio. 81/19, as we speak for Q2. Sorry? 81/19. You could say roughly 80/20 ratio. 80/20. Okay. Thank you so much. That is all I wanted to know. Thank you. Next question is in line of Kaustubh Pawaskar from Sharekhan Limited. Please go ahead. Yeah. Good morning, sir. Thanks for giving me the opportunity. I have couple of questions. First on value-added products, what was the contribution of curd for this quarter, and what was the growth on year-on-year basis? My second question is, should we expect the contribution of value-added products to improve in Q3 considering the festivals and the overall mix might improve because the pack itself would be lower this quarter considering that also even the mix should improve in Q3. Okay. Thanks for the question. Let me answer the second question first. We will continue to drive high growth of value-added products as we go. Continuing forward, you could expect us to continue to drive value-added products growth at a very high teens level, 18%, 19%, 20%. This kind of growth you can expect, and this is what we are working on. The ratio of value-added products in terms of their contribution to the overall revenue is a function of other things as well, which is either the revenue. Here you have seen that we have taken higher revenue increase in milk compared to value-added products. So contribution per se of value-added products might be looking a little suppressed. Or if because of festive period, fat sales might go up and hence contribution might look little better. But value-added products will be the one that will continue to drive growth of the revenue or top line for us. The first question was contribution of curd. Curd has grown at 10.5% for us in this particular quarter and- 16%. Yeah. curd has grown by 16%. Overall value-added products have grown to 18%. Perfect. Share of curd. Share of curd is 18%. Okay. Third question is around. Sorry to interrupt you. Yeah. There is a lot of static sound coming from the line. Can you speak through the handset? Is it better now? Yes. Yeah. My last question is on the capacity expansion you just said. I just want to understand how it is going to help you and whether we might see some efficiency coming up this year. New markets. Yes. So see, the capacity expansion is the net addition of about 25,000 liters because we have also decommissioned certain capacities and reorganized towards markets which we are looking at expanding. This particular plant where we have added or commissioned new capacities is in Chittoor district, a place called B. Kothakota, which gives us access to the Rayalaseema market or the market you can imagine that lies between Tirupati and Bangalore. That is the market which this plant would be catering to. This again is a part of our growth strategy in terms of markets that we are focusing on. Right. So in that context, the farmer addition, what you normally talk about, just to comment on that, where are we currently and what is our target on that front? Did you mean farmer addition? In a sense, the procurement. In terms of procurement of milk from the suppliers point of view. Already we are having procurement in that area. We are already procuring it. We have just created that packing facility, curd production facility over there. This is more about processing and packing capacity, not procurement capacity in that area. Okay. What we explained in the Okay. Okay. Okay. Thank you. Next question is from Nair of One from Alpha Investments. Please go ahead. Hello. Thank you for the opportunity. I just have one question. What kind of procurement number do we look at for FY 2026, 2 years out? See, sometime back we had mentioned that our ambition is to grow at a rate of 15%-16% year-on-year. We expect half of that growth to be driven by volumes and half of it to come from price or shift towards value-added products. Which means that we will have to continue growing our procurement volumes in line with the volume requirements of our company. Which means that it will be either in high single digits or low double digits. So you can say about 8%, 9%, 10%, 11%, 12% kind of growth we will have to sustain to fuel this growth. We are well on track for that. What kind of Capex number do we look for FY 2025-2026? Yeah. So see, we have been tracking around INR 100 crores year-on-year. We think that is sufficient to fuel the organic growth that we are seeing or that we are anticipating. Okay. One last question. I think we have been doing really well on the value-added product side. If you can just talk about some initiatives which are really pushing this kind of growth, because I think for the last 2, 3 quarters year-on-year, we have been doing a decent job. Should we just speak about what is the driving force of growth? Several things. First of all, I think that we are committed to offering the best product that is there in the market, which starts with understanding the consumer in terms of continuously improving our product quality. This is not just in terms of the inherent product quality, but also the packaging and the presentation of the product to the consumer. That is one thing that we have been continuously working on. In the last many quarters, we have actually improved, whether it is our curd, paneer, ice cream, many of these products have gone through multiple rounds of revisions, and this is a continuous process at our end. Secondly, in terms of distribution expansion, is something that we are continuously focused on. While you could call the core of our business, which is the fresh products, is primarily driven through traditional channels, whether it is Heritage Parlours or Heritage distributor network. We have invested significantly in growing distribution through grocery channel and many other emerging channels such as e-commerce and quick commerce and all of that in the last several quarters. Whether it is in terms of adding of distributors, which as today we have close to about 60,000 outlets reach in the grocery channel. We have also added close to about 160 plus Heritage Happiness Points. We have Heritage Happiness Points that are neighborhood distribution centers, which act both as a retail store as well as a great distribution center. We have also expanded our presence because e-commerce, quick commerce, and modern trade channels. We have now, even in cities like Delhi, NCR, and all of that, you can pretty much buy most of our products, our value-added products on whether it is BigBasket and Shoppers Stop and Blinkit and all of that. Those are all the things that is driving growth for us as far as value-added products are concerned. Sir, what could be the percentage revenue that we are getting from e-commerce and modern trade channels? Close to about 10.5% is the revenues that we get from this channel. Sure, sir. Thank you so much. Will come back to you. Thank you. Next follow-up question is from Ramesh from Retail Investor. Please go ahead. Hello. Thanks for the opportunity. I have a couple of questions. The first thing is, you have told curd grew by 16% in value. What is the volume growth if I am not mistaken? It is 10.6%. It is because I heard that curd is growing in the market and people are moving more to buying curd instead of paneer. I heard from you guys during the previous calls, in previous quarters. Is that the growth or is it the market that is growing faster? Okay. It is both. I really do not know exactly what the market is growing at. Definitely, there is momentum in the market because the packaged curd consumption is on the rise, which is primarily driven by some of the leading brands. Right? Which also includes Heritage somewhere right at the top. It is a function of a bunch of brands, including Heritage, driving this growth, and consumer adoption is happening. Okay. The second thing is on butter. I know so many questions came in this call. The second thing is how much liter of butter we sold in Q1 2023? How much did we sell? 1,978. 1,978 tons. 89. Close to 2,000. Yeah. Roughly close to 2,000. Close to. The same question, Sameer had asked you a question. Since we have sourced in last quarter, if I remember. This quarter you are saying we have INR 7.6 crore loss. Is it a continuation of that provision what we have made in Q1 or is it additional to that provision, that INR 7 crore? The two numbers are different. 10 crores that we mentioned in Q1 was notional loss on butter stocks. Yes. Because the fat loss was likely higher than that because we also sell in consumer packs, ghee and butter and all that. Okay. The 11.8 crores that you are calling out in Q2 is the total fat loss, out of which only 7 crores is on accounts of butter. The balance is- In addition to INR 10 crore loss of Q1, you are saying INR 7 crore additional loss in Q2. You could say that cumulatively in H1, we might have had to book a loss of about 16.5, 17 crores on account of the butter prices coming down. Okay, understood. Which is, yeah. Sorry. My follow-up thing was, can't we use this butter as our advertising subsidy for milk and curd or some value-added? We can use our butter or fat products for our advertisements instead of putting in other advertisements. Just a suggestion or something can be use- No, it's a good suggestion. But see, at the end of the day, we have to balance everything, right? See, what is not visible here is the revenue growth that we are seeing in terms of our consumer packs. So we also sell 100 gram, 200 gram butter like you see the Amul butter, right? So if you come to our four markets, whether it is Hyderabad or Bangalore and Chennai and all, you will see strong presence of Heritage butter on all shelves, retail shelves. The consumer pack of butter for us is growing very strongly. However, in a month, we sell close to what, 60, 70 tons of butter in consumer packs. 60 or 70, which is about roughly, you could say about 2 tons, close to 2 tons per day is what we sell. Now, even if we grow that by 100 times, it will still not I hope you understand that we mismatch in terms of numbers. Right. We are growing. The consumer packs are growing for us in very high double digits or even in some cases, even triple digits. But still those numbers are not significant enough to compensate this kind of huge inventory that we might have. Okay, understood. Thanks. Thank you. Next question is from the line of Avinash from Asset Management. Please go ahead. Thank you for the opportunity. I noticed that the value-added products grew at 18%, while your milk has grown by 9%. Could you give us a breakdown on margins on each of these, Q2 and Y-o-Y? Thank you. Sorry, we couldn't hear you. He's asking for margins of milk and value-added products. EBITA. Yes, EBITDA margins. Good morning, sir. My name is Prabhakar. Q2 EBITDA margin of milk is 5.36%. The value-added products margin is 8.32%. Curd, 7.92%. Buttermilk, 12.74%. Ice cream, 7.67%. Overall, 4.37%. Thank you. Similarly, Y-o-Y. Sorry? Year-on-year, what was the margin, sir? Year-on-year. These are EBITDA percentages that we said. We were not talking about the change. No, this is EBITDA percentage. Fine. Okay, sir. Thank you. Thank you. Next question is on line of Aman Vij from Astute Investment Management. Please go ahead. Good morning, sir. My first question is on the procurement volume. You talked about in order to achieve 15%-16% overall company level growth, we need high single digits or low double-digit kind of procurement growth. At the same time, you talked about the impact of inflation that although the number of packets are growing at double digits, but the volume growth is very low single digit, 1% only. If you can talk about from which quarter, is it Q3, Q4, or it will happen only next year? Do we see this high single-digit kind of growth in procurement? See, there are two different things. I think, see, one, I was responding to the gentleman who asked about what will be the procurement in 2026. So when I said the high single digit or low double digit, that number was with the long-term perspective, right? It doesn't mean that every quarter or every month we will be growing at that rate, right? The procurement will be growing or slightly growing less based on the seasonality of the milk supply that is there. That is the raw milk supply side. The second question, what you are asking about is the growth, right? Even though milk is growing at 1%, value-added products are growing strongly in double digits in terms of volumes also, right? Just now you heard that curd itself is growing at 10.6%. So overall, our requirement of solids or milk per se is continuing to grow. So we will have to bring in the milk to cater to that demand. That growth is only going up for us. So there was a small tapering of growth at the time when we took the consumer prices up. For the last several months, consumer prices are stable, or rather the increase in consumer prices have been marginal. And we continue our distribution expansion and our volume growth on the market side is continuing to grow, which means that looking forward, we will require the raw milk at that rate. Mm-hmm. So for H2, what kind of volume growth we would see in procurement? So sir, that is what I was saying, that we will need to grow our raw milk procurement at the rate of 8%, 9% or 10% to sustain the market requirement of growth. Because market will also grow at that rate, right? And sustain over a long period in time. I may not be talking about one quarter or two quarters here. I am talking about slightly longer perspective if you look at it. That is the kind of growth that we will have to drive, both in procurement as well as sales. Okay. So H1 maybe was an aberration, and you are saying with H2 onward we will see that kind of growth because we need this growth to continue our growth in value-added products. Yeah. Okay. H1 was a long period, so you should look at Q2 and Q1 separately, but that is fine. Sure, sir. My second question is on the value-added side. So out of the VAP kind of sales you did, if you can talk about the non-curd portfolio. So how are your margins in terms of growth? Which are the segments, for example, paneer, ice cream, which are doing quite well for us. And also, sir, I am linking this with the margin you talked about in value-added products. So it seems much lower than what other players make. I understand we do not have the same yet. Maybe some of the products like ice cream and all those things. So on the whole basket, value-added, if this kind of growth continues, do you think, say, in the next year or year after that, we can see a good seven-digit kind of margin on this value-added portfolio rather than high single digit? Sure. I will take the second part of the question first, and then we will give you the growth numbers we are seeing. The Chief Operating Officer will call out some of the growth that we are seeing in some of the products. Maybe not all the products, but some of the products. In terms of margins, most of the time, VAP will roughly deliver double the margins of milk. While we corrected the milk prices in line with the raw milk price increase, we did not do so much of correction in the VAP because we are still continuing to drive volume growth in VAP. Which is why the gap between VAP and milk, in terms of percentages, have come down a little bit. While milk EBITDA is close to 5.6%, VAP is about 8.5%. At this point in time, we are in a very strong position as far as VAP are concerned. At any point in time, we can make those price corrections and all of that, and that EBITDA will consequently improve as we go forward. That is just a point in time. The idea is to bring more and more contribution from VAP so that weighted average EBITDA of the company grows and moves towards the 8% margin, which is our North Star. Yeah. I will hand over to- This VAP, other than the curd, paneer is growing by 28%, and ice cream is growing by 45%. The total drinkables, it is growing by 28%. There is a good growth in the VAP, other than curd itself. Sure, sir. Thank you. Thank you. Next follow-up question is from the line of Aditya from Securities Investment Management. Please go ahead. Yeah, thanks for the follow-up. Sir, what was your procurement price at the start of the quarter in July, and what were they at the end of the quarter in September? Q1- July. July to September. He is trying to see how much drop. Okay. We may not ready. Yeah, ready. Yes. Yeah, Q1 it is there. Q1- Q1 close. Yeah. Average. Average. This is July, he is asking. Beginning of Q2. He is trying to see July 1st and September. How much price would have come down from beginning to end of quarter? Overall, Q1 to Q2, INR 1.36 per liter has come down, probably July to then, yeah, that is. We'll have to verify. We'll have to come back to you on that. But you could say that there was a good decline from July to September. Got it. This 40.5, which you gave in our press release, this is for average quarter, right? That is right. Okay. My last- Aditya, your voice is breaking. Aditya, we are unable to hear you. Hello? Aditya, sorry, but we are losing your audio. Can you please come in a better reception area? Hello. Sir, we can hear you, but your voice is breaking. Is it better now? Yes. Yeah. You just spread the liter which we are making on liquid milk and VAP like curd now. Are they back to pre-COVID levels or similar level which we make in a normalized environment, or we are still some time away from reaching those levels? Pre-COVID levels. Volumes. What? Are you talking volumes, Mr. Aditya? Please clarify. Yeah. The spread per liter which we make on liquid milk or a VAP like curd. Yeah. Spread per liter. Spread per liter. We are still below COVID numbers, actually. We are still way below that. Okay. Thank you. Thank you very much. Ladies and gentlemen, we will take another last question. I will now hand the conference over to Dr. Rao for closing comments. Thank you very much for all the participants for raising interesting questions and giving details. We look forward to interact with you again after the next quarter. Thank you all. Thank you very much. On behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.