Q1 23/24

Aug 2, 2023

Summary

Q1 FY24 revenue reached a record ₹924 crore, up 12.5% YoY, while EBITDA and net profit rose sharply. Weather hurt summer demand, and a ₹10.5 crore one-time inventory provision weighed on margins; management retained longer-term margin and growth ambitions.

Ladies and gentlemen, good day, and welcome to the Heritage Foods Q1 FY24 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 star then zero on a touch-tone phone. Please note that this call is being recorded. I would now like to hand over the conference to Mr. Anuj Sonpal from Valorem Advisors. Thank you. Over to you, Mr. Anuj. Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the investor relations of Heritage Foods Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the first quarter 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. 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. M. Sambasiva Rao, President, Mr. Srideep Kesavan, Chief Executive Officer, Mr. A. Prabhakara Naidu, Chief Financial Officer, Mr. J. Samba Murthy, Chief Operating Officer, Mr. Upendra Pandey, CEO of Heritage Nutrivet, and Mr. Umakanta Barik, Company Secretary and Compliance Officer. Without any further delay, I request Mr. Rao to start with his opening remarks. Thank you, and over to you, sir. Thank you, Anuj. Good evening to everyone joining us today on this call. We are pleased to welcome you all to this earnings call for the first quarter of the financial year 2024. The financial results and earnings presentation have been uploaded on the exchanges, and I hope you must have got a chance to look at them by now. Let me take you through the financial performance for the quarter under review first. Heritage Foods achieved its highest-ever quarterly revenue during this quarter, which on a consolidated basis stood at INR 924 crore, growing by 12.5% year-on-year. This was driven mainly by the continued strong momentum in value-added products that registered a growth of 13.5% year-on-year to reach INR 322 crore and contributed to around 39% of overall sales, including fat products. EBITDA stood at INR 40 crore, which grew by around 68% year-on-year, with EBITDA margins at 4.36%. The improvement in EBITDA year-on-year was driven by sale price increases in line with the raw milk cost increase, continued shift towards more profitable value-added products, and scale-up of value creation and margin expansion initiatives. The net profit grew substantially by 129% year-on-year to INR 17 crore. Now moving on to the operational performance for the quarter. The average milk procurement during the quarter under review was 1.52 million liters per day as compared to 1.39 million liters during the Q1 of last year, registering a growth of 9% year-on-year. The average procurement price during the quarter stood at INR 44.55 per liter, which increased by INR 3.78 per liter over Q1 of last year. Average milk sale price stood at INR 54.59 per liter, which increased by INR 5.43 per liter over last year's first quarter. The revenues from sale of liquid milk grew at 9.8% year-on-year, despite volumes coming down marginally by 1% to 1.08 million liters per day, with the average selling price increasing by 11% year-on-year. A good part of the quarter was adversely affected by unseasonal rains in our markets. Despite this, we were able to deliver growth in volumes and significant growth in transactions across most value-added products. Curd sales during this quarter was at 435.6 tons per day compared to 424 tons per day during the last year's same quarter. Strong volume growth in value-added products was seen across drinkables like buttermilk, milkshakes, et cetera, and ice creams too. Revenue of consumer fat products grew by 19.6%, primarily driven by price increases around 25%+. Though we registered a small de-growth in volume due to slowing consumer offtakes. We continued on our path to add innovative and unique value-added products. During the quarter, the company launched 10 new products like Café Latte, Café Mocha, Strawberry Lassi, Mango Lassi, Sweet Lassi, paan kulfi, gulkand kulfi, Roasted Cashew ice cream, Sitaphal ice cream. On our distribution front, we continued our efforts in enhancing reach and distribution, added 20,000 new outlets in general trade, with the addition of over 1,000 retail outlets for ice creams and value-added products. We also added 71,500 liters of chilling capacity and deepened our relationship with farmers with a digital enrollment program for farmers on the VET+ app. With this, we open the session for interaction. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Sameer Gupta from India Infoline. Please go ahead. Hi. Good evening, everyone, and thanks for taking my question. Firstly, a clarification more than a question. We have seen a 9% growth in milk procurement this quarter. However, I looked at the base quarter presentation, and there I checked it was 1.46 million versus 1.39 million that you mentioned on the call just now. Just wanted to understand, is there a discrepancy? Have we rebased it? Have we discontinued some procurement operations somewhere? Just wanted to clarify this aspect. Hello, am I audible? Yes, sir. This is the correct number that we just shared with you. We will look into the numbers in the base quarter presentation again, but for accuracy sake, you can note the number that we have just shared with you. There is no discontinuation of some procurement operations anywhere, right? No, we haven't had any discontinuation. Cool. Thanks, sir. That is helpful. Secondly, on the gross margin front now, on a year-over-year basis, we have seen a 160 basis points expansion, but sequentially, gross margins have contracted. Any read-through here? Because we were told that cow flush has been quite normal, and there was a trend of milk prices, procurement basis, kind of stabilizing and expected to go down and no real benefits visible this quarter. Or is it just because we have kind of procured more than what we have sold and that is kind of a mismatch leading to this gross margin contraction here? Yep. You would observe that in our gross margin, and this is reflecting in the EBITDA margins as well. This is primarily because of a provision that we have made on account of notional loss correction based on market prices for the surplus fats that the company is sitting on. In fact, that value amounts to INR 10.5 crore. If I were to remove that one-time provision that we have made, which is actually a provision based on prudence and fiscal prudence, and if I remove that, the bottom line, whether it is at gross margin level or EBITDA level, would have improved by 0.3% or 0.3 to 0.4 percentage in this quarter. So on a quarter-on-quarter, our EBITDA would improve from 5.12% to 5.44% if I keep this one-time provision aside. I hope I've been able to clarify. Yeah, sir, that is helpful. But even on a milk procurement basis, sequentially, I have seen a firming up of prices. So INR 44.55 versus, I think INR 43 was what we had last quarter. So this cow milk flush, that really hasn't played out, or these numbers are there after it playing out, or how do I read this? Yeah. So see, the numbers you are talking about is actually an average, weighted average of three months. In fact, within the quarter, we saw movements. April month was higher than March, then it stabilized at May 11, and from June onwards, it has started coming off. On an average, you will see that the quarter price is similar to the previous quarter, roughly similar, right? But that was not how it was intra-quarter. It has come off. So actually, from the beginning of June or end of May, we are seeing prices come off, which is continuing at this point in time. Nevertheless, in quarter one of this year, we had increased market prices or consumer prices compared to quarter four, and in addition to it, value-added products also grew on top of Q4. This is what has expanded our margin for this quarter compared to a previous quarter. And of course, compared to previous year's same period, I don't need to explain. This is a significant improvement. Yes, sir. That's very helpful, sir. Just one last, if I may squeeze in. So 7%-8% EBITDA margin guidance on a steady state basis this quarter adjusted for that provision 5.5%. Are we still guiding for a 7%-8% this year? Or you think that's more of a medium term and this year might still be lower? Sir, I don't think that we have ever given a guidance of 7%-8% for this year. We have always mentioned that 7%-8% is the EBITDA margin that we would like to be in. That is what our North Star is, and that is what we work towards. You have definitely seen, if you have seen the last five quarters, you have seen that our margins have steadily improved on a quarter-on-quarter basis, and that will continue going forward. We are aiming to be in that sweet spot or the preferred place of 7%-8% EBITDA margin. But I don't think we have given any guidance that we will achieve that in this year. No, sir. I wasn't saying that you have given any guidance. But that's helpful what you're saying. Thanks. That's all from me. I'll come back. That is definitely the direction in which we are moving. You could say that. Yes, sir. I'll come back in the case I have any follow-ups, sir. Thank you. That's very helpful. Thanks. Thank you. Our next question is from the line of Aniruddha Joshi from ICICI. Please go ahead with your question, sir. Yeah. Thanks for the opportunity. Sir, just wanted to understand if the prices have started correcting from June, so do we see a possibility for margin expansion in September quarter? The price correction that you indicated in June quarter, how sustainable is that? Do you see that prices may remain stable or may not fall further from here on? Yeah. That's it. Mr. Sameer. Yeah. Mr. Sameer, this is Brahmani here. Just wanted to clarify something on the previous question pertaining to milk procurement volumes. Q1 FY 2023 or last year, milk procurement volumes were at 13.9 lakh liters without skim milk that we procured. With an additional volume of 0.76 lakh liters, it comes to that number of 14.66 lakh liters of milk procurement volume. So the total milk procurement volume for Q1 of last financial year was 14.66 lakh liters in total. I hope that clarifies your question. Now moving on to the question based on- Anirudh. Yeah. Yes. The question that Anirudh Joshi had asked. Yes. First of all, I don't think that we would like to give any guidance or make any forward-looking comments. But it is very safe to say that the prices started coming down from end of May or beginning of June, and that trend continued for about four or five weeks, and the prices have stabilized at this point in time, which means that current prices that we are procuring at is at an advantage compared to last quarter 1. With that said, I should also tell you that the sales mix changed in quarter 2 compared to quarter 1. Quarter 1 has got a lot of summer products that sell, and quarter 2 has got a little bit of share shift towards fat products, basically ghee and butter, which happens due to festive period and all of that. The mix changes also. It will not be a like-to-like comparison, but I can very much say that, one, the prices have softened a little bit compared to quarter 1. Okay. Sure, sir. Yeah. Thank you. Thank you. Our next question is from the line of Pratik Kothari from Unique Asset Management. Please go ahead with your question, sir. Hi. Good afternoon, and thank you. Sir, just one clarification. One, we have mentioned in the press release that 44.6 is the milk procurement price this quarter. What was it in quarter 4? Was it 45.7? It has reduced, right? On a quarter-on-quarter basis. This is basically the mix of cow milk and buffalo milk. The contribution of cow milk has increased. But if you take cow milk versus cow milk, there is an increase of price by 0.5%, and buffalo milk rate per liter increased by 6.9%. But overall, it is shown it as -1.2% because of the change in the mix of milk procurement. Correct. So the procurement price which we mentioned in our price release is blended, right? One point. Sorry? The weighted average procurement price per liter came down from INR 45.1 per liter to INR 44.5 per liter in the quarter. Correct. Compared to the previous quarter. Correct. Sir, if we take out this 10.5 crore of provision that we made, and in light of procurement price coming down, we took some price rise. Our value-added products have gone up from roughly 30-odd% to 37%-38%. But still, if you look at gross margin quarter-on-quarter, it is still flat. Even if we take out this 10.5 crore. Can you explain this? No, but even otherwise. Yeah. See, actually, the numbers that we are telling at this point in time, whether it is 44.5 or 45.1 and all, these are all weighted average at the company level. We are currently, as you are aware, that we are procuring across 9 states in the country, and we sell our products across 11 states in the country. This is just a buffalo to cow milk difference itself can create this kind of mix change. Despite individual buffalo milk prices going up and individual cow milk prices going up, the mix change has made the weighted average come down by 1.2%. These things do not directly translate to margins on a straight line method, because we procure in each region, and we sell it in each region. And each region's realization is different from one another. For example, one of the fastest growing regions that we have, Karnataka, has got a lower realization compared to Hyderabad. There is a lot of mix effect which happens. Directionally, what I will advise you to look at is the improving scenario. The improvement that we have been registering on a quarter-on-quarter is something that I will draw your attention to, which even at the gross level basis, we have actually improved 5.4%, if I remove the one-time provision. Correct. Because our value-added products went from 28% of sales to 35 odd. But our procurement is lower, average, higher. I mean, 0.4 seems lower and hence the question. Correct. I would also like to clarify one thing. In the previous quarters, whenever we declared value-added products, we were only talking about value-added products without fats. As is the industry practice from this quarter onwards, we are giving both numbers. The value-added products when we said is close to 39 percentage includes fats. Without fats, our value-added product contribution currently stands at 35.3%. I just wanted to clarify that. But I take your point that this is higher than the value-added product contribution in the quarter 4 of last financial year. For sure. Correct. Sir, last quarter, we had stocked up a lot on inventory, SMPs, what we converted our milk into. Any liquidation of that in this quarter? How much of that older inventory is still left? Yeah. So, see the quantity that we had kept it was for our internal consumption. There are two routes of consumption. One is for consumption for our products, because quarter 2 usually is the leanest month when the raw milk volumes drop, and we use this for our products. Secondly is for our consumer products, whether it is in butter form or in ghee format. Usually quarter 2 and quarter 3 are when the fat products peak due to festive effects and all of that. So we are estimating that in the next 3 to 4 months, the entire inventory that we're sitting on will get liquidated. We actually need it for our own purpose. The valuation correction we have done is only in line with how the raw milk prices have dropped. Today, if we were to procure these fats from outside, we would have procured at a lower cost than what we had generated of human stock. I hope that clarifies. Correct. Absolutely. Sir, last question is on the broader sense in terms of procurement and also in terms of demand, if you can just lay out how does the scenario look like from a demand and also supply perspective. On the procurement side, milk production, we have definitely seen an improvement. This improvement we have seen across all regions of the country, especially the biggest improvement in terms of production we have seen in Maharashtra. That said, it was not limited just to Maharashtra. Across all parts of the country, we have seen production improvement, which is a welcome signal as- Sir, we are unable to hear you. I request the management to unmute their line from their side, please. Ladies and gentlemen, please stay connected while we reconnect the management. Ladies and gentlemen, we have the management line connected. Mr. Pratik Kothari, you can go ahead with your question, please. Sir, we heard you until the improvement in Maharashtra when it Apologies for the recent. We had a network issue. We are back. Just give us a moment, please. I hope you are able to hear us. Can you? Yes, sir. Hello. Mr. Pratik, please give the management a moment. Hello? Can you hear us? Yes, sir. Please go ahead. Yeah. Okay, fine. We tried to use a Bluetooth device. Anyways, at our end. Ladies and gentlemen, please stay connected. Hello, Pratik Kothari. Sir, the line is not clear, so one moment, please. Ladies and gentlemen, we have the management line reconnected. You can go ahead, ma'am. Yes. Apologies to all the participants. We had a small technical glitch at our end and we dropped off. Sir, we are unable to hear you. Ladies and gentlemen, please stay connected while we reconnect the management line. Ladies and gentlemen, we have the management line reconnected, so you can go ahead. Yeah. Strange day. We are having continuous problems with this device. Apologies for that. Answering the question raised by Pratik Kothari, on the procurement side, on the milk supply side, we are seeing very good progress in the sense of production across all regions of the country is on an upswing. This is primarily cycling a lower production year, which we saw in the last financial year, calendar year. That's good news on the production side. On the demand side, we do not have any reason to worry as of now. But for the quarter, we were slightly set back because of inclement weather in many of our markets, and usually it was not as good as the summer that we had expected. Last summer, if we compare on a temperature like-to-like basis for each month, actually in several regions, the temperature was at least 2 or 3 degrees lower than same period last year. Even in terms of rainfall and number of rainy days also was much more, which negatively impacted some of the summer products like whether it is curd, buttermilk, ice cream, et cetera. So, on demand side, there is nothing that causes any worry except that the weather was not so great. Correct. Sure. And sir, just we will appreciate if this, the 10.5 crore provision that you made, if you could have mentioned that in the notes to account, I think that could have been better. Otherwise, thank you and all the best, sir. Thank you. Thank you. Our next question is from the line of Viraj Mehta from Equirus PMS. Please go ahead with your question. Yeah. Hello, sir. My first question is regarding the last period. Because you talked about procurement being slightly challenging, is there any amount that in your press release, what is the quantum that you think you would have lost due to lost sales due to that? No, I don't think that we ever mentioned that we have challenges to. Hello? Hello? Yes, sir. Please go ahead. I've unmuted the alternative line, sir. Yeah. We'll stay on this line. Okay? If at least I'm audible. Answering the specific question, it might be a misunderstanding or misrepresentation of what we said, so I'll just clarify that as a company, we operate in more than 11,000 villages across nine states. We operate 204 chilling centers, which are spread across these states. We have been consistently expanding the procurement side investments also in every quarter. This quarter also, we have declared that we have expanded our procurement capacity by 71,500 liters per day. Today, cumulatively, we have a capacity to procure upwards of 22.3 lakh liters of milk every single day. On top of it, we are expanding and engaging our farmers in a more meaningful manner, which goes just beyond the transactional relationship of buying milk and paying money. As in we are engaging with them in terms of the inputs that we provide to the farm, in terms of high-quality feed that we provide from our company, in terms of the veterinarian services that we provide. We have 17 veterinarian doctors and many assistants who provide service to our farmers in terms of veterinary care. We have an internal app called as VET+ app, which has 120,000 or 1.2 lakh monthly active users. These are farmers who use our VET+ app for improving their productivity at the farm level. In terms of procurement, I don't think that we have ever mentioned that we have any challenges, and we absolutely have not lost even 1 liter of volume because of difficulties we may have had at procurement. Okay. It's probably the misunderstanding that may have happened is with some statements which meant that the last financial year saw milk volumes are not growing as expected across the milk production, not growing as expected across the country. That is an industry-wide phenomenon which was felt by all players in the industry. Sure. Sure, sir. Sir, just last one question. Is it fair to assume that from this quarter onwards in terms of margin accretion, we are looking at INR 10.5 crore one-time loss that you or revaluation year-to-date. Plus, there will be lower procurement prices compared to average of last month. Plus, you took a pricing increase of milk in last quarter. The only negative factor to offset some bit of those gains will be the worse of mix that you talked about. Because summer is obviously higher buttermilk and curd and all of that, and there is more fat in the second and third quarter probably. Is that a fair way to understand our margin profile going forward? Yeah, that is a very fair way. But to put numbers on any of this would be unfair. That's the only thing, because we are a company that operate across 11 states and each state behave in different fashion. There are different parameters at play. Some state might have excess rain, some states might have dry season. Our margin profile in each of the state would be different. So there's a lot of things at play. That's the only advice I'll give. In addition- On an average, I'm talking, sir. Yeah. In addition, we are also taking several value creation initiatives which will keep increasing the profitability going forward. Right. Thank you so much. Thank you. Our next question is from the line of Digant Haria from GreenEdge Wealth. Please go ahead. Hi. Thanks for the opportunity. My question is, last 5 quarters, we have seen very good growth on the revenue. Even before this good growth started for us, there were some procurement mismatches in states that somewhere we procured more, somewhere less than what we sold. Just wanted an update on have those mismatches been corrected? For the future growth, we will still need more milk. The approach that we are following is first let's build up sales and then do procurement, or we build procurement first and then think of sales. I think our high inventory buildup could also be because we want to compensate for these mismatches. Any comments here would be very helpful. Yeah. First let me address the mismatches. There are 2, 3 questions in your one single question. Mismatches. See, it's our endeavor to procure, process, and sell in one region in the most efficient manner. That's our business model. That is what Heritage is most famous for. That's what makes our products fresh and most delicious. That said, this is a natural product which has certain cyclicity, intra-year cyclicity, as you understand. When north of India has flush season, that could very well be a lean season in Tamil Nadu, right? These kind of things happen. When we operate in millions of liters per day kind of volume, you will see that certain regions in certain times might be producing more than it can consume, and certain other regions might be producing less than what it needs. Because of which, as a company operating across 11 states, we manage this internally through plant-to-plant movements. This is a very small percentage of, you can say that, plus or minus 10%, we are forced to manage it in this fashion. It's not just Heritage, I'm sure that there are all the other dairy companies operate in similar fashion. Right? That said, currently I do not think that it's of any concern to us, and that is definitely not the reason why we ended up with excess inventory that we carried or rather this particular situation that we are talking about. It is just a function of our increased volumes. For example, if you are looking at the period from July to October of this financial year, we expect our sales to be much higher than what it was last year same period, which requires certain quantities of fats and skim milk powder that we need to carry as an inventory. It is just so that we procured them at a time, or we procured or converted them at a time when the milk prices were at the highest. The milk prices have come off the cliff since then. We have just corrected the value to current prices as far as the inventory is concerned. That's all. I don't think that this would have been any different if there was a perfect match between procurement and sales. That's not even happened, because there is always a mismatch between procurement peak and sales peak. Perfect. All right, thanks, Sridhar. That was very detailed and helpful. Thanks for that. Second question is on our three focused value-added products, the paneer, curd, and ice cream. If you could just give a little bit of the initiative and how has those things panned out for us in the last three to six months? Curd, I think is doing very well for us. It's our first most important value-added product. In this summer, we launched an above the line marketing campaign as well. We were on television. We also used multiple other medium like out of home advertisement. We used digital to the maximum possible. We created a lot of excitement around as far as our curd is concerned. This has also resulted in, when we look at same store growth, we have been able to deliver much higher same-store growth than in the previous period thanks to all of this. As far as paneer is concerned, we are continuing to expand our distribution. I can safely say that we have expanded our distribution at least by 50% compared to same period last year. Quarter one, year-on-year basis, we must have expanded our distribution by 50% as far as paneer is concerned. That is also growing for us. Ice creams, we have shared with you that so many innovations we have done in the ice cream space. In terms of ice creams, we have also added 700-plus freezers during this quarter, and that has also helped us expand the footprint for our ice cream business. Okay. All right, sir. Thank you so much. That's it from my side. Thank you, and all the best. Thank you. Our next question is from the line of Rajat Setiya from iThought PMS. Please go ahead, sir. Hi. Thanks for the opportunity. Sir, with regards to direct online payments to the farmers, where do we stand today, and what is our thought process? Almost we are doing it about 28% now, directly to the farmers. Through our representatives also, the remaining it is going. Our direct farmer payments are increasing quarter to quarter month on month. 78, did you say? 28%. 28% is directly credited to the farmer's account, and the rest is paid through the agent. Through bank transactions. 100% is bank transaction. There is no cash involved. Okay. When you say agents, since we procured 100% milk directly, what do you mean by agents? In the Village 1, there are people. Village 1 is colloquially called agent. In every village, we have a group of farmers who supply milk to Heritage. One among them, a progressive farmer, is called representative of Heritage, colloquially called agent. He collects milk from all the farmers every day, both the shifts, along with his own milk, and they aggregate into cans. From there, company vehicles lift the milk to village. It is direct procurement only in all senses, except there is a payment system that happens into his account, and he transfers the money to others. In case of others, milk procurement mechanism is same. One of them is representative, and he or she collects milk from all the individual farmers in the village, and company vehicle will pick up. In those cases, the farmers offer their account, bank account, and money gets from company account directly to the farmer's account. Okay. Any particular reason why we do it through somebody and not directly to the farmers? Do we want to change it? That is based on the historical issues of villages not having branches of banks in those days, and they have no digital applications for collection of, for picking up money, et cetera. This is becoming more and more popular as the digital infrastructure has increased in the recent years. Okay. What about the new farmers, which probably we would have onboarded in the last 2-3 years? Are they 100% direct, or they are also through agent? Post-COVID, the digital infrastructure has set up, was established very well in almost all the areas. Use of smartphone, use of UPI has increased. Now 99% of the farmers adopt the digital mode. We don't have any conventional mode of payments now. 100% new farmers go on to digital, right from enrollment of farmers is also done digitally. All the transactions are done in digital mode. Okay. Okay. Even for the new farmers, payments may happen through agents, but in a digital mode, correct? No, no. New farmers are offering their bank accounts, and payments are directly done to the bank account of the individual farmer, whoever is joining us, let's say last one year. Prior to that, we had a mix. Now we are ensuring that they are on digital platform. Okay, understood. How many of our villages will have milk analyzers? Is it 100% or a low number? Close to 90% have in different modes. Some are company-owned, some are company-financed, some are owned by them, et cetera. But 90% will have analyzers in all their collection centers. The remaining also we are going to complete soon. Any particular reason why we have taken so much time not to implement that? Is there a practical challenge to doing that? It is only volume. Until they reach some reasonable volume, it is not viable for them also. Okay. Understood. Financially viable. Understood. Sir, one request, just like the previous participant, that whenever we are taking any provisions or something which is really material, it will be really helpful to disclose that in the presentations or the quarterly results that we upload. Besides, updating our presentation will also be helpful because if you see the number of parlors that we are talking about that we have, the number is quite odd number, and it is stagnant from the last five, six years. From a few years at least. So it will be really helpful if you can update those numbers in the presentation. That number is 859. Yes. It has remained like that. It is actually same. We haven't added or Wherever there are- Is there any reason we have not added? Yeah, definitely. I'll check. First of all, thank you for the suggestion about the notification of those materialistic issues in the results. Second, about the parlors number is actually same. We also feel that one may tend to believe that number is not updated, but there are certain dropouts during the year. We just refill them with the new franchisees, or if a few of them have gone, the road widening or traffic issues, we replace in somewhere else. We are focusing on expanding our distribution centers, where there are two advantages. One is retailing happens across the counter. Second, distribution also happens within the neighborhood. We are focusing on expanding our distribution centers, which are akin to parlors in most of the senses. Okay. The parlor traffic level, we are neither adding nor removing, except replacing wherever there are certain dropouts. Okay, understood, sir. My apologies for misinterpreting this number. They are called happiness points, which are improved version of parlors. In the distribution channel, both look alike and both serve the same purpose. But we have frozen that number of parlors there, and expansion is through the happiness points, which are also called distribution centers. All right. Understood, sir. Thank you so much. Thank you. Wish you all the best. Glad you brought it up. It might be bothering a few more. Sure, sir. Thank you. Thank you. Before we take the next question, a reminder to all participants that you may press star and one to ask a question. Our next question is from the line of Sauditya from Securities Investment Management Co. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. Sir, if you could help us understand, when does the flush season start for us? And how do the procurement prices behave in a period where there is a flush season versus a period where there is no flush? Million-dollar or billion-dollar now. When the flush season starts, we used to have a very standard answer in the past. October is the beginning of flush season. But things have changed with this climate issue, COVID issues. Last three years, the start date of flush season, we are able to recognize in hindsight, not able to see it when it happens, because it is not happening. Last two years, actually, the flush season did not even happen. This year, suddenly milk procurement started improving in the month of June, which is actually a difficult quarter otherwise, summer quarter. So the traditional identifiable period is October to March, where the production of milk from animals is high, and availability of milk is high. That is why it is called flush. But that got blurred now. The dates and months are blurred with the climate change issues and post-COVID and lumpy skin disease, et cetera. We do hope this year onwards, the flush begins again in October in a predictable and certain way. The prices do behave exactly same. Typically, in the flush season, that is October to March, the weather also will be cold. So the demand side, there will be drop. Production side, there will be surplus and heavy inflows. So the prices also at farm gate goes down a bit during this period. As we enter summer towards the end of March, April in certain geographies, maybe May, June in certain geographies, prices at farm gate start rising as the demand increases and production fall begins. That is the pricing cycle. What I am explaining is a traditional, conventional in the past. But this has changed. It has become a bit uncertain, unpredictable with the kind of weather you are seeing nowadays. Okay, sir. Assuming there is a normal flush starting from October, and the procurement prices, as you say, generally drop. So do we pass on the lower procurement price to the customer or we take the benefit? No. So if I could just summarize what you just heard now. This is a hypothetical question, right? So we think that the prices would marginally come down from now till end of December, and that benefit will actually accrue to us as far as the procurement pricing is concerned. Because usually, we have never done market price correction in the past in terms of downward revision. I do not think we have ever done it in the past. I do not see any reason why we will do that in the future also. But I do not think anyone in the industry also ever does a downward price revision. So that is fair. But at the same time, I would also request you to please be, in the earlier section also I mentioned this, that it cannot be considered as a very linear thing. Because the market mix changes, the product mix changes. A lot of things change. So it does not mean that if, let us say, procurement prices come down by 5%, that will accrue to bottom line on a straightforward manner. But any which ways, we expect the procurement price to be lower than what we are paying today. Okay, sir. Sir, what is the percentage of procurement we have from different states, if you can specify the percentage? See, as I mentioned, we procure from nine states. We actually have never given a percentage procurement from various states, but I can safely say that the largest states as far as procurement is concerned are AP, Tamil Nadu, Maharashtra, Telangana. Apart from that, we also procure a little bit of volumes from Karnataka, we procure from Odisha, we procure from Rajasthan, Punjab, U.P. So, it is pretty spread out for us. Got it, sir. Trends which you can see regarding the procurement prices for the different states we take from. Any particular state which has seen a larger fall? Larger fall? Procurement volumes are actually. You are talking about volumes or prices? Sir, prices. Yeah. Prices. See, prices have come off the peak in a similar fashion across. You could say that it is mostly, let's say Maharashtra, which has led, in terms of procurement price improvement, has been significant in Maharashtra. I think it is followed similarly across all markets, a little bit here or there. Got it, sir. Sir, when the procurement prices come down, we get the advantage of the higher selling price in the milk. For a value-added product, do we keep the prices same or we pass on some benefit to the customer? So, see, listen. We should think of it as maximum retail price as far as consumer is concerned, right? So maximum retail price usually is never corrected downwards, whether it is for milk or value-added products. But the net realization that the company benefits from is a function of the promotions that we run, is a function of the trade margins we share with our trade partners, et cetera. Right? That might go up or down, which is what we report as the net revenue per liter or kg. That in, let's say, a tougher sales period, even though we may not revise the MRP or the consumer price, we might pass on and the net revenue could come down or go up, as the case might be. But net-net, if you look at in long term, it is always an upward moving number. Got it, sir. That was helpful. I will come back with you. Thank you. Ladies and gentlemen, you may press star and 1 to ask a question. Our next question is from the line of Jagvir Singh from Shade Capital. Please go ahead. Sir, thanks for the opportunity. My first question is related to the procurement. Can you tell us what percentage the procurement we do comes from North India? Delhi procurement or overall? From North India. Okay. What percentage of procurement on milk we do comes from North India? Yeah. Our business in North is roughly around 4%-5% of our overall business. You could say that the procurement will be in line with that. Okay. Next is related to the competitors. We have same competitors in the same areas, Gopal, Amul. They have very higher margins. What is the difference between them and us? Why we don't take these kind of margins? Yeah, see. If you compare the top four private dairy companies, all four have very different business models. Somebody might have a higher contribution from ice creams, somebody might have a higher contribution from B2B business or from, let's say, cheese and fats. Somebody else might have a higher contribution from certain states, where price advantage might play out in certain times. Different people have different business models. These business models play out differently at different times. There are times when there are certain states have an advantage on the procurement side because of suppressed prices maintained by the lead state cooperative in that state, because of which the procurement prices in that particular state might be lower. They might have an advantage. At certain times, certain products might work very well. There are also, on the downside, there are times when, let's say, for example, the B2B business goes down, as we saw during COVID. There are certain companies that have to take a massive hit because of that, because of provisions that they have to book. I think that it is very difficult for anyone to compare on a like-like basis and make predictions. My recommendation is that our business model is very clear, and we have been actively, proactively communicating on what we intend to do. We are diversified across regions, and that de-risks us because we have not put all our eggs in one basket. We are on a constant push to increasing our value-added products contribution. We have openly stated that it's our ambition to take our value-added products to 40% contribution as far as business is concerned. We have also mentioned that it's our stated ambition to grow our business consistently and consecutively quarter on quarter and take it to a 6,000 crore revenue in the nearest possible timeframe. We have also mentioned that the value creation initiatives or the initiatives that we have taken to expand our margins will allow us to take our business steadily towards the 7%-8% EBITDA corridor over a period in time. If you're looking at Heritage on Heritage, you should be able to see improvement in the medium term as well as long term. That's all I can say at this point. Thank you very much, sir. This is for Thank you. Our next question is from the line of Sneha Jain from SKS Capital. Please go ahead. Hello. Yes, ma'am, please go ahead with your question. Yeah, thank you for the opportunity, sir. I just had a question regarding the shareholding pattern. You have been at 41% approximate for quite some time. I mean, why aren't we seeing the increase at that 51%? I mean, are we at least 51% or increasing it? Are we looking for a stake sale or something of that sort? Can you repeat? Ma'am, Sneha ma'am, we request you to use your handset, please, as your audio is not clear. I'm using headset. Am I audible better? Yes. Yes, please go ahead. I just wanted to ask, the shareholding pattern has been at 41% promoter holding basically for quite some time. Why aren't we looking to increase it to at least 51%? Are we looking at a stake sale or any buyout or anything of that sort? I mean, or some institutional buying or something like that? Sneha, this is Brahmani here. Yeah. That is not the intention. We are to the company. We are inspired by the vision of the company and the future growth prospects. The idea is to stay committed in the growth journey of INR 6,000 crore and beyond, and to improve the image of the company and make ourselves not just a large value-added product player, but the number one value-added product player in the dairy industry in India. There is absolutely no thought of stake sale or anything like that from the promoter family side that is under thought or that is being entertained. Why are not we looking at increasing our stake, the promoter stake? That is a function of resource allocation to various portfolios. Maybe that is private to them. Okay. Have any thoughts? We are happy to listen to your thoughts and ideas. No, we have been invested, like majorly invested in the company for quite a few years, and I have been very faithful to the company actually. So an increase of stake by the promoters in the same faith would even make us happy. That is what the intention was of asking this question. We are trying to make you happy with our performance first. Yeah, that is for sure. Of course. That's fair. Thank you. Okay, that's it. Thank you so much. Thank you. Our next question is from the line of Yogesh Bhatia from Sequent Investments. Please go ahead. Hi. Good evening, sir. Sir, I wanted to know what was our volumes in FY 2023 and full year FY 2023 and full year FY 2022, that's it. What volume? Volumes or sales volume? Volume. Sales volume, not procurement volume. Sales volume. Sales volume. Okay. Full year. Full year. Are you looking at one volume? No, ma'am. Full year. FY 2022 and FY 2023. Okay. That is right. Please give us a moment while we pull up the exact numbers. Yeah. Perhaps in the meanwhile, we can take another question. Yeah, I will tell you the overall volume. Hello? Yeah. FY 2022, it is 13.5 lakh liters. Okay. FY 2023, it is 15.01 lakh liters. FY 2022 was how much, sir? 13.5 lakh liters. 13.5 lakh liters, and FY 2023, 15 lakh liters. Yes. Okay. Sir, should we expect a reasonable 8%-10% volume growth from the network that we have increased and organically also? Yes, that is what we aim to achieve. Okay. Thank you, sir. That is it. Thank you. Our next question is from the line of Aman Vij from Astute Investment Management. Please go ahead. Yeah. Good evening, sir. My question is on this, if you can give the region-wide sales, and where are we seeing much more stronger growth? Is it east region or is it west region or is it the south region where we are seeing stronger growth? Let me first talk about the regions where we sell. Of course, we are headquartered in Hyderabad, so Telangana, AP, Tamil Nadu, Karnataka, Maharashtra, Odisha. We sell in Delhi N.C.R. region, we sell in Haryana, we sell in Punjab, and we sell a little bit in U.K., Uttarakhand as well. That said, let's say you are aware that primarily last part of our volume comes from the South, and the contribution from North and West are roughly similar. In terms of volume growth, we are seeing much faster growth in the smaller geographies for us, whether it is North, West, or the other regions which are, let's say, whether it is Karnataka and all, are all much faster-growing markets for us compared to our home ground, which is Telangana. Sorry, sir. What is the current contribution from North and West? You said they are equal, but in terms of overall sales, what is the current contribution from North and West region individually? Roughly 7%-8% will be the contribution both combined. Okay, so 90%-plus is still these 4, 5 states in and around Telangana and AP, right? The southern 4 states, you could say. Southern 4 states, yes. My next question is on the value-added product. That is also where I missed Kerala. Sure. Going forward, whenever we achieve that INR 6,000 crore sales number with the aspiration, do you think the North and West can be around 20%-25% of our sales, or do you think the mix will be broadly the same? Okay. I do not want to put a number on it, but I can very safely say that the contribution of North and West would be much, much higher than what it is today, for sure. Sure, sir. My next question is on the value-added side. We have one or two categories where we get greater than INR 100 crore sales. If you can talk about, do you think some of these categories over the next three, five years, is there a potential for them? I am talking about non-curd value-added, because obviously curd is a major contributor. But do you think some of these categories can become a INR 300 crore to INR 500 crore category over the next three, five years for us in non-curd value-added, I am talking about? Yeah, absolutely. Let me reiterate that. Curd is something that we are very proud of. In fact, Heritage is known for its curd. Our consumers really love our curd and can't have enough of it. We are trying our best to be the largest curd player in the country. Today, we reckon that we might be the third largest in terms of volume or value. That curd itself is going to be a large driver of growth for us, and it is as profitable as any of our other value-added products in our portfolio. That said, our ambition is not limited to curd, primarily because consumers enjoy dairy products in multiple formats throughout the day in multiple occasions where the needs are different. For example, if somebody wants to have an indulgence, the consumer might pick up an ice cream and not a curd. The same way, if a consumer is looking for a health drink, she or he might be picking up a flavored milk or any other beverage compared to a curd. We are invested, and in the previous calls also, we had mentioned that we have divided our value-added products portfolio into five category clusters, as we call it, whether it is foods, drinkables, sweets, fats, or ice creams. We have a very clear strategy in place for growing all these categories individually, because the growth strategies of each one is very different. When we think about the time when we would be at INR 6,000 crores revenue, each of these categories, whether it is sweets or fats, each one of them will be a sizable contributor to our value-added product portfolio. Of course, curd will continue to be the largest contributor, but all these others will also be meaningful and significant contributors. Some of them would cross INR 300 crores in revenue, and some of them might even cross INR 500 crores in revenue. That's very good to hear. On the marketing spend side, given we are trying to create and expand the value-added portion in these categories, what is the marketing budget we have set for this year, and what was it, say, for last year? If you can talk about the same. Last year we spent 0.5% of our revenue in marketing. We have been extremely prudent in the way we have spent our marketing money. We have made every penny sweat and work the best as far as delivery is concerned. When we compare our delivery metrics to the industry, we are much better off compared to anyone. This year we have budgeted for 1% of our revenue as marketing budget. But these numbers can change over a period in time. We spend marketing as and when we need it. Currently, the investment that we have is going hand-in-hand with the distribution expansion and the innovations we are doing in the field. Sure, sir. Final question from my side, sir. This quarter growth, was it as per your expectation? Was it below your expectation? If you can talk about the same, because last four, five quarters we were growing at a much faster rate than we did- Definitely. I can very safely say it is below our expectation. Right? Primarily, I should say that this was primarily on account of weather, especially in the markets where we operated, and this weather has become a little unpredictable, as you all know. The two months, April and May, were actually quite harsh as far as the weather is concerned. Especially in our growth markets, we saw temperature dip as high as 5 degrees. The average temperature dipped by 5 degrees compared to previous year, same month. But what is so encouraging for us is that in the month of June, where the weather and temperatures were comparable with the same period in the last year, our growth numbers were hitting on budget and our targets. We are back on track from June onwards. Yes, the numbers could have been better if the weather was much better. You are not seeing any weather impact, say, in July, August? Or have you seen any impact in this quarter as well? No. See, at this point in time, July has gone off. Weather-wise, it was good. What I should say is that, you look at Q1. Q1, I think that this was a freakish quarter that we had as far as weather is concerned, and we still delivered close to 13% of growth. We are working on strategies that will weather-proof ourselves. We will have to work harder, that is all. Sure, sir. Thank you for answering all the questions. Thank you. Ladies and gentlemen, that was the last question of our question and answer session. I would now like to hand the conference over to Dr. Rao for closing comments. Thank you all. Thank you for your continued interest in Heritage, and thanks for all your suggestions, particularly the accounting reporting suggestions which we missed. Thank you once again, and look forward to continued interaction in the coming quarters as well. Bye. Thank you. On behalf of Heritage Foods Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.