Status update

Jun 12, 2025

Summary

Milk procurement grew at a 10.6% CAGR over four years, while value-added products reached ~37% of revenue. Strategy centers on expanding branded products, distribution and capacity, with a ~50% value-added mix goal in 6–7 years.

Good afternoon, everyone. Welcome to another enriching session of Knowledge Series by Go India Advisors. I am Garima Singla, and I am joined by Mr. Rakesh Arora, founder of Go India Stocks. Today, we are truly delighted to host Mr. Srideep Kesavan, CEO of Heritage Foods. An alumni of XLRI Jamshedpur, Mr. Kesavan brings with him over 28 years of leadership across FMCG giants such as Coca-Cola and Olam International. He joined Heritage Foods in 2021 and has led a remarkable transformation, scaling milk procurement up to 1.7 million liters per day across 11,000 plus villages while embedding innovation and sustainability at the heart of company's operations. He is widely recognized for his deep leadership and digital-first strategies and customer-centric approach. Srideep, sir, a very warm welcome, and we are eager to hear from you the inspiring journey and insights into the rapidly evolving dairy industry. We are also joined by Mr. Umakanta Barik, company secretary and compliance officer. Next slide, please. I will also take a minute to introduce Heritage Foods. Founded in 1992, Heritage Foods is one of India's leading dairy companies. It serves over 10 million customers and has a deep-rooted integrated supply chain. It directly sources the milk from 3 lakh plus farmers, operates 18 state-of-the-art processing facilities, and sells its products across 17 states. The focus areas remain clear, selling high-quality differentiated products and growing the share of the VAP portfolio in terms of the revenue. As the company has declared its 34th foundation day on 5th of June, it has set forth an ambitious target to become the most admired dairy company in India. Without any further ado, I would like to hand it over to Mr. Rakesh Arora, who will lead the fireside chat with Mr. Srideep Kesavan and Mr. Umakanta Barik. Thank you, and over to you, sir. Thank you, Garima. Welcome to the show. I just wanted to start with asking you one of the basic questions because dairy is such an unorganized sector, and then you have so many cooperatives who do not really have profit as the main motive. In this kind of tough environment, how do we see ourselves? Meaning, what is allowing us to make a decent return for our investors as well as servicing our customers? Thank you, Rakesh, for having us on the show. Both Umakant and I, we were just talking just before this conversation started, how we are delighted that we are finally on your show, which is watched by so many investors. I think it is an amazing, absolutely brilliant medium you have created to reach out to such a wide population. So happy to be here. Thank you, sir. Thank you. Welcome. Yeah. You have to go back a little bit in history to answer the question that you asked. Just before I go back, let me start from where we are today. Today, India is the largest producer of milk in the world. India produces about 250 million tons of milk, which is about 25% of all the global production. Even on a per capita basis, India's per capita dairy production is about 420 grams per person, which is incredible. About 50, 60 years ago, India was a milk deficit country. There was a big case of malnourishment. The first phase of it was addressed through White Revolution, which was primarily driven by the cooperatives. It was around '91, '92, at the time of economic liberalization, that the government brought in the Milk and Milk Products Order, MMPO, as we call it, in 1992, which liberalized the sector for the private companies to compete as well. The idea was that government, in the true spirit of competitive liberalism, felt that with more innovative companies coming in, there will be better products and lesser monopoly and consumers will be benefited better. Innovation will be driven, and that is what is going to create value in the industry. The government was so right in that, 30 years ago, 33 years ago, the contribution of private dairy companies was 0%. Today, fast-forward 33 years, and out of the INR 4.5 lakh crore, which is the size of the industry, 55% of it is contributed by private companies like us, right? That wouldn't have been possible if there was no way of creating value. The fact that we have grown from 0% to 55%, and all private companies, including Heritage, we exist to make profits. Actually, without profits, we cannot survive. If it was not possible, it wouldn't have grown from 0% to 55%. I'd also like to call out a couple of other points. The first is the contribution of value-added dairy, and this is something that we can speak in detail later. Value-added dairy was the primary purpose of MMPO. The idea of a Milk and Milk Product Act was to encourage private companies to come in with value-added dairy, and which is what has eventually happened because except for, let's say, a couple of large cooperatives like Amul and Mother Dairy, mostly, the innovations in value-added dairy has been created by the private companies. The second aspect I would like to talk about is branding and the premium or the equity that we're able to create through branding and by serving the consumer better. That is actually, if you ask a cooperative, they are probably single-minded focused on the farmer, whereas companies like Heritage, in our mission statement itself, we have said that to delight our consumers with fresh and healthy products and to empower farmers, which means there are two parts to it. One part of it, 50% of our focus is on building brand equity, which is what creates value and which is how we compete and win against cooperatives. Got it, sir. That clearly answers our first question. I just wanted to ask, how do you decide on from where are you going to procure the milk? Because it's so widespread and while there are other cooperatives, et cetera. How do you earmark that area, that this is the area we are going to focus on? Recently, I'm hearing that you guys are also looking to venture into East India, and one of your other competitor also mentioned East India. So what is the thought process in selecting the catchment area for milk? Sure. Before I get into East India, I'll speak a little bit about the milk procurement side. Our company was founded at a time when farmers were going through distress, and that too in the specific political constituency of our founder, Mr. Chandrababu Naidu. And that is in southern Andhra, near Tirupati. The farmers were actually under distress because the cooperatives had failed in that area. And an animal which produces milk on an everyday basis cannot stop producing, and farmers, if you don't get an income for that, they have no way but to throw the milk away. So our company was born in a period of distress like that, which continues to be one of the core purposes of the mission that we have in our minds and why we exist. Our approach to identifying milk is actually from the point of view of which is an underserved area where farmers can benefit with Heritage stepping in. That is where we step in and procure our milk. As I just now said, not more than 45% of the revenue from organized sector come from cooperatives. Now, forget all of this. You should also understand, out of the total 240 million metric tons, roughly around 40% of that is consumed by the producer herself or himself. Because in a village, a household has got an animal, many of them are keeping the animal only for their own consumption. They are not selling it outside. Only 60% or 65% come into the open market as a commercial opportunity. That value is roughly around INR 11.5 lakh crore for the country. Out of the INR 11.5 lakh crore, only INR 4.5 lakh crore is organized, which means that roughly around INR 7 lakh crore is in the unorganized sector. The competition is often not between the private companies and the cooperatives, but the competition is private and cooperatives together against the unorganized sector. Because the unorganized sector is where the farmer is losing value. Because whether it is cooperative sector or the private company, we all add value to the farmer. India still has about two thirds of the villages which are still underserved, which are usually in the catchment area of the unorganized players. Our teams continuously do what you call as market mapping, and they do assessment of the milk potential of the area. Wherever we feel there is an area where there is no organized player playing, that is where we step in and the farmer is immediately able to see value. That said, you mentioned East India. See, the products that we serve can be primarily clubbed. At a very basic level can be divided into two. The large part of the portfolio that we serve is what we call as fresh products, which have got shelf life of less than seven days. Then we have ambient long shelf life, which ranges from one month to even 12 months, like ice creams and some of our ghee variants and all have got 12-month shelf life. It is all these long shelf life ambient products, whether it is milkshakes or ghee, these are the products that we are serving consumers all over India. As far as our fresh products are concerned, our principle actually is to serve consumers in a tight geography so that milk doesn't travel much. We always look at minimizing the distance from the producer, the dairy producer, to the processing plant, to the consumer. That triangle is something that we are obsessed about, and we ensure that the milk doesn't travel more than, let's say, 300 kilometers or so. Okay. You will not find our milk or curd or something in, let's say, U.P. and Bengal and all that, unless we set up our milk procurement in those regions. Mm-hmm. Looking at or understanding you, there is a still large untapped potential for the milk procurement. One of the questions people are raising that we haven't really grown our catchment area very fast, given the opportunity size. Are there any reasons and is it going to change a little bit under your direction now? Rakesh, if you could just clarify, what do you mean by catchment area? One of the questions is that our procurement has been weak as compared to some of our peers. We aren't growing our milk volumes as fast as some of our peers. What are the challenges? Is it a conscious decision that we are more focused on premiumization, et cetera, so that we are not How should one look at our volume growth for milk? Yeah. For the benefit of listeners, I will just explain how it works. For someone who is not very familiar with the business, it looks more like a chicken and egg. That is primarily because of the narrative that comes from cooperative organizations. Because the cooperative organizations work in a very different manner. Their primary purpose is building marketability of the milk that is produced. They are more focused on producing milk. They are more focused on the farmers. If I am a cooperative company, the primary thing that I am focused on is go to a farmer and say, "Produce." Because they want to drive the production up. Once the production happens, their job is just to market it. Market it means just find a revenue outlet for it. Because their constitution is not to generate profits, right? Right. It is to find marketability of the milk that is produced by the farmer. We are not like that. So which is why in our mission statement it is very clear, it starts with delighting every home with fresh and healthy products, and empowering the farmer. So farmer is a very important stakeholder for us, but an equally important stakeholder for us is the consumer. So for us at Heritage, it is about balancing the market side and the supply side. So demand and supply have to be balanced. And if at all, if I have to break the chicken and egg, it is usually on the market side. So I build demand, and I build the supply side to match the demand. So if my milk procurement volume has grown at 10.6% year-on-year in the last four years, at a CAGR of 10.6%, that is because that is the level at which the volumes have grown for me. My volumes have actually grown at about 9.8% CAGR in the last four years. Our revenue CAGR is about 14.3% because the gap of 4.3% or 4.5 percentage is actually the price hardening, the revenue realization per liter. So if I don't need milk, I don't need to procure milk, right. Tomorrow, if my volume growth becomes 15%, then I will get 15 percentage of volume milk. That said, the question also carried something about comparison with competition. I would actually like to see the numbers. On a domestic scenario, I am pretty confident that we are one of the fastest-growing private dairy companies as far as the milk volume growth is concerned since COVID. If the person who asked the question feels otherwise, then we'll have to speak with data. I think you made extremely important point about being focused on your consumer, which is the demand, rather than the supply itself. Because we have seen historically a lot of dairy companies have gone bankrupt trying to buy cheap milk and hoping that they'll be able to sell it later on and settled with unsold inventory. So I think that's a very conservative thing. This brings to my next point, which I wanted to discuss. Where are we in terms of demand-supply for milk. Because farmers get excited, they increase the supply, and then suddenly there's a glut. The last few years have been very good for us in the industry. So where do you see we are in the cycle, and where it's headed for the next few years. Touch wood, the scenario of milk production is very stable in the country, and I hope I don't jinx it by saying it. And we have just seen about last 18 to 20 months of stable production. See, COVID was a massive disruptor. For the benefit of your listeners, I'll just take a minute to explain, because many people may not, when they analyze our P&L statement for the last four years, they might see massive swings. The reason is that during COVID, the raw milk prices went down as low as INR 18 or INR 19 per liter. You can imagine, the reason is that the demand side was not working, right? The demand crashed during COVID, so there was no taker for milk. Companies like Heritage Foods and Amul and all continued to buy milk, but still there is a long, huge number of unorganized players like in this country, right? They all dropped and ran away. When you have that kind of scenario and farmers have no outlet for sales, the prices crash. It is eventually a supply-demand issue. When it came down to INR 19 or INR 18 and all of that, a lot of farmers exited dairy. India has about 8 crore farmers, so even if, let us say, certain few lakhs of people leave, you will suddenly feel shrinkage of production. The second factor was during COVID, due to restrictions of movement and all. Animals are mammals, so they need to get pregnant, deliver, lactate. If you do not get into that cycle because of the COVID movement restrictions and all of that, certain percentage of animals missed a lactation cycle, so they went out of production. Thirdly, the stock was hit by one bout of foot-and-mouth disease. All of this meant that some 3%-4% of milk production in India shrank. In a country which produces 200 plus million tons, if you have 4% disappearing, means that is about 10 million tons disappearing, and that impacted it tremendously for us. That is the reason why three years ago, two and a half years ago, the prices went skyrocketing. When the prices went skyrocketing, the profitability of all of us were massively impacted. When that happened, when the prices went so high, lot of producers jumped in and started producing massively, right? This happens in the agricultural industry. Just for the last 18 months or so, there is stability. As in the farm level prices are really good. At the farm level, the economics is good, which means that we should see this situation persisting for some more time. That does not mean that prices will not go up. Currently, we are seeing about 4%-5% price increase in milk. That is in line with the inflation, which is ideally good because that means that the farmers' cost inputs are being matched. Production remaining stable, prices remaining stable is good news for us. That gives us space and time to focus on what is important, which is building demand. I wanted to ask, how do you price your purchase of milk? Is there some standard or you increase it, then the other cooperative increase it? How does it happen, actually? How do you keep track of cost of production for the farmer? Okay. I do not think there is any two company which has the same pricing or even the same pricing model in the country, right? It is a little complex. If I can just explain. When we buy milk, we actually do not pay milk in liters. We pay money for the solids that is delivered. When the milk is poured at our reception, at our collection centers, we have got these digital machines which measures the fat content and the solids in the milk. Because if I pay for the milk as a quantity, then they will probably add water and give me, right? The water is not paid money for. The money Right is only paid for the solids that they bring, right? The way the pricing is determined is for a standard. Let us say, for example, 4% fat and 8.5% SNF kind of thing. Maybe at that price, there could be a parity with respect to competition. Beyond that or below that, the pricing, whether it is what is the price paid at 8.6%, 8.7%, 8.8%, 8.9% SNF, the price chart varies for different companies depending on the strategy. If I am a company which requires high fat, I pay more price for the fat rather than SNF. It is a two-way pricing chart, if you can imagine, right? In terms of price discovery, it is just like in any business, any commodity business. If I price it low, like today, let us say, for example, my cow milk price is INR 292 for total solids, let us say, per kg of solids. If I drop it, let us say I drop it to 285. Suddenly I see volume dropping. If I see volume dropping, I will bring it back to 292. If I do not see volume dropping, I will keep it at 285. That's how price discovery is done, right? There's no other way to do it. Okay. We want to discuss this value-added stuff and all that, but before that, I just wanted to ask you questions from a user point of view. I find my wife saying that, "Buy this brand only. It tastes different. This brand is different." Then we tried all this fancy Pride of Cows thing and Country Delight. How do you account for these kind of differences? The basic differences like cow versus buffalo also. Do you differentiate that also? Absolutely. Everybody looks at milk and thinks it's white milk, but it's not. It's not a commodity. Actually, we call it recipe. At Heritage, we procure about 20% of the milk that we procure is buffalo milk. Cow milk is cheaper, but we insist on procuring 20% is buffalo milk because we need it for the recipes that we have. Every product that we put out in the market is actually a recipe, which is why we have built the kind of loyal consumer base that we have, which is also what allows us to charge a premium over any other brand. Ideally, our Heritage brand anywhere is always sold at a premium. That's a function of recipe. Right. Now, apart from recipe, there is also quality. Quality is something that significantly matters to a consumer. I can maybe demystify that in simple layman terms. For example, for someone who's a milk user, if you keep a milk and if it splits while boiling, it's not good quality. Why does this happen? Because of the high bacterial load in the milk. At Heritage, for example, we ensure that the raw milk never travels more than 25 kilometers. We're obsessed with that. We have 200 chilling centers spread across six states. There is obviously milk available 50 kilometers from the chilling center, but we don't pick it up, even if we need the milk. We look for milk within the 25-kilometer radius. Why? Because after milking, we need the milk to come to our chilling center within one or two hours. Okay. That allows us to instantly chill the milk to 4 degrees. If you are able to do that, the bacterial load in the milk is frozen at a particular level. The same chilled milk, when it moves to our manufacturing centers, which are closer to our consumer centers, and we make products out of that, including milk, that milk is naturally of highest quality. The quality test that we do is called as MBRT, is Methylene Blue Reduction Test. It stays good in ambient for about 7 hours, no problem. People think we add preservatives and all of that. There is absolutely no preservative in it. It is the cleanest clean label product that you can ever have. It is just the source quality that makes a difference. If you are able to deliver it like that, of course, I am sure, Rakesh, that your wife will probably pay a 10% premium for Heritage milk. That is our success mantra. Yeah. Well, of course. Do we also sell all this fancy A2 milk and milk from one source, which we are paying like INR 100 per liter when milk is available at INR 44 or something. So- It is do we sell this and what is the proportion of this kind of milk, and is it growing faster given that people are getting a little bit more rich, I would say? It is still a very niche business. Right I should say. The largest brand that we have in India is Pride of Cows. Parag Foods, Pride of Cows is the largest brand that we have. We do not have single origin milk. For single origin milk, to do any meaningful conversion, because we are a large volume player, right? We need access to at least 5,000 liters because that's the size of our smallest silo. You need 5,000 liters from a single source. Either you rear your own cows like they do in Pride of Cows, they have their own cows. We are not in the business of cows. Okay. Or, we need to find some other partner who's able to produce at that scale. We don't have single origin. But definitely, we have niche premium brands. One brand that we have is called Village Buffalo Milk. Okay. Village Buffalo Milk, it is non-standardized, non-homogenized milk, as is. The government standards, FSSAI standards says full cream milk needs to have minimum 6% fat. In the Village Buffalo Milk, is buffalo milk as is. Buffalo produces 7%, you will get 7% fat. If buffalo chooses to produce 7.5%, you will get 7.5%. We do not touch it at all. As is we get. Definitely, the buffalo produces above 6%, so we are on the safe side. That we sell at a premium, right? There is another product which we have, we recently launched Sampurna A2 Milk. That is an A2 milk. It is a uniquely chosen A2 indigenous breed milk, which is also sold at a premium. That is selling in Mumbai and certain other markets, Bangalore and all. There is another product which we launched in Delhi, it is called Sargun. Through these, Sargun is another milk which we have, which is partially homogenized. These are kind of brands which we are creating, trying to non-commoditize the milk space also. Eventually, our vision is that even milk can become a value-added product. I will come to value-added theme back. But before that, I wanted to ask you about our distribution network. There was one question about our retail outlets have not really grown as much. What is our distribution network, and what is our strategy in terms of growing that? Yeah. So see, I believe our retail network has grown. I believe maybe the person who has asked or some of the data points that you might have pulled in must be some of the reported numbers from the company in the past. See, there are two things that we need to understand as far as retail network reported by any company in the consumer space is concerned, not just Heritage. The retail universe is defined as coverage. Coverage means having access to an outlet is called as coverage. When Unilever says that it has got 4 million outlets covered, means that it does not mean that it is selling in 4 million outlets every day or something like that, right? It comes in the coverage of the company, right? We have actually converted that into an effective coverage in the last several years. While, let us say four years ago, we must have had a coverage of 200,000 outlets, and today our effective coverage is close to about 2.7 million outlets. You might think that it is actually 200,000 grown to 2.7 million or something. But actually, effective coverage is in 2.7 million. Okay. Which means have that. Where is the volume growth coming from? We have literally doubled our business from some 11.8 million or 12 million liters to close to about 17, 18 million liters, and the revenue of INR 4,100 crores. It has happened because of the effective coverage increase. This effective coverage has improved because we have implemented a strategy of fit-for-purpose route to market. This is something that we strategized about four years ago, and we have been at it because we are focused on consumer. We are looking at where is the consumer going. There are two avatars of the consumer. One is a consumer who consumes, and there is an avatar of consumer called a shopper. Shopper is a consumer who buys. A shopper need not necessarily be a consumer or vice versa. So we keep track of the shopper trends. We understand where the shopper is buying. For example, one of the things that we have looked at is the growth of dairy in grocery. If you go back a decade or two, 99% of the milk used to get sold from milk booths or parlors. Today, that is not the case. Milk is actually sold largely from your neighborhood grocery stores. It is not just about milk, even value-added dairy. If that has to be sold from grocery stores, then my milk distributors or the traditional milk distributors are not going to get me there. Then I need a route to market which gets me there. I am looking at FMCG distributors who can take my products out there. Today we have FMCG distributors who are giving me coverage of 1.2 million to 1.3 million outlets. Okay. You might see if you make a Venn diagram, there might be a certain overlap, but my effective coverage has increased. The number of lines that I sell in these shops have increased. My availability has increased in these stores, et cetera. Got it. Coming to value-added products, there are multiple questions which come to mind. One is that you are selling milk, asset turnover is so high, ROCE is like infinite. That is quite attractive from an investor point of view. Then you want to have all full range of products. We want to do cheese, butter, whatever. Now, with all these new-age companies coming in, meaning they are experimenting with such niche products. Is there enough margin to compensate for the working capital requirements? Is it easy to manage so many SKUs, or are we better off focusing on, because we are a large company, and we are better off focusing on some large segments only. Finally, expectations are very high from you, by the way. Can you tell us what is the strategy which you have finally balanced all these things? Yeah. Thanks, Rakesh. This is a question we debate a lot internally as well. In fact, actually, we used to debate a lot earlier. I think we have got clarity on this, which is why we are on this path now. Okay, we are on the path of we laid down the strategy, and we are executing it. Right? I will answer this question in three different parts, and rather three different perspectives I will give. They are not parts. They are looking at the animal from three different angles. Okay? Let me first talk about the first angle, which is the simplistic angle. Which is, I wish there was a way that milk would grow at 15%-20% CAGR year on year, and I am able to make EBITDA of 10%. I will stop doing value-added products. Yeah. Okay. Okay. Yeah. I will just stop tomorrow. Okay, so there is no way. Because milk volumes, while I spoke about the unorganized from organized sectors, right? Milk is a category which has penetrated the maximum. 60% of all milk that is consumed in the country is in the organized space. Whereas only 20% of ghee is organized, 18% of curd is organized, 6% or 7% of paneer is organized. The moment you look at value-added products, large part of it is all unorganized. If I wait for milk only will grow at the rate at which population grows. In fact, actually, yesterday, I read a news article saying that Indian population has kind of maxed out and the birth rate has dropped below replacement rate. The population also is growing at the rate of urbanization, I should say, because we are primarily an urban company, which is 3% or 4%. I do not think that milk will grow more than that, right? There is no way I can take the EBITDA of milk to the levels that I really want. The second angle that I would like to Rakesh, are you- Yeah. We are just- Sorry. One slide to support you. Okay. Please go ahead. Sure. No, I thought you were asking question. You were on mute, I thought. No, I was just telling Garima to open one slide to show the value added and their margins. Yeah. Sure. The second angle or second way to look at it is the question that you asked us specifically pertaining to the return on assets or ROCE, per se. Large part of the value added products and where we see really value as far as company Heritage is concerned, is mostly on the fresh value-added products, whether it is curd, whether it is buttermilk. Buttermilk is one of our fastest growing categories. I am especially passionate about buttermilk because I used to work for a beverage industry for almost two decades. I see, we used to do so many consumer tests, and whenever we test any aerated beverage with buttermilk, the buttermilk will always win. But in India, there is no company which has actually made it big. Reason being, nobody has done a marketing effort like the beverage majors have done. Similarly, paneer. For the last four years, paneer is growing at Well, yeah. Garima, we will come back to this issue, because I think- You just raised a very topical point which I wanted. It is coming from my heart also. Yeah. Because when you talk about buttermilk, is it the thing which is left after you have taken out the butter out of it? That is the- The traditional way. That is the correct definition of buttermilk. When you have churned butter, you get the milk that comes out of it, or the liquid, that whey liquid that comes out of it is called as buttermilk. That is the correct definition of traditional buttermilk, but that is not how buttermilk is made. Buttermilk that we make in dairy industry, all of us, we make it from curd. Okay. As we would make at home. All right. That is what I was wondering, because there is so much of focus on protein and protein per calorie and all that. I thought buttermilk has a lot of protein with very little calories. It was the idea that- Yes Instead of drinking all these things that Absolutely. But actually, this is why a couple of years back, we hired the services of Ryan Fernando. Ryan Fernando is a celebrity nutritionist. He was the nutritionist, or he is still the nutritionist of Virat Kohli. So he endorses our product. And with Ryan's help, we have been building probiotic buttermilk, and it has actually become almost a 15% contribution to our whole buttermilk portfolio. And the idea is, there is nothing that tastes better with Indian spicy and oily food compared to a buttermilk. While for pizza, burger and all of that, a Coca-Cola might be a great choice, but for Indian biryani or pani puri or chole bhature and all of that, nothing beats buttermilk. So we are diligently trying to build that thing. Anyways, coming to the products, paneer. If you take curd, paneer, buttermilk and all of that, these are all products which behave very much like milk as far as the working capital usage is concerned. Okay. Curd has got a shelf life of 10 days. I ship out in 2 days' time. I don't keep it at all. Right? A paneer, even though it's got one-month shelf life, 50% of sale of paneer actually happens through organized trade, where I'm obliged to give 75% shelf lives. Which means that I don't hold paneer more than 3 or 4 days in my warehouse. As far as the working capital is concerned, all of my value-added products, all of these things would behave exactly like. Then there's of course, the growing segment of, let's say, certain drinkables, whether it is milkshakes or ice creams, et cetera, where we have slightly longer inventory carry, right? But there, gross margins of 35% or 40% justify. The working capital carry. Because it behaves just like any FMCG, right? I don't see. That's the second angle I would like to talk about. Okay. Garima Singla is just sharing that table that we have. Do you agree with these kind of numbers, like ice cream, et cetera, having EBITDA margins of 37% to 39%? Cheese, yogurt, a much higher EBITDA margin as compared to, say, ghee or. Yeah. The EBITDA margins of ice cream would be slightly lower than this, but definitely it is much higher than. Like I mentioned, our gross margins in ice creams is upwards of 35%. Okay. Which definitely means that now it is significantly far more profitable than the rest of the value-added products. But yes, I agree to the general direction in which the numbers are presented. Ice cream would have a little bit longer, meaning how long does it take? Like paneer you said three to four days in our warehouse, so what about ice cream? See, fundamentally, you should look at the working capital days, right? Our working capital days, for those who have analyzed our balance sheet, you will see that it is in the range of 30-34, 35 days. We never have more than 30, 34 days of working capital. In our books. Out of which, 25 days is just SMP and butter that we have, which is what we need for running our business, the commodities that we keep. Which means actually all of this put together is not more than a week's inventory. Primarily, it is not in our interest to produce and keep in our warehouse. In fact, we do not even have warehouses which can store so many products. Okay. Even if it is ice cream, we do not keep more than two weeks of inventory with us. Ghee, for example, never crosses 14 days of inventory. We do not keep it. Okay. Understood. You did mention buttermilk, paneer, curd, which are mirroring milk kind of characteristics. Then we heard ice cream also a lot from you. What is the strategy on that? Yeah. Ice cream is a massive opportunity. Let me just give you some numbers. Today, ice cream industry in India is about INR 18,000 crores. Compare that with another impulse category, which is, let us say, for example, the carbonated beverages, right? The carbonated beverages is estimated to be anywhere between INR 50,000-INR 60,000 crores. I am only talking about carbonated beverages. If you look at the price range, bulk of the ice creams that we sell is ₹20 price point. Large percentage of the ice creams that we sell. What is the price range of a carbonated beverage? It is also the same ₹20, ₹25 kind of thing, right? There is no reason why this cannot be bigger than that, because if nothing, this is actually healthier, right? Because it has got dairy and it has got proteins and other stuff, right? So, the primary barrier here is availability. In India, even today, the availability of ice creams is not more than 3 lakh or 4 lakh outlets. Whereas if you look at the carbonated beverages or anything, we speak in millions, right? 4 million, 5 million stores. So, the availability has to expand. Primarily, the availability of ice creams were driven by the beverage majors. The availability of carbonated beverages were driven by the beverage majors by putting those visi coolers, right? The refrigerators that you see them in the market. The large companies in the ice cream space are primarily trying doing exactly the same. An ice cream freezer costs a little bit more than a visi cooler. But adding more and more freezers in the market and expanding retail footprint is the way this is going to grow. Today, at Heritage, we have got about 7,000, 7,500 outlets. Every year, we add another 1,000, 1,500 outlets to our network. At this point in time, we have slowed down the pace of expansion, reason being, we are maxed out on our capacity. Recently, we announced a greenfield CapEx, which will come online by end of this year. November, December, it should start. Okay. Which gives us sufficient capacity for growth for the next 7 or 8 years. Okay. We think that we can grow our revenues 5X in this space. Okay. Very good. Let's take this question from Momin. He's mentioning that, "Why are we doing frozen desserts also in ice cream? Doesn't it dilute brand of a pure milk company? Whoever is the person who asked this question has done a very thorough job of analysis Yes. of the portfolio. Because most people don't know, right? For those who are unaware of this, let me just tell you that at the end of the day, a fat is a fat is a fat is a fat. See, we are a dairy company, okay? That doesn't mean that we are going to malign the non-dairy players. Because that's not correct. At the end of the day, if it's a fat oleo molecule, it doesn't matter whether it comes from dairy or it comes from some vegetable fat. That's the bottom line. From that point of view, I don't think that there is anything wrong in doing vegetable fat-based ice creams, which is what we call in India as, we have to call it frozen dessert. But in Western world, it's called ice creams. Right? The largest player in this space is Unilever. They have Kwality Wall's. If it is so bad, Kwality Wall's wouldn't be such a big brand. It's the largest ice cream brand in the country, or rather, frozen dessert brand in the country. We do it because it allows us to hit certain price points. Pure dairy fat is more expensive. Because we are able to deliver the consumer experience, because we are able to meet the needs and requirements of the consumers at that price point with a vegetable fat, that's the right strategy for us. Hmm. Let's take this question on protein, because everybody's so obsessed with it. I can see my own son, he has to buy only high-protein curd and high-protein paneer. Everything high protein. Even bread is high protein these days, surprisingly. What is our strategy on protein when everybody's demanding whey protein? The latest I heard is protein water. Oh. They put protein in water also. Yes. I thought water was H2O, but they figured out a way to put protein in it. See, at this point in time, it is still an emerging trend. Frankly. It has still not become mainstream, if you ask me. So your son is more of an exception than the norm at this point in time. But it is slowly catching speed, and we're seeing more and more people. See, the first and foremost thing I would like to speak about is, about seven, eight years ago in my previous role, one detailed consumer study we had done regarding the protein awareness in the country. We asked hundreds of thousands of people how much protein one should take in a day, and less than one out of 10 people were able to answer that. The awareness level was so low. Fast-forward today, if I ask this question, five out of 10 people will be able to tell me exactly the kind of number of quantities of proteins that they should take. At the outset, what this is doing is helping our base portfolio. Because our base portfolio of milk, curd, paneer, and all of that are all protein products. If you take a glass of milk, it's got about seven grams of protein. So we are encouraging even adults to take at least one glass of milk a day, because that gives you seven grams of protein. If somebody needs, let's say, 60 grams of protein, a glass of milk will give you 11%-12% of protein needed in a day. Paneer is a great protein giver for an Indian diet, and the same goes for curd, et cetera. Now comes the thing about enhanced protein products, where you, instead of, let's say, three and a half or four grams per 100 grams, take it to seven, eight, and you're pushing the limit. The more protein you put, actually, the product starts tasting bad, because protein has got a slimy texture, and it also tastes like chalk. It screws up the taste and texture. And we, at Heritage, we strongly believe that taste is as important as nutrition, and we try to achieve the taste without adding too much sugar. We are obsessed. You see any of the dairy drinks and products that we create, we do not try to exceed more than 6 or 7 or 8 grams of sugar. We do not want to put too much sugar. Then that will kill all the goodness that is there in the protein, right? Our scientists have been working on creating certain products. Which will balance the two. One of the products that we just released last week or 10 days back is our high-protein yogurts. Okay Under the brand name of Livo, which has got 5.5 grams of protein in every serve. You have, let us say, that is just 90 grams of protein. A small cup has got 5.5 grams of protein with just 8% added sugar, and you should compare it with many other products that are there in the market, 13%, 12% added sugar. With just 8% added sugar, a 5.5% protein product yogurt has been made to taste tremendous. Right? That is our approach. We are working on many more products under the high-protein range, but it is just a matter of getting the product right. What is the value-added product as a percentage of our revenue that we are targeting? People have raised some concern that under the earlier leadership, we also had kind of lofty targets, but we never reached there. What are the targets now, and how sure are we that we will be reaching those targets? Yeah. See, I would like to clarify that to the team, that we have just enhanced the leadership and not replaced the leadership. In the sense that our leadership, the previous person who used to lead our dairy business, he is still our Chief Operating Officer, reporting into me, because he is one of the strongest. In fact, he is actually probably one of the. If you take top three dairy leaders in the country, he is one of the persons. I do not think that we will find anyone better to do his job. It is not about replacement of previous leadership. It has been enhanced with me stepping in, that I am able to draw strategies which probably I bring in experience from FMCG, from branding, from consumer space, et cetera, which is probably an enhancement over what existed earlier. Now, coming to value-added products. Four years ago, when I joined, value-added products, including consumer packs, used to be around 26.8% or 27%, which today stands at about 36.8% or near about 37%, which means that roughly 9.7%, 9.8% or round about 10% expansion has happened. The 10% has moved out of milk and joined value-added products. Right. That is about up to 2.5% year on year. That is not bad. We are hopeful, and we are confident that we can keep a pace of, let us say, adding 2% every year. Means that currently it is on 37%, maybe another six years or seven years, we should be able to take it up around 50%. Okay. Now, apart from there is milk, there is value-added products, then there is bulk butter, which we sell, which today is about 2.5%-3%. Hopefully, it will become zero. Okay. We do not want to deal in this bulk business because anything which is commoditized does not generate value. Then we have about 3%-4% of animal feeds that we sell to our farmers. Okay. The animal feeds business will grow to maybe about 4% or 5%. The bulk butter will probably disappear 50%, which means that milk will probably come down to about 45%, 43% kind of thing. That is maybe in 5-6 years, that is the kind of portfolio shift that will happen. Is it feasible? Yes. Our history shows that in the last four years, we have steadily grown that thing. That said, out of the 37% of value-added products that we have, roughly 5% is consumer packs, like whether it is ghee or pasteurized butter that we sell. These are not bulk. This is what we sell in consumer packs, whether it is ghee or butter, 100 gram butter, et cetera. Okay. The margin profile of the consumer packs is not comparable to the margin profile of value-added products, which is the reason why we declare these two numbers separately. In fact, at an EBITDA level or a gross margin level, the gap between the two is almost close to about INR 60-70 per kg. Which, if you are able to bridge, then the entire value. So there are two shifts, as far as people who are looking at the bottom line. One is the value-added products itself going from 37% to 50%. The second is out of the 37%, there is a 5% of consumer packs that is sitting there, where the EBITDA margins are, let us say, about 7% or 8% lower than the value-added products currently. Which we will take it up to the remaining value-added products through branding efforts, because eventually, the price of butter and ghee depends on the strength of the brand. If you walk into a supermarket shelf, you look at prices, you will find ghee getting sold at INR 450 to INR 800. It is fundamentally a function of the strength of the brand. The stronger that it gets, if we are able to increase our price by about INR 60 to INR 70, we would already be on par with curd, paneer, ice cream, et cetera. Okay. I think that the headroom on ghee pricing is even more as the brand gets strong. Those are 2 levers as far as value-added products and bottom line is concerned. This perfectly sets up for the question which Jayesh has asked on the EBITDA margin. He is saying that in the last decade, we have ranged between 4%-11%, on average around 6%. With all this strategy, what will it take to go to that 8%-10% EBITDA margin? I do not even want to put a stock at 10%. Why not 12? Why not 15? Okay. I do not want to give any timeline, but to your investors and listeners, what I want to say is the general direction in which we are moving. There is a mean EBITDA. Like Jayesh was saying, maybe 6% earlier. That mean today has moved towards 7.5%, 8% today, probably. Now, the mean, we will have to keep moving up because what we are not able to do anything about, and I have to be absolutely honest here, is the volatility of raw milk prices. That is the nature of the industry because India has 8 crore dairy producers. India produces 240 million metric tons, and even the largest brand, Amul, only has about 7% or 8% market share. Okay. With a large industry like that, nobody can control anything. So that volatility will remain. But the objective is to increase the mean level so that even in the low cycle of the volatile period, we are still delivering a great or acceptable profit margin. So that is one. The second thing is how we are going to achieve that. So, just now I spoke about two levers. One is increasing more value-added products. Second is within value-added products, there is particular section of value-added product, which is consumer packs, where my profit margin is not similar to a rest of the value-added products. Improving that, which means the value-added product, if they are delivering 6%-7% EBITDA higher than milk, that 6%-7% will become, let us say, 10% higher than milk if I address the margin issue of ghee and butter. And then the entire portfolio becoming 45%-50% is the second lever. The third lever is actually brand equity-led premiumization. Because the general direction in which Heritage Foods is moving is building brands. That is why in the last four years, if you look at our P&L, four years ago, we used to spend less than 0.1% of our revenue in marketing. Okay. Today, we are spending close to 1% of our revenue in marketing. That is steadily increasing. Now, we are investing in marketing. Can I invest, so somebody will ask me, "Why are you not putting INR 100 crores?" Of course, I can put INR 100 crores, but then that will impact my PBT immediately. We are working in where we are reinvesting the money that we are earning from our profits back into building our brand, and that is what is allowing me to keep on expanding the brand equity and keep on expanding the premium that I'm charging from the consumers. Imagine a time that five years or six years or ten years later, certain number of our products become just branded products. If I ask you what is the price of a Good Day biscuit compared with, let's say, Sunfeast, I'm sure that you won't be able to know. Because you're buying a brand then you're not. But if I ask about milk, you will say INR 30 to INR 99. So I want to move away from this commodity space to more and more branded space, which is the general direction in which we are building the business. That is where the real value will accrue. Got it. We are already over time, but Pawan is asking about Novandie. What is this, and he is asking when it will be profitable. That is a good, probably last question to answer because it is very important for us also. We were partnered with Novandie Andros, the French company, for five, six years. They were great partners because they have brought in international expertise, but their primary business is something else. They are into fruits and that space. As a company, they wanted to focus on their core, which is the reason why they wanted to offload their stake. That was a great opportunity for us. We felt it was, because there is no better way than to buy out your joint venture partner because we really believe in that business, right? Right. With that, we currently own close to 95% of the business now, which means we are running practically majority owners of the business. That allows us to do many things, which in the previous joint venture setup, it was not possible because it was 50/50. Nobody had a higher stake, right? For example, one of the things that we are able to do is contract manufacturing. Our factory earlier was running at 10% to 15% capacity utilization. We have signed up certain contract manufacturing for some other people, which immediately in one step takes our capacity utilization to 50% or more. Which means my costs are going to come crashing down. That is one. Second, that facility can be used now for making many of the other products which we were not making. For example, we are running short of capacities of lassis and stuff like that, which will now be produced in that, which means that we are able to leverage that asset even more. Thirdly, I just spoke about high protein yogurt that we launched from Heritage under the brand Livo. For us, we are already selling a wide portfolio to our customers like, whether you call it Reliance, DMart, Zepto, BigBasket and all of that. For us, adding just one more product is very easy. We feel that we are going to scale up the business much more faster. It is just a matter of time before the losses is history and we turn profitable. We're very confident with that because it's a no-brainer. There are so many new age companies coming out with niche product. Will inorganic be one of the strategies you'll follow to acquire some brands which are showing promise? Of course. We're always looking for opportunities. Always, Umakant here. We are always looking for. I'll tell you what. We always look for businesses that match our ethos and ethical standards. Because we are a business that is built on highest levels of ethical standards and principles. Our business was founded by Mr. Chandrababu Naidu. Everybody knows him. It is not a lot of political leaders have these businesses which they don't talk about. This is a business which Mr. Chandrababu Naidu and his family flaunts about. They're proud of having this brand. Right? Which means what? Which means we have to be really above and beyond the board. Means that we have to do, if everybody does it correct, I have to do it 100x correct. We have to do it extra correct so that, there is not even an iota of doubt on the things that we do, which affects his political career, right? It is very easy, even if people know, even if there is a small thing, people make a mountain out of a molehill, as we know. The ethical standards of the company are very, very critical for us. We always look for businesses that match that. If we find, we are always looking for opportunities. I am pretty sure under your leadership, the company is going to see new heights. Before we close, there were some questions on Vision 2030. Broadly, you have covered most of it. Is there anything left in that Vision 2030 which we might have missed? Is that question to me? Yeah. I was asking. Yeah. Okay. Right. Okay. On our 34th birthday, which was on 5th of June 2025, we announced our Vision 2030, which is what we would. It is an ambition statement. It is a very lofty one. Let us see how we achieve that. What we said was, by 2030, we want to be the most admired dairy nutrition company in India. There are many words there. And now we cannot be the biggest because Amul is already there. I do not think we can become bigger than Amul. Hence, we said, what do we want to be? See, in the world, the most admired company is Apple. Okay? Apple is measured through net promoter score and several other things. So we have actually put down a certain number of parameters that we are going to track, through third party as well, and we will be publishing those reports going forward. You will also see these reflecting in our BRSR report, our ESG reports, et cetera. Because we really want to be a brand like you guys know, whether it is Unilever, Britannia and all in the dairy space. We want to be known as— Not just known. We want to be admired, not just loved. That is our ambition in five years' time. And that is when we realize the real potential in the business. With that thought, I will want to close this discussion. Though there are a lot of things which I still wanted to discuss. Maybe in your next episode, probably we cover a lot more. So thank you, sir. And thank you, Umakant Barek, for your time. I will just close the recording. Thank you very much. Thank you. Thank you. Thank you so much, sir. It was an exciting discussion. Thank you. We learned a lot about the dairy industry. Personally, I think it is a fabulous business. My forefathers used to do it in one of their house only. We all used to do, right? I grew up, when I was a child, we used to have a cow. When we asked Garima to cover the dairy industry, I told her she comes from Bathinda, and that every household has a dairy industry there. Yeah, absolutely. Thank you so much, sir, for your time. Thank you. Thank you, sir. Thank you very much. Thank you so much. Okay. Thank you.