Heritage Foods Limited

Heritage Foods Limited commenced FY27 with a strong Q1, achieving its highest quarterly revenue of ₹1338.1 crores, an 18% year-on-year increase. Despite a challenging dairy environment, the company delivered an EBITDA of ₹61.9 crores (4.6% margin) and a PAT of ₹15 crores (1.9% margin). Strategic priorities included reinforcing procurement networks, expanding the value-added products (VAP) portfolio, investing in manufacturing capabilities, and building new growth platforms.

The VAP portfolio emerged as the primary growth engine, with revenues growing 40% year-on-year to ₹563.6 crores. This segment now contributes a record 44% to consolidated revenues. Including consumer pack ghee and butter, the broader VAP portfolio grew 39% year-on-year to ₹632.2 crores, accounting for 49% of consolidated revenues. Key categories like paneer (33% volume growth), curd (26%), ice cream (25%), buttermilk (60%), and lassi (98%) demonstrated strong volume-driven growth, with price hikes contributing approximately 5%.

Milk procurement prices increased 7% year-on-year to ₹46.61 per liter, reflecting continued supply tightness. Despite this, Heritage increased milk procurement volumes by 2% year-on-year to 18.10 lakh liters per day through sustained investments in farmer engagement and cattle programs. The average milk sales price improved 4% year-on-year to ₹58.68 per liter. Management noted that a mini flush in April-May did not materialize significantly, and prices have gone up, with expectations for a flush season from October onwards.

The company continued to strengthen its long-term growth platforms. Heritage Novandie Foods became a wholly owned subsidiary, enhancing its presence in the high-protein yogurt category. Shareholding in Peanut butter and Jelly Limited was increased to 71%, reflecting confidence in the nutrition segment. The newly commissioned ice cream facility ramped up to approximately 40% capacity utilization, supporting the Alpenvie and Get-A-Way brands. For FY27, the company plans a capex of ₹250 crores for new paneer and ghee projects, along with raw milk procurement investments.

Despite a 2.5% decline in gross margin year-on-year due to a mix change (buffalo milk degrowth), higher SMP costs, and increased packing material costs, the company demonstrated operational efficiencies. Operating costs as a percentage of revenue decreased from 9.64% in Q1 FY26 to 9.01% in Q1 FY27, and employee benefits as a percentage of revenue decreased from 7.21% to 6.74%. These improvements contributed to a 1.1% positive impact on the bottom line, partially offsetting raw material cost pressures.

Heritage Foods aims for long-term volume growth of 16-17%, with VAP growing at 25% and milk at 7-8%. The target is for VAP to contribute 50% of revenues by FY30 and to achieve high single-digit EBITDA margins. Management acknowledged the cyclical nature of the dairy business and the unpredictability of procurement prices, especially with an El Nino year. They are continuously implementing price hikes for both milk and VAP to manage input cost inflation, which has seen raw milk prices increase by ₹5.35 per liter over the last two years.