Concall AI

Heritage Foods Limited — Q2 FY25 earnings call

Call held 25 Oct 2024

Management summary

Heritage Foods reported strong financial performance for Q2 and H1 FY25, driven by robust growth in profitability and value-added products. Consolidated revenue for Q2 reached ₹1,020 crores, with net profit surging 117% YoY to ₹48 crores. The company maintained strong volume growth in milk and VAP, despite adverse weather impacting some VAP categories and flat pricing across products for the last five quarters. Management highlighted strategic investments in human capital, marketing, and production capacity, alongside a focus on increasing consumer fat business to mitigate bulk fat losses.

Highlights

Q2 FY25 Consolidated Revenue: ₹1,020 crores, up 4.2% YoY.
Q2 FY25 Consolidated Net Profit: ₹48 crores, surged 117% YoY, with PAT margin of 4.77%.
H1 FY25 Consolidated Revenue: ₹2,052 crores, up 8% YoY.
H1 FY25 Consolidated Net Profit: ₹107 crores, surged 173% YoY, with PAT margin of 5.22%.
Q2 FY25 Milk sales volume: 1.19 million liters per day, up 5.11% YoY.
Q2 FY25 Value-Added Products (VAP) revenue: ₹298 crores, up 16% YoY, contributing 30% to total revenue.
Heritage Nutrivet Limited (HNL) H1 revenue: ₹86 crores, up 18% YoY, with PAT of ₹4 crores.

Key financials

3 periods

Headline

Revenue
₹1,020 Cr
YoY +4.2%
EBITDA
₹83 Cr
YoY +77%
EBITDA Margin
8.2%
Net Profit
₹48 Cr
YoY +117%
PAT Margin
4.8%
Milk Sales Volume
1.19 million liters per day
YoY +5.1%
Average Milk Selling Price
₹54.59/liter
YoY -0.31%
Bulk Fat Revenue
₹26 Cr

Q2

PAT Loss (Bulk Fat)
₹7.68 Cr

H1

Revenue
₹2,052 Cr
YoY +8%
Net Profit
₹107 Cr
YoY +173%

What they filed

Q1 FY27: revenue up 17.7%, net profit down 39.0% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	1,020	1,034	1,048	1,137	1,113 +9%	1,119 +8%	1,158 +10%	1,338 +18%
Expenses	938	962	970	1,064	1,035	1,056	1,105	1,276
EBITDA	81	72	78	73	77 −5%	63 −12%	52 −33%	62 −15%
Margin	8%	7%	7%	6%	7%	6%	5%	5%
Other income	7	8	-2	5	15	8	7	6
Interest	4	4	4	4	4	4	5	8
Depreciation	17	18	18	19	20	20	22	26
Profit before tax	67	59	54	55	68 +1%	46 −22%	32 −41%	34 −38%
Tax rate	28%	27%	30%	26%	25%	25%	25%	26%
Net profit	49	43	38	41	51 +4%	35 −19%	24 −37%	25 −39%
EPS	5.24	4.64	4.11	4.37	5.50	3.73	2.58	2.69

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Value-Added Products (VAP)
₹298 Cr Revenue16% YoY Growth30% Contribution to Total Revenue
Heritage Nutrivet Limited (HNL)
₹86 Cr H1 Revenue18% H1 YoY Growth₹4 Cr H1 PAT
Curd
11% Growth
Sweets
40% H1 Growth40% Q2 Growth

Guidance & targets

Profitability

EBITDA Margin Profitability · Long-term · High confidence 7% to 8%

We have always maintained that, we are aiming to keep our EBITDA in the range of 7% to 8%. And that's our long-term outlook and this is something that we have maintained.

— Srideep Kesavan, CEO
Heritage Nutrivet Limited (HNL) EBIT Profitability · Ongoing · High confidence 7% to 8%

But we'll continue to sustain the growth momentum in terms of top line. Bottom line, we are continuously improving, and we'll keep targeting this 7% to 8% of EBIT.

— Upendra Pandey, CEO, HNL

Volume

Milk Volume Growth Volume · Near future · High confidence 5 to 6 percentage range

So our objective will be to keep it at this level, 5 to 6 percentage range, for the near future.

— Srideep Kesavan, CEO

Revenue

Milk Revenue Growth Revenue · a couple of quarters down the line · Medium confidence double-digit kind of thing or high single digit

What we are hoping is probably a couple of quarters down the line, we are able to take price increases as well so that we are able to push the revenue growth on Milk towards a double-digit kind of thing or high single digit.

— Srideep Kesavan, CEO
Value-Added Products Revenue Growth Revenue · a couple of quarters down the line · Medium confidence high teens or even 20%, 21%

And we are hoping that maybe a couple of quarters down the line, we were able to take the price increases so that the revenue growth on Value Added Products goes to high teens or even 20%, 21% as it used to be earlier.

— Srideep Kesavan, CEO

Capex

Ice Cream Greenfield Facility Investment Capex · by end of 2025 · High confidence INR200-plus crores

we have gone ahead with the capital investment of INR200-plus crores in this particular category. So we are going to set up an ice cream plant which will come up roughly around the same time next year, maybe towards the end of 2025 we'll see that.

— Srideep Kesavan, CEO

Ad Spend

Marketing, Advertising, Promotions as % of Revenue Ad Spend · Current · High confidence 0.8, 0.9 percentage

We are currently investing about 0.8, 0.9 percentage of our revenue in marketing, advertising and marketing and promotions

— Srideep Kesavan, CEO

Risks & concerns

Adverse Weather Impact on Value-Added Products
medium

60% increase in rainfall in H1 impacted curd, drinkables, and ice cream sales, causing a 3-4 percentage point slowdown in VAP growth.

Management acknowledged
Flat Pricing Amidst Rising Costs
medium

Milk and VAP prices have been stable for 5 quarters, while costs (human capital, operating, electricity, fuel) are rising, impacting revenue growth and making cost percentages appear higher. This is viewed as an investment.

Management acknowledged

Areas of evasion (2)

direct comparison of employee costs with competitors
specific quarterly revenue split for seasonality (offered one-on-one)

Q&A highlights

3 direct

Normalization of EBITDA Margins Direct

We have always maintained that, we are aiming to keep our EBITDA in the range of 7% to 8%. And that's our long-term outlook and this is something that we have maintained.

Clarifies management's long-term margin target, correcting analyst's perception of a higher target from a media interview, and sets expectations for profitability.

Asked by Sandy Mehta, Evaluate Research

Revenue Stagnation and Bulk Fat Impact Direct

It's not -- it's something that we were liquidating excess inventory that was sitting with us. So that is absent now. Now if you remove that, the core business that you should look at is the milk, value-added products and the feed sale. Milk is growing at about 5-plus percentage. Value-added products is growing at about 16 to 19 percentage and feeds is growing at about 18%. So everything is strong. It's just that the bulk fat has degrown at about 80%. That is the reason why overall top line is looking like 4.5%. Otherwise, we are in double-digit growth.

Provides crucial context for the reported top-line growth, explaining that the apparent stagnation is due to a significant reduction in non-core bulk fat sales from prior year, while core businesses are growing in double digits.

Asked by Digant Haria, GreenEdge Wealth

Dairy Industry Outlook and Growth Drivers Direct

In India, the per capita consumption of dairy is still very low, at about 350 grams per person. So there is tremendous potential for the per capita consumption to grow... 65 percentage of the consumption even today is in the unorganized sector... Moving from unorganized to organized because of either because of hygiene, because of availability, because of brand consciousness, because of urbanization, primarily multiple reasons are driving this growth.

Offers a comprehensive overview of the structural tailwinds for the dairy industry in India, highlighting the long-term growth potential for organized players like Heritage Foods.

Asked by Jayvansh Mehta, Care PMS

3 min read 6 chapters

Detailed narrative

Robust Q2 & H1 FY25 Financial Performance

Heritage Foods delivered a strong financial performance for Q2 FY25, with consolidated revenue reaching ₹1,020 crores, marking a 4.2% year-on-year increase. Net profit surged by an impressive 117% YoY to ₹48 crores, resulting in a PAT margin of 4.77%. For the first half of FY25, consolidated revenue grew 8% YoY to ₹2,052 crores, and net profit soared 173% YoY to ₹107 crores, achieving a PAT margin of 5.22%. This significant profitability improvement was attributed to stable raw material prices and a substantial reduction in bulk fat sales compared to the previous year.

Strong Volume Growth in Core Businesses Despite Flat Pricing

The company reported healthy underlying volume growth, with milk sales volume increasing by 5.11% YoY to 1.19 million liters per day in Q2 FY25. Value-Added Products (VAP) revenue grew robustly by 16% YoY to ₹298 crores, contributing 30% to total revenue, up from 27% in Q2 FY24. Management emphasized that core businesses (milk, VAP, and feed) are growing in double digits, with milk at 5%+ and VAP at 16-19%. This growth was achieved despite milk and VAP prices remaining stable for the last five quarters, indicating strong volume momentum.

Strategic Investments and Margin Outlook

Heritage Foods is committed to maintaining its long-term EBITDA margin in the 7-8% range. The company is strategically investing in human capital, increasing 'feet on street' to drive growth ahead of competition, and enhancing marketing assets with current ad spend at 0.8-0.9% of revenue. Capital investments, including over ₹200 crores for a new greenfield ice cream facility expected by late 2025, are focused on expanding VAP capacity and procurement capabilities. Management views the current flat pricing environment, amidst rising operational costs, as an investment to build the business for long-term growth.

Heritage Nutrivet Limited (HNL) Performance and Strategy

The wholly-owned subsidiary, Heritage Nutrivet Limited, reported an 18% YoY top-line growth, reaching ₹86 crores in H1 FY25, with PAT increasing by 117% to ₹4 crores. HNL's strategy includes launching high-protein and high-fat cattle feed products, which have been well-received by farmers, leading to improved milk production and SNF. The company also focuses on strategic raw material procurement during low-price periods to enhance profitability, targeting an EBIT margin of 7-8% for the feed business.

Impact of Weather and Festive Season Performance

Adverse weather conditions, including a 60% increase in rainfall during H1, moderately impacted Value-Added Products (VAP) growth, particularly for weather-dependent categories like curd, drinkables, and ice creams, causing a 3-4 percentage point slowdown. Despite this, the underlying demand for VAP remains strong. The sweets segment, a key festive product, demonstrated robust growth of approximately 40% in both H1 and Q2 FY25, supported by innovative QR code promotions.

Dairy Industry Tailwinds and Expansion Plans

Management expressed a bullish outlook on the Indian dairy industry, citing low per capita consumption (~350 grams/person) and significant potential for growth, especially with 65% of consumption still in the unorganized sector. The shift from unorganized to organized dairy, driven by hygiene, brand consciousness, and urbanization, presents a substantial opportunity. Heritage Foods has recently expanded its presence in Bengal (Kolkata and Southern parts) in August, appointing new distributors to capitalize on these market dynamics.

This is an AI-generated summary of a publicly available earnings call transcript.

View original transcript