Heritage Foods Limited

Heritage Foods reported a consolidated revenue of ₹1,119.2 crores for Q3 FY26, marking an 8% year-on-year growth. Despite this top-line performance, profitability was impacted, with EBITDA at ₹62.9 crores and PAT at ₹34.6 crores. The consolidated EBITDA margin for Q3 stood at 6.2%, while the standalone margin was 5.4%. For the nine months of FY26, the consolidated EBITDA margin was 6.3% and standalone was 5.9%.

The quarter was characterized by an unusual industry supply environment, with Q3 milk procurement volumes declining 9% year-on-year to 16.73 lakh liters per day. Raw milk procurement prices increased sharply by 8.9% year-on-year, outpacing the 4.9% increase in market milk prices (₹2.67 per liter). This led to a 12% decline in gross margin for milk, with the weighted average procurement price for the quarter at ₹45.57 per liter, and ₹46.01 per liter by December end.

Value-added products remained a key growth driver, with VAP revenues growing 22.6% year-on-year and contributing 38% to total revenue, up from 33.8% last year. VAP volumes grew 6.8% year-on-year. Price increases were implemented across categories, with VAP prices up 6.6% (to ₹75/liter from ₹70.40/liter last year) and ghee prices up 15%. However, curd growth slowed to 10% (from a usual 13-14%), and drinkables grew 16% in Q3, attributed to adverse weather conditions. Paneer, however, grew strongly at 30%.

The company is on track to commission its Hyderabad ice cream plant and flavored milk plant in the current quarter (Q4 FY26). The new ice cream plant has a revenue potential of ₹500-600 crores over 6-7 years, with an expected 40-45% capacity utilization in its first year. The flavored milk plant has a potential revenue of ₹120 crores, with a target to cross ₹100 crores in revenue within the next 4-5 years. Current year's ice cream revenue is estimated at ₹110 crores.

Operating expenses saw an increase, with logistics costs rising from 2.7% to 2.9% of revenue and marketing investments increasing from 1.2% to 1.8% of revenue in Q3 year-on-year. Management highlighted that operating leverage is crucial for margin improvement, which requires strong volume growth (targeting 10-11% volume growth for operating leverage to kick in). A one-time^📎 provision of ₹2.778 crores for defined benefit obligations and a GST impact of ₹1.2 crores also affected Q3 profitability.

Heritage Foods works with approximately 2 lakh farmers, and has improved average farmer productivity from 7 liters/day to 10 liters/day, with a target to further increase it to 11-13 liters/day. The company holds about 1% market share in the Indian dairy industry. Management emphasized continuous engagement with farmers and timely payments to ensure supply continuity during challenging periods.

Near-term cost pressures are expected to persist, with raw material prices likely to harden for the next 30-45 days. However, management anticipates margins to progressively normalize, supported by improving supply conditions (especially post the mini-flush season in South India from May onwards), higher VAP contribution, and disciplined execution. The 7-9% EBITDA margin is reiterated as a 'targeted range' rather than a firm guidance, acknowledging the need for further business performance improvement.