Heritage Foods reported resilient top-line growth in Q3 FY26 despite an unusually challenging supply environment marked by milk shortages and elevated procurement costs. While revenue grew 8% YoY, profitability was impacted by margin compression due to higher input costs and a one-time employee benefit provision. The company is focusing on value-added products, capacity expansion, and farmer productivity to drive future growth and margin normalization, with new plants set to commission in the current quarter.
vs Q4 FY26
Notable Quotes from the Call
Most Confident Moment
We are targeting ourselves probably in the next 4 or 5 years, we should be crossing the INR100 crore mark with the flavored milk.
Least Confident Moment
We are not sure. We are expecting the mini flush season or the cow flush season in the South India, which starts from May onwards, we expect that at least to normalize because the prices in South of India is very firm at this point in ti...
| Metric | Value | YoY |
|---|---|---|
| Consolidated Revenue | ₹1.1K Cr | +8.0% YoY |
| EBITDA | ₹62.9 Cr | — |
| PAT | ₹34.6 Cr | — |
| Consolidated EBITDA Margin | 6.2% | — |
| Standalone EBITDA Margin | 5.4% | — |
| Milk Sales Volume | 11.94 lakh liters/day | +2.1% YoY |
| Metric | Latest | Trend |
|---|---|---|
| Revenue(crores) | 1112.5 | |
| EBITDA(crores) | 522 | |
| EBITDA Margin | 4.5% | |
| PAT Margin | 2.1% | |
| Milk Sales Volume(million liters per day) | 11.94 | |
| PAT(crores) | 230 |
| Category | Target | Priority |
|---|---|---|
| Profitability | EBITDA Margin→7-9% | Medium |
| Capacity | Ice Cream Plant Capacity Utilization→40-45% | High |
| Revenue | Ice Cream Plant Revenue Potential→₹500-600 crores | Medium |
| Revenue | Flavored Milk Revenue Potential→₹120 crores | Medium |
| Revenue | Flavored Milk Revenue Target→₹100 crores | High |
| Volume Growth | Value-Added Products (VAP) Growth Rate→Low 20s (20-22%) | Medium |
| Volume Growth | Core Value-Added Products (Curd, etc.) Growth Rate→14-15% | Medium |
| Volume Growth | Smaller Value-Added Products (Drinkables, Ice Cream) Growth Rate→~30% | Medium |
| Farmer Productivity | Liters per day per farmer→11-13 liters/day | Medium |
| Severity | Risk |
|---|---|
high | Elevated Milk Procurement Costs & Supply Shortages Q3 saw milk shortages and 9% YoY increase in procurement prices, impacting margins. Management expects prices to harden for 30-45 days before easing post May mini-flush. Management |
medium | Impact of Climate Vagaries (Excessive Rainfall, Lower Temperatures) Excessive rainfall in Q2 and lower temperatures in Q3 impacted milk productivity and consumption momentum for weather-related VAP categories. Management |
high | Margin Compression due to Input Cost vs. Pricing Power Gross margin in milk declined by 12% as raw milk prices rose 8.9% but market milk prices only increased 4.9%. VAP prices increased 6.6%, Ghee 15%. Management |
medium | Other Expenses (Logistics, Marketing) Increasing as % of Revenue Logistics costs increased from 2.7% to 2.9% of revenue, and marketing spend from 1.2% to 1.8% of revenue YoY in Q3. Management views marketing as an investment. Management |
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.