Concall AI

Heritage Foods Limited — Q3 FY26 earnings call

Call held 29 Jan 2026

Management summary

Heritage Foods reported resilient Q3 FY26 consolidated revenue of ₹1,119.2 crores, up 8% YoY, driven by strong value-added product growth. However, profitability was impacted by an unusually tight milk supply environment, leading to a 9% YoY increase in procurement costs and margin compression, with EBITDA at ₹62.9 crores and PAT at ₹34.6 crores. The company is commissioning new ice cream and flavored milk plants and expects improved margins with better supply conditions and higher value-added product contribution.

Highlights

Consolidated revenue of ₹1,119.2 crores, registering 8% year-on-year growth, crossing the ₹1,100 crore quarterly revenue mark for the third consecutive quarter.
Value-added product volumes grew 6.8% year-on-year, with value-added product revenues growing 22.6% year-on-year and contributing 38% of total revenue.
The Hyderabad ice cream plant is progressing with trial production underway, and commercial commissioning is expected in the current quarter (Q4 FY26).
The flavored milk plant is also expected to be commissioned in the current quarter (Q4 FY26).
Consumer fat (ghee) volumes grew about 45% and overall revenue growth is about 69% in Q3 FY26.

Concerns

Q3 milk procurement declined 9% year-on-year to 16.73 lakh liters per day, and YTD milk procurement volumes declined marginally by 0.82%.
Margin compression was primarily driven by a 9% year-on-year increase in milk procurement prices, outpacing consumer price realizations.
EBITDA stood at ₹62.9 crores and PAT at ₹34.6 crores, indicating margin pressure.
A one-time increase in provision for defined benefit obligations of ₹2.78 crores (consolidated) was recognized.
Logistics costs increased from 2.7% to 2.9% of revenue, and marketing investments increased from 1.2% to 1.8% of revenue in Q3 FY26 compared to Q3 FY25.

Key financials

2 periods

Headline

Consolidated Revenue
₹1,119.2 Cr
YoY +8%
EBITDA
₹62.9 Cr
PAT
₹34.6 Cr
Consolidated EBITDA Margin
6.3%
Value-Added Product Revenue Growth
22.6%

Q3

Milk Procurement Volume
16.73 lakh liters per day
YoY -9%

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.

Capital allocation

medium confidence

Capex Capex disclosed
- Hyderabad ice cream plant commissioning
- Flavored milk plant commissioning
- Paneer capex in pipeline
The Hyderabad ice cream plant is progressing as planned with trial production underway now and commercial commissioning expected in current quarter. The flavored milk plant is also expected to be commissioned in the current quarter, positioning the company well to capture incremental demand across fast-growing categories. (Page 5); So, we have some capex in the pipeline, which will get commissioned in the second or third quarter of next financial year. (Page 10)

Guidance & targets

Capacity

Ice Cream Plant Capacity Utilization Capacity · first year of operation · High confidence 40-45%

In the first year of operation, we expect a capacity utilization of about 40% to 45%. 40% is what we are expecting, and this is on as per business plan.

— Srideep Kesavan

Revenue

Ice Cream Plant Revenue Potential Revenue · 6-7 years · Medium confidence ₹500-600 crores

See, the ice cream plant has a potential to deliver about INR500 crores to INR600 crores of revenue. That will take about 6 to 7 years for us to realize that, right?

— Srideep Kesavan
Flavored Milk Plant Revenue Potential Revenue · 4-5 years · Medium confidence ₹100 crore mark

Flavored milk, on the other hand, has a potential to grow up to about INR120 crores in revenue. We are targeting ourselves probably in the next 4 or 5 years, we should be crossing the INR100 crore mark with the flavored milk.

— Srideep Kesavan
Overall Revenue Growth Revenue · Low confidence mid-teens

We need volume growth coming back in low double digits and revenue growth in mid-teens. Revenue growth is fine.

— Srideep Kesavan

Volume

Value-Added Product Volume Growth Volume · Medium confidence 20-22%

See, we used to grow and rather actually, our knobs are, or rather actually our attempt and objective is to grow value-added products at 20% to 22%, right?

— Srideep Kesavan
Overall Volume Growth Volume · Medium confidence 10-11%

We need volume growth happening in 10 to 11 percentage. That's when operating leverage kicks in.

— Srideep Kesavan

Profitability

EBITDA Margin Profitability · Medium confidence 7-9%

We would like to keep our EBITDA towards the 7 to 9 percentage range, which means that at this point in time, which I feel is the lowest point we would have hit, we're still about 0.7, 0.9 percentage below that level, so which means that we need to work harder on an apple-to-apple basis, improve our business performance by about 1 percentage so that we can move.

— Srideep Kesavan

Supply

Mini Flush Season Supply · April, May, June · High confidence normal

There will be mini flush in the April, May, June period in South India that we expect to be normal this year, particularly the milk prices are very remunerative now to farmers.

— M. Sambasiva Rao

What to watch in Q4 FY26

Ice Cream Plant Commercial Production

Q4 FY26

Current Trial production underway

Target Commercial commissioning

Why it matters

New capacity for a high-growth, profitable value-added product category is crucial for future revenue and margin expansion.

The Hyderabad ice cream plant is progressing as planned with trial production underway now and commercial commissioning expected in current quarter.

Risks & concerns

Milk Shortages and Elevated Procurement Costs
high

Unusually tight industry supply environment and 9% YoY increase in milk procurement prices impacted Q3 margins.

Management acknowledged
Margin Compression
high

Procurement prices increased 9% YoY, outpacing consumer price realizations, leading to margin pressure.

Management acknowledged
Impact of Climate Vagaries
medium

Excessive rainfalls (20-25% above normal) caused animal stress, productivity decline, and impacted consumption of weather-dependent VAP.

Management acknowledged
Slower Value-Added Product (VAP) Growth
medium

Curd growth was lower at 10% (vs usual 13-14%) and drinkables grew only 16% in Q3, attributed to weather.

Analyst acknowledged
Increased Operating Expenses
medium

Logistics costs increased from 2.7% to 2.9% of revenue, and marketing investments from 1.2% to 1.8% of revenue, impacting profitability.

Analyst acknowledged
Market Share Impact from Price Hikes
medium

Concern that Heritage's price hikes (4.9% on milk, 6.6% on VAP) could impact market share if competitors do not follow suit.

Analyst downplayed

Q&A highlights

6 direct

Reasons for Milk Price Rise and Supply Shortages Direct

In fact, many of the regions where we operate saw upwards of 20 to 25 percentage of excess rainfalls, and which actually has caused a double whammy this year. And on the consumption side, many of the key weather-related value-added product categories were impacted in terms of consumption momentum.

Explains the root cause of the unusual supply environment and its dual impact on procurement and VAP consumption.

Asked by Sameer Gupta

EBITDA Margin Guidance Reiteration Partial

When we said 7 to 9 percentage is our targeted range, I use the word I must have used the word targeted range and not guidance. We would like to keep our EBITDA towards the 7 to 9 percentage range, which means that at this point in time, which I feel is the lowest point we would have hit, we're still about 0.7, 0.9 percentage below that level, so which means that we need to work harder on an apple-to-apple basis, improve our business performance by about 1 percentage so that we can move.

Clarifies that the 7-9% EBITDA is a target, not a guidance, and acknowledges the current gap, indicating efforts needed for improvement.

Asked by Sameer Gupta

Milk Exit Prices and Pricing Trends Direct

So, the month ending cost of milk price in the month of December was weighted average price was INR46.01. So, if it gives you a sense of how sequentially that has increased because for the quarter, the reported number that we have put is about INR45.57. But December is INR46.01, which means that you can see how it has climbed up from October, November, December.

Provides specific data on the escalating milk procurement costs towards the end of the quarter, indicating continued pressure.

Asked by Saumil Mehta

Bulk Fat Inventory Levels Direct

Without looking, I can tell you that the fats we are carrying at this point in time is very, very, very nominal, maybe 300, 400 tonnes, which is what would be less than a month's cover, I believe. 390 tonnes of butter is exactly what we are carrying. So, we don't have any butter.

Highlights the severe tightness in butter supply, necessitating market purchases at elevated prices, impacting profitability.

Asked by Saumil Mehta

Ice Cream Plant Utilization and Profitability Timeline Direct

In the first year of operation, we expect a capacity utilization of about 40% to 45%. 40% is what we are expecting, and this is on as per business plan. We don't expect any surprises unless the summer goes bad and ice cream business is impacted. ... it's a new asset investment with its depreciation and all that will come in. So, it will take at least a year or 2 for the profitability to normalize.

Provides specific operational targets for the new plant and a realistic timeline for its financial contribution to normalize.

Asked by Rehan Saiyyed

Slowdown in Value-Added Product (VAP) Growth Direct

So, see, value-added products, we primarily, curd growth was lower this quarter. Curd growth came down to about 10%. Usually, we grow curd around 13%, 14%. ... We also saw muted growth in drinkables primarily led by butter milk and flavored milk. The growth was muted. The drinkables grew only at 16%.

Identifies specific VAP categories underperforming and quantifies the slowdown, attributing it to weather conditions.

Asked by Pradyam Chaudhry

Rising Other Expenses and Operating Leverage Direct

If you still grow volume at 10%, price at 4%, 5% and consol at 15%, you'll still not see operating leverage kick in. ... we need volume growth happening in 10 to 11 percentage. That's when operating leverage kicks in.

Challenges management on the effectiveness of current cost management and highlights the critical need for higher volume growth to achieve operating leverage.

Asked by Pratik Kothari

Market Share Impact from Price Hikes vs. Competitors Partial

I believe I think the industry will have to increase prices. It cannot remain like this. Everybody's cost has gone up. Everyone has reported higher costs in Q3. It's not just Heritage. So, we have been we have passed on part of it to the consumer. We believe others also will do so.

Addresses concerns about competitive pricing and potential market share loss, with management expressing confidence that competitors will eventually follow with price increases.

Asked by Abhishek

2 min read 6 chapters

Detailed narrative

Q3 FY26 Financial Performance Overview

Heritage Foods reported a consolidated revenue of ₹1,119.2 crores for Q3 FY26, marking an 8% year-on-year growth and the third consecutive quarter exceeding the ₹1,100 crore mark. Despite this top-line resilience, profitability was constrained by an unusual supply environment. EBITDA stood at ₹62.9 crores and PAT at ₹34.6 crores, reflecting margin pressure primarily from elevated input costs. The consolidated EBITDA margin for the period was 6.3%.

Milk Procurement Challenges and Input Cost Inflation

The company faced significant challenges in milk procurement, with Q3 volumes declining 9% year-on-year to 16.73 lakh liters per day, and YTD volumes marginally down by 0.82%. This was largely attributed to excessive rainfall (20-25% above normal) causing animal stress and reduced productivity. Raw milk procurement prices increased sharply by 8.9% year-on-year in Q3, outpacing the 4.9% increase in market milk prices, leading to margin compression. The month-ending cost of milk in December was ₹46.01 per liter, indicating continued upward pressure.

Value-Added Products (VAP) Growth and Mix Improvement

Value-added products remained central to the growth strategy, with volumes growing 6.8% year-on-year and revenues increasing 22.6% year-on-year. VAP contributed 38% to total revenue in Q3 FY26, up from 33.8% in the corresponding period last year, underscoring sustained premiumization. However, growth in categories like curd (10% vs. usual 13-14%) and drinkables (16%) was muted in Q3 due to adverse weather conditions and lower temperatures.

Capacity Expansion and New Product Initiatives

The Hyderabad ice cream plant is progressing well, with trial production underway and commercial commissioning expected in Q4 FY26. This plant is projected to achieve 40-45% capacity utilization in its first year and has a revenue potential of ₹500-600 crores over 6-7 years. Similarly, the flavored milk plant is also slated for commissioning in Q4 FY26, targeting to cross the ₹100 crore revenue mark within 4-5 years. The company also launched Nourish+ paneer (60 grams protein) and Nourish+ milk, seeing positive initial off-take.

Margin Outlook and Operating Leverage

Management expressed confidence that margins will progressively normalize, supported by improving supply conditions and higher VAP contribution. While other expenses, including logistics (up from 2.7% to 2.9% of revenue) and marketing investments (up from 1.2% to 1.8% of revenue), impacted profitability, marketing is considered a strategic investment. The company emphasized the critical need for low double-digit volume growth (10-11%) and mid-teens revenue growth to achieve operating leverage and offset increased costs.

Strategic Focus and Market Positioning

Heritage Foods is doubling down on its core markets, leveraging its cold chain infrastructure to expand retail footprint for value-added dairy products. The company aims to de-seasonalize its business through functional propositions like fortification and probiotics, with its probiotic buttermilk variant growing well. Management believes the industry will eventually have to increase prices to reflect rising costs, and they are working on farmer productivity to ensure continuity of supply.

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

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