Heritage Foods Limited

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%.

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 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.

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.

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.

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.