Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Heritage Foods Ltd (BOM:519552, Financial) achieved a record quarterly revenue of INR1,033 crore, marking a 12% year-on-year increase.
- EBITDA for the quarter surged by 133% year-on-year to INR94 crore, with EBITDA margins improving to 9.08%.
- Net profit for the quarter increased by 249% year-on-year to INR58 crore, resulting in PAT margins of 5.66%.
- Milk sales volumes grew by 4.26% year-on-year to 1.13 million liters per day, with average milk selling prices slightly up by 0.40%.
- Value-added products saw robust revenue growth of around 20%, contributing 41.5% to the total revenue, up from 38.6% in the same quarter last year.
Negative Points
- Despite the overall positive performance, the company faced a bulk fat loss of INR6.4 crore.
- The company noted increased competition in the market, particularly from local and unorganized players.
- There is uncertainty regarding the sustainability of current profit margins due to potential fluctuations in milk procurement prices.
- The company has not yet expanded its e-commerce operations to certain regions like Odisha, which could limit growth potential in those areas.
- The company’s growth in the milk segment is expected to be limited to mid-single digits, primarily due to the mature nature of the market.
Q & A Highlights
Q: Given good monsoons expected and higher fodder crop, what is your expectation on milk prices over the next two to three quarters? How much price cut has been taken so far?
A: (Jangam Samba Murthy, COO) There won't be significant changes in procurement prices. Compared to last quarter, there's a drop of INR0.47 per liter. We don't expect much change looking forward.
Q: Are you seeing an increase in competition, especially from local players?
A: (Srideep Kesavan, CEO) We are not seeing significant changes in competitive intensity. In fact, we are witnessing consolidation in the industry. Consumers are preferring known high-quality brands, which benefits branded dairy companies like ours.
Q: Have you taken any price hikes following industry leaders like Amul and Mother Dairy?
A: (Srideep Kesavan, CEO) We have aligned our price hikes in the northern part of India with Amul and Mother Dairy. However, in the southern part, there has been no need to increase consumer prices due to stable procurement prices.
Q: Given the current EBITDA margin of 9%, is this the peak, and where do you see margins settling on a full-year basis?
A: (Srideep Kesavan, CEO) Our objective is to stay in the corridor of 7% to 8% EBITDA. While we have a slight advantage now, the dynamics of Q2 and Q3 are different, and we will work to sustain the margins.
Q: How was the ice cream business this season, and what is the update on Novandie business?
A: (N. Brahmani, Executive Director) Novandie has seen strong growth and reduced losses. There is no competition between Novandie and Heritage Foods. (Srideep Kesavan, CEO) Ice cream business grew at 18%-19% in Q1, with strong growth in the first part of the quarter.
Q: What is the status of subsidies in different states, and is there any central government subsidy?
A: (M. Sambasiva Rao, President) Karnataka offers INR6 per liter for milk supplied to cooperatives, Telangana offers INR4 per liter, and Maharashtra recently announced INR5 per liter. There is no central government subsidy currently.
Q: How do you differentiate your ghee products, and when will you launch e-commerce in Odisha?
A: (Srideep Kesavan, CEO) Our ghee is made from milk, which is a significant differentiator. We are working on back-end logistics for e-commerce in Odisha and will launch once ready.
Q: What are the key initiatives in branding and marketing, and how much is spent on marketing as a percentage of revenue?
A: (Srideep Kesavan, CEO) We focus on product superiority and work with partners like Leo Burnett for creative and LS Media for digital campaigns. Our marketing spend is around 0.9% of revenue.
Q: What is the growth outlook for the next three years, and how do you see EBITDA margins evolving?
A: (Srideep Kesavan, CEO) We aim to grow in high teens, with 5%-6% from price increases and 12%-13% from volume growth. We aim to sustain EBITDA margins in the corridor of 7% to 8%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
