Summary
Heritage Foods Limited - Q3 FY26 Earnings Call Summary Thursday, January 29, 2026 11:00 AM IST
Event Participants
Executives 7 A Prabhakara Naidu (CFO), Brij Mohan (CEO - Heritage Nutrivet), J Samba Murthy (COO), M Sambasiva Rao (Whole Time Director), Nara Brahmani (Executive Director), Srideep Kesavan (CEO), Umakanta Barik (Company Secretary)
Analysts 7 Abhishek (Systematix Group), Harsh Dubey (LFC Securities), Pradyam Chaudhry (JM Financial), Pratik Kothari (Unique PMS), Rehan Saiyyed (Trinetra Asset Managers), Resham Mehta (GreenEdge Wealth), Sameer Gupta (India Infoline)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue (Consolidated) | ₹1,119.2 crores | +8% YoY; crossed ₹1,100 crores for the third consecutive quarter. |
| EBITDA | ₹62.9 crores | -1.8% YoY; margin compression due to 9% rise in procurement costs and low volume leverage. |
| PAT | ₹34.6 crores | Impacted by elevated input costs and one-time labor code provisions. |
| Milk Procurement | 16.73 lakh LPD | -9% YoY; reflects industry-wide milk shortages caused by excessive rainfall. |
| Milk Sales Volume | 11.94 lakh LPD | +2.1% YoY; resilience despite supply constraints and pricing actions. |
| Milk Realization | ₹57.31 per liter | +4.9% YoY; reflecting calibrated price hikes to offset input costs. |
| VAP Revenue Share | 38.0% | Up from 33.8% YoY; driven by 22.6% growth in VAP (including consumer ghee/butter). |
| Net Debt/Capital | Nominal | Management noted capacity additions are funded through internal accruals and discipline. |
Geographic & Segment Commentary
- Value-Added Products (VAP): Revenue grew 22.6% YoY, reaching a 38% contribution mix. While curd grew at a slower 10% due to cooler weather, paneer and ice cream showed strong momentum at 30% and 21% growth respectively.
- Milk Segment: Revenue growth was primarily price-led (+4.9%) as volume growth remained muted at 2.1%. Gross margins in milk were pressured by an 8.9% spike in raw milk procurement costs, which outpaced retail price hikes.
- Fat & Commodities: Bulk fat sales de-grew by 99.9% as the company prioritized consumer packs. High global demand led to domestic butter shortages, forcing the company to buy bulk butter at elevated prices, resulting in a segment loss of ₹10.15 crores.
Company-Specific & Strategic Commentary
- Capacity Expansion: The Hyderabad ice cream plant and a new flavored milk plant are scheduled for commissioning in Q4 FY26. The ice cream facility has a long-term revenue potential of ₹500-600 crores.
- Premiumization & Functional Foods: Launched “Nourish+” high-protein paneer (60g protein) and milk to de-seasonalize the portfolio. Probiotic variants of buttermilk are being pushed to drive functional consumption.
- Digital & Distribution: Marketing spend increased to 1.8% of revenue (vs 1.2% YoY) to build brand stickiness. Organized trade and e-commerce now contribute approximately 18-19% of total sales.
- Farmer Engagement: Despite a volume decline in procurement, the company maintained its “farmer-first” strategy through timely payments and feed support to ensure supply continuity during the shortage.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| EBITDA Margin | 7.0% - 9.0% (Target) | Target range maintained; current 6.2% is viewed as the “bottom,” with relief expected from better VAP mix. |
| Ice Cream Utilization | 40% - 45% (FY27) | Expected utilization for the first full year of the new Hyderabad facility. |
| VAP Revenue Growth | 20% - 22% (Long-term) | Targeted growth rate to be driven by 15% curd growth and 30% in smaller categories like ice cream. |
| Procurement Prices | Near-term Hardening | Prices expected to stay firm for 30-45 days before the “mini-flush” (cow milk) starts in May. |
Risks & Constraints
| Risk | Context |
|---|---|
| Climate & Weather | Excessive rainfall in Q2/Q3 FY26 stressed animals and reduced farm productivity, leading to a rare 9% drop in flush-season procurement. |
| Margin Lag | Raw milk procurement costs rose ₹2.67/liter, but the company could only pass on ₹2.10/liter to consumers, creating a temporary margin gap. |
| Operational Leverage | Other expenses grew 20% YoY; management noted that double-digit volume growth is required to offset fixed costs and marketing investments. |
Q&A Highlights
Supply & Procurement
- Question: What caused the unexpected milk shortage during a typical flush season? (Sameer Gupta)
- Answer: Excessive rainfall (20-25% above normal) caused animal stress and lower farm productivity. Productivity dropped from 10 liters to lower levels per farmer in Q3 (Srideep Kesavan).
Margins & Pricing
- Question: Why believe margins have bottomed out if procurement costs are still rising? (Pradyam Chaudhry)
- Answer: Entering high-margin summer season for curd and ice cream. We intend to match further procurement hikes with selling price increases to stabilize weighted average margins (Srideep Kesavan).
Other Expenses
- Question: Why are other expenses growing at 20% despite slower revenue growth? (Pratik Kothari)
- Answer: Marketing spend increased by 0.5% of revenue to 1.8% to build brand equity. Logistics costs rose due to lower volume density; these will normalize as volume growth returns to 10-11% (Srideep Kesavan).
Inventory & Commodities
- Question: What is the current status of fat/butter inventory? (Saumil Mehta)
- Answer: Inventory is very low at ~390 tonnes (less than one month’s cover). We had to purchase market butter at high prices to meet consumer ghee demand because our own procurement was only sufficient for liquid milk (Srideep Kesavan).
Key Takeaway
Heritage Foods reported a resilient quarter with revenue crossing ₹1,119.2 crores (+8% YoY), despite a severe industry-wide milk shortage that saw procurement volumes drop 9% YoY. Margin pressure was evident as EBITDA margins sat at 6.2%, impacted by raw milk costs rising 9% while liquid milk realizations only grew 4.9%. Strategically, the company is pivoting toward high-margin Value-Added Products (VAP), which now contribute 38% of revenue, supported by the upcoming commissioning of new ice cream and flavored milk plants. Management remains focused on “season-proofing” the brand through functional products like high-protein paneer and probiotics. While near-term raw material costs remain firm, the company expects the upcoming South Indian “mini-flush” in May and the high-demand summer season to drive a recovery toward their 7-9% EBITDA target. The primary watch point remains the return of double-digit volume growth to unlock operational leverage.
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