Heritage Foods Revenue Climbs 8% Amid Milk Shortage and Margin Pressure

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AuthorVihaan Mehta|Published at:
Heritage Foods Revenue Climbs 8% Amid Milk Shortage and Margin Pressure
Overview

Heritage Foods reported an 8% YoY revenue growth to INR 11,192 million for Q3 FY'26, even as milk procurement volumes declined 9% due to industry shortages and rising costs. While EBITDA and PAT were reported, margin compression occurred as procurement prices outpaced consumer price hikes. The company highlighted strong 22.6% growth in value-added products and ongoing capacity expansion, with management confident in eventual margin normalization.

Heritage Foods Navigates Milk Shortages, Revenue Rises Amidst Margin Squeeze

The Numbers:

  • Revenue: Consolidated revenue reached INR 11,192 million, marking an 8% year-on-year increase.
  • EBITDA: Stood at INR 629 million.
  • PAT: Reported at INR 346 million.
  • Milk Procurement Volumes: Experienced a 9% YoY decline to 16.73 lakh liters per day, a significant reversal after years of consistent growth.
  • One-off Provision: A one-time provision of INR 27.78 million was recognized for employee benefits under Ind AS 19.

The Quality & Grill:

  • Margin Compression: The primary challenge was margin contraction, driven by a 9% YoY escalation in milk procurement prices. This rise in input costs was not fully offset by consumer price realizations.
  • Rising Other Expenses: Management cited concerns over increasing 'other expenses', particularly noting higher logistics costs and increased marketing investments, which impact operating leverage.
  • Volume Headwinds: The YoY decline in milk procurement volumes posed a challenge to managing fixed costs and achieving optimal operating leverage.

The Strategy & Outlook:

  • Value-Added Products Lead: The company showcased resilience through its focus on value-added products, which surged 22.6% YoY. These now constitute 38% of total revenue, up from 33.8% in the prior year, demonstrating a successful shift towards higher-margin segments like curd, paneer, ghee, and ice cream.
  • Capacity Expansion: Infrastructure development is on track, with the Hyderabad ice cream plant commencing trial production and the flavored milk plant slated for commissioning this quarter.
  • Guidance & Recovery: Management expressed confidence in progressive margin normalization. They anticipate recovery driven by improving supply conditions and a greater contribution from value-added products, targeting an EBITDA margin range of 7-9%.

Risks & The Forward View:

  • Supply Chain Volatility: The persistent tightness in milk supply and volatile procurement costs remain key risks.
  • Cost Management: Controlling 'other expenses' and managing operating leverage effectively will be crucial as the company aims for volume recovery.
  • Execution: Successfully commissioning new capacities and expanding distribution in core southern markets are vital for future growth. Investors should monitor procurement trends, input cost evolution, and the pace of margin recovery in the upcoming quarters.
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