Heritage Foods Limited Q1 FY27 Results

₹1338.1 Cr; 17.7% YoY growth (not 18% as stated)

Revenue +17.7% but PAT -38.4%; OPM 4.6% vs 5.8% prior year

VAP to ₹5,636 Cr; breakdown supported by category metrics (paneer +33%, curd +26%, ice cream +25%)

Growth described as flat-to-negative for past 4 quarters; Q1 at 18.1 lakh liters but year-on-year modest

Volume admittedly flat; pricing action in March-April caused volume loss, partially clawed back by distribution

Milk EBITDA 5.8% in Q1 FY26 → 3.03% in Q1 FY27; 275bp compression. VAP 9.7% → 8.06%; 164bp compression

Mini-flush did not materialize; management now expects prices stable-to-firm Q2, expects October buffalo flush

FY27 capex raised ₹200 Cr → ₹250 Cr (paneer, ghee, procurement infra). Signals accelerated growth platform investment despite current margin pressure.

Prior guidance: 'pressures will persist despite improving availability.' Actual: mini-flush failed, prices up 7% YoY, now expect stable-to-firm Q2, uncertain October recovery. 3.5-4% baseline inflation ongoing.

OPM 4.6% (vs prior 5.8% Q1 FY26). Milk EBITDA 3.03% (vs 5.8%); 275bp compression. Management now frames as 'trough' phase requiring price normalization, not near-term recovery.

VAP mix jumped to 44% from 36% YoY, exceeding 2-2.5% annual guidance. Driven by 40% volume+price growth and flat milk base, not necessarily sustainable at same pace.

Management now explicitly: 'main problem we need to solve.' Four quarters of flat-to-negative growth. Pricing actions (5% VAP) in Q1 caused volume loss in March-April, only partially recovered.

Mini-flush didn't materialize due to weather. Prices now stable/slight uptick expected Q2. October flush normal, but all bets dependent on rainfall. Expanding farmer network (adding 5,000 farmers Q1, 5,000 Q2) to secure volumes at right price.

80% distribution expansion (new points in existing geographies), 20% market share gain from organized competitors (measured in paneer, curd, buttermilk). No new geographies opened. Cycling low base from Q1 FY26 rain impact.

Cow milk mix shift (buffalo down 20% due to scarcity); cow milk +₹1/liter. SMP consumption higher at elevated cost (50bp impact). Packing material inflation (30bp). Mix change + inflation offset pricing and VAP gains.

Ghee improved -12% → -8.5%, a 350bp gain. Losses in expansion regions reduced despite company profitability decline. If those regions had declined in line with overall margin, ₹1 Cr more loss. Trajectory right but no timeline to breakeven given.

CEOMD admits 'the main problem we need to solve.' COO: distribution network expansion (fresh distributors, Heritage happiness points), added 1 lakh liters/day Q1, focusing on throughput per point. Month-on-month growth visible March→April→May→June→July. Work in progress, highest priority.

Long-term target: mid-to-high teens (16-17%) overall growth, milk 7-8%, VAP 25%. This quarter cycled low base (Q1 FY26 rain). One should expect smoothed performance over long period, not extrapolate quarterly spikes.

Pricing actions ongoing every week across markets. Will continue if procurement prices stay firm (expected through Q2). Passing on raw material increases to consumer; no other way. Taking balanced view quarterly.

Raw materials 75% of revenue, still significant. Not yet at stage where VAP EBITDA grows despite milk inflation. Working toward premium positioning to price irrespective of raw cost. Target high single-digit EBITDA (7%+). Median prior years 7-7.5%; should aim for that, not 6%. Raw milk normalization will be primary driver.

At trough now due to inflation. Long-term milk cost trend 3.5-4% YoY baseline. Intent is to grow VAP net revenue ahead of 3.5-4% milk inflation so EBITDA accretive. If business can procure even in inflation, grow when opportunity comes, expand VAP 3-4% annually, it's strong and will ride cycles. Margins expand widely when milk prices fall; that's not normal.

Paneer project and ghee project under execution, plus raw milk procurement, minor capex. Total ~₹250 crores for year.

Long-term trajectory. Milk growth constrained by volume ceiling (flat past 4 qtrs); VAP mix expansion to offset. Q1 VAP 40% benefited from low base (Q1 FY26 rain impact) and flat milk volumes.

Currently 4.6% OPM. No timeline. Dependent on: (a) raw milk costs normalizing (cyclical, 3.5-4% baseline inflation), (b) VAP mix to 50% by FY30, (c) resolving flat milk volume issue.

Two projects: paneer and ghee; also raw milk procurement, minor capex. Increase signals accelerated timeline or scope expansion mid-year.

Liquid milk volumes flat past 4 quarters despite pricing actions. Pricing (5% VAP) triggers volume loss; distribution expansion claw-back incomplete. Overhead absorption impaired; profit leverage lost even with VAP growth.

Milk procurement +7% YoY to ₹46.61/liter. Mini-flush in April-May did not materialize; prices remain firm. Baseline inflation 3.5-4% YoY structural. Buffalo flush (Oct-Nov) uncertain due to El Niño and potential unseasonal rains affecting yield/fodder.

Gross margin down ~250bp vs Q4 FY26 due to: (a) cow milk mix shift (buffalo down 20%, cow +₹1/liter), (b) SMP consumption higher at elevated cost (~50bp), (c) packing material inflation (~30bp). VAP mix improvement and pricing (5%) insufficient to offset.

Q1 VAP growth 40% benefited from low Q1 FY26 base (rain impact). Management guided long-term 25% VAP growth; Q1 50%+ expansion due to flat milk volumes inflating VAP %. Sustaining high growth requires milk volumes to recover (conflict with other assumptions) or market share gains in organized channels (mature markets risk).

Ghee EBITDA -8.5% (improving from -12% but still loss-making). Consumer packs and Mumbai/North expansion flagged as requiring breakeven timeline before contribution. Get-A-Way near-breakeven but still infant-stage. Heritage Novandie (Livo) newly consolidated. Cumulatively, loss-making portfolio absorbs margin uplift.