Dodla Dairy Ltd (DODLA) Q3 FY22 Earnings Concall Transcript

Dodla Dairy Ltd (NSE:DODLA) Q3 FY22 Earnings Concall dated Jan. 24, 2022

Corporate Participants:

Sunil Reddy — Managing Director

B.V.K. Reddy — Chief Executive Officer

Anjaneyulu Ganji — Chief Financial Officer

Analysts:

Aniruddha Joshi — ICICI Securities — Analyst

Gaurav Jogani — Axis Capital Ltd. — Analyst

Vinit Bhat — Arpwood Partners — Analyst

Vinod Malviya — Union Mutual Fund — Analyst

Pranjal Garg — ICICI Securities — Analyst

Rohit Chordia — White Oak Capital Management — Analyst

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to the Dodla Dairy Q3 FY ’22 Earnings Conference call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities Limited. Thank you and over to you, sir.

Aniruddha Joshi — ICICI Securities — Analyst

Thanks, Lizann. On behalf of ICICI Securities, we welcome you all to Q3 FY ’22 Results Conference call of Dodla Dairy Limited. We have with us the senior management of the Company starting with Mr. Sunil Reddy, Managing Director; Mr. B.V.K. Reddy, CEO; and Mr. Anjan Ganzi, CFO.

Now I hand over the call to the management for their initial comments on the quarterly performance and then we will open the floor for question and answer. Thanks and over to you, sir.

Sunil Reddy — Managing Director

Thank you very much, Aniruddha. Hello everybody. I welcome you all to the Q3 ’22 earnings conference call of Dodla Dairy Limited. We really hope all of you guys are keeping safe in this COVID new stimulant environment. I’m very glad to announce that we have delivered yet another quarter in line with our stated goals. Our milk volume grew and healthy VAP numbers have also buoyed and helps us to achieve a 16% year-on-year and 2% quarter-on-quarter revenue growth.

Operator

Sorry, to interrupt. Sir, the audio from your line is not clear.

Sunil Reddy — Managing Director

Is it okay now, ma’am?

Operator

No sir, it’s still the same.

Sunil Reddy — Managing Director

Is it muffled or…?

Operator

Yes, sir, it’s sounding muffled.

Sunil Reddy — Managing Director

Okay. Is it better now?

Operator

Yes, sir. This is much better. Thank you.

Sunil Reddy — Managing Director

Our VAP numbers have buoyed and helps to achieve a 16% year-on-year and a 2% quarter-on-quarter revenue growth in the third quarter of ’22. Our average milk procurement in Q3 of the year ’22 has increased to 12.4 lakh liters per day as compared to 10.7 lakh liters the same quarter last year. Geographic expansion of our operations and in-road in new markets are visible through growth in the numbers of our facilities and direct and indirect distribution channels. Having said this, I’m pleased to announce that we have achieved a milestone of 1 lakh liter per day of milk procurement from our newly entered state of Maharashtra in the quarter gone by. Our growth in the topline and bottom line has been in line with industry standards. We saw healthy numbers in our VAP sales despite seasonality this quarter. Typically what happens is in the onset of winter, sale of products like lassi and buttermilk, flavored milk, and ice cream are subdued as compared to the summers as people prefer to have hot beverages during this time of the year.

As you all know that our commitment towards ESG and a strong conviction towards the fact that fundamentally strong companies, which have a sustainable business model, will always outlast the competitors and can become long-term success stories. We are taking every step in this direction and want to establish our name among these high growth yet sustainable businesses. A steady transition towards renewable energy like solar, we have successful installation of zero discharge plans in the past two, three years and supporting our dairy farmers by providing them high quality feed, paying them directly on time are the few steps that we have taken to build a strong and sustainable ecosystem around us. I also would like to take this opportunity to reiterate the fact that with a strong execution team, experienced professionals, and a very strong balance sheet; we are on the road of becoming a formidable dairy player in the future.

With this brief, I’ll hand over to CEO of our Company, Mr. B.V.K. Reddy. Over to you, sir.

B.V.K. Reddy — Chief Executive Officer

Thank you so much, Sunil sir. Very good morning to all the participants. As mentioned by our MD sir, we have delivered a healthy quarter showing growth in revenue and other parameters. Our constant push towards expanding our footprints across India is shaping up well. As you all know, our Company core is built on the solid and longstanding relationship that we have had with our dairy farmers over the years, which in turn has strengthened our procurement model. Today our procurement milk, around 1.3 lakh dairy farmers as against 1.2 lakh in the same year in the second quarter, of which 81% are provided the regular direct payment in bank accounts. Our direct to procurement model has further strengthened wherein we are buying almost all the milk directly from the farmers across more than 7,800 villages as compared to 7,600 villages in the Q2 of ’22 resulting in cost saving, establishment of deep-rooted relationship with them. Our organic operations wherein we have provided high quality feed to the dairy farmers help us strengthen these relationship with them and this also ensures that both the parties get benefited.

In terms of our presence, we continue to have the third highest market presence across stores — states in India supported by three largest procurement network, 14 processing plants with 20 lakh liters per day capacity. We currently have 104 chilling centers as against 103 in previous quarter. And as Sunil sir mentioned earlier about our organic — our growing operations in Maharashtra wherein we have touched 1 lakh liters per day mark of milk procurement is a good example of this growing presence. Today we have around 546 Dodla parlors as agonist 509 in the previous quarter. And we also have a strong 1,718 milk and milk distributor channels, which was 1,670 in the last quarter. We have 3,143 distribution agents network that are all well established in many areas of the country. We continue to strengthen our enhancing footprints and brand visibility with every passing year and we are making constant efforts to expand our distribution network, strengthen brand recognition, and improve our margins to power unmatchable growth in the industry.

With that said, I would request our CFO, Mr. Anjan to give a financial of this quarter.

Anjaneyulu Ganji — Chief Financial Officer

Thank you, sir. Good morning, everyone. I would like to briefly touch upon the key performance parameter for the third quarter of this financial year 2022. We have also submitted a detailed presentation of our quarterly performance on the stock exchanges and we have also uploaded the same on our website. Now taking a quick glance at the financial highlights for the quarter ended December 31, 2021. Our operating revenues were at INR5,752 million this quarter as compared to INR4,972 million in Q3 financial year 2021. Revenue from value-added products and PAT and PAT-based products was at INR1,380 million contributing 24.2% to the overall dairy revenue during through Q3 financial year 2022. Compared to Q3 financial year 2021, the same stood at INR1,143 million contributing to 23.1% to the overall dairy revenue so which is a 1.3% increase.

EBITDA stood at INR520 million for this quarter compared to INR703 million in the same quarter in the previous year. The EBITDA for Q2 FY ’22 stood at INR619 million. Profit after tax was at INR269 million this quarter as compared to INR416 million in the same quarter last year. For Q2, the same PAT was at INR294 million compared to INR269 million this quarter. EPS for this quarter stood at INR4.5 per share as compared to INR7.5 in the same quarter last year. Discussing briefly about our margin, I would like to reiterate what we have discussed over the past few quarters. Our operating margins may appear to be subdued vis-a-vis the same quarter last year. This is primarily due to the raw material cost softening benefit that we got last year, which was expected to stabilize this time around.

Having said that, I would like to mention that we are confident that this will be offset partially by the price increases going forward. With our increasing footprint across India, growing numbers in Africa each successive quarter, and resilient VAP sales and pricing power; we are confident of achieving our year-end margin targets. And as Mr. Sunil mentioned, we are becoming a formidable player in the dairy industry. That concludes our update on the finance and strategy, which we believe had been positive in all aspects.

With that being said, we would now like to open the floor for questions and answers. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Gaurav Jogani from Axis Capital. Please go ahead.

Gaurav Jogani — Axis Capital Ltd. — Analyst

Thank you for the opportunity, sir. Sir, my first question is with regards to the margins, I mean the gross margins particularly. So while I understand that the base quarter had a very high base in terms of margins and it was expected to decline, but even on a Q-o-Q basis if you see, the demand — the decline has been quite sharp. So, any sense that you can give how much the procurement prices has risen Q-o-Q basis and how much the selling price has risen? Any sense on that?

Sunil Reddy — Managing Director

So I’ll first the general thing, Gaurav, and then Anjan will answer in detail. So, basically what happens is normally the months of October, November, December; we do see a softening of volumes which is a norm and we have a surplus of milk production. This year our surplus of milk production didn’t happen, but the consumption was a little bit subdued as per the season. Anjan will give you the exact increase in terms of the per liter cost that has incurred because of not having the flush in the current season of October, November, December. With that, Anjan?

Anjaneyulu Ganji — Chief Financial Officer

So for the previous quarters, for the quarter ended June ’21 the procurement prices stood at INR31.1 per liter of procurement of milk whereas in September — quarter ended September 2021, it is INR30.7 per liter of milk procured and for the current quarter the procurement price stood at INR32.4 per liter of milk procured, which is a INR1.7 increase compared to the previous quarter and INR1.3 compared to the previous quarter before that. So, that price increase we have tried to accommodate by waiting and taking a selling price increase, which will be happening in the current quarter, which will stabilize our margins.

Gaurav Jogani — Axis Capital Ltd. — Analyst

Okay. So in that sense, I mean so how has been the current milk price been trending in that context? I mean I do understand that the Q3 would have been seeing also lot of pent-up demand from the HoReCa channel after opening and there would be a higher demand versus the supply that you might have faced and because of which the RM prices would have also shot up. But how is the current season — current quarter trending given the fact that Q4 is generally a lean season in terms of pricing and what sort of quantum of price increases that you’re envisaging?

Sunil Reddy — Managing Director

Yes. B.V.K. will answer that, Gaurav.

B.V.K. Reddy — Chief Executive Officer

Gaurav, this is B.V.K. again. So in December we went up to INR32.40, even January maybe another INR0.30, INR0.40 it is going to go up so it has already gone up close to INR33 now. But in January, we have taken — across all locations we have taken a price hike also — selling price hike by INR2. So, this will offset.

Gaurav Jogani — Axis Capital Ltd. — Analyst

Okay. And sir, these price increases, have you only taken or you have seen your competitors also taking a similar kind of a price increase?

Sunil Reddy — Managing Director

Competition is basically a mix, right. The existing competitors will do it at a different quantity — sorry different price structures, but we have made sure that we have taken our price structure according to our…

B.V.K. Reddy — Chief Executive Officer

Yes. We have done all the location — across our all locations.

Gaurav Jogani — Axis Capital Ltd. — Analyst

Sir, the reason I was asking was because if we take price increases vis-a-vis the competition a higher one so can that eventually lead to an impact on the sales demand?

Sunil Reddy — Managing Director

Yes. It might have a small drop. But coming back to summer, we are expecting that will pick up because the confidence of the quality of the milk and the brand loyalty that we command, the volumes will come back. It’s a normal 10-day kind of a scenario where everybody tries to find [Technical Issues] it comes back to normal.

Gaurav Jogani — Axis Capital Ltd. — Analyst

Sure. And sir, the second question is with regards to the African subsidiary performance. I mean the performance seems to be quite good in this particular quarter and there was quite a sharp jump in the sales. So. anything that you would like to highlight? What has led to this strong performance and is this sustainable going ahead?

Sunil Reddy — Managing Director

So, I’ll just give you the brief and B.V.K can take you through the numbers. The strong performance has been that we have improved our sales in Uganda itself. We manufacture in Uganda, sell in Uganda and Kenya. Actually now our Uganda — processes in Uganda has paid off and we have a strong increase of sales in Uganda and this will continue because now given the better fact for us that we don’t go across the border or in other regions. That is the reason for the strong performance and we are hoping that this will continue and if we can do something in Kenya at a later stage, it will also — we’ll also try to further increase our volumes in Kenya.

Gaurav Jogani — Axis Capital Ltd. — Analyst

Okay. Sure sir. Thank you. That’s all from me.

Sunil Reddy — Managing Director

Thank you, Gaurav.

Operator

Thank you. The next question is from the line of Vinit Bhat from Arpwood Partners. Please go ahead.

Vinit Bhat — Arpwood Partners — Analyst

Thank you for the questions. My question, sir, is that in India, how has been the flush season this time? And regarding the skim milk prices, could you talk about the industry a little bit that how much has been the stocking and what is the current price of skim milk powder?

B.V.K. Reddy — Chief Executive Officer

See this year skim milk now — right now prices are going around INR235 to INR240 and we have enough stocks for the coming season.

Sunil Reddy — Managing Director

Regarding the flush volume, this time there’s been no flush that’s why you saw the price uptick.

B.V.K. Reddy — Chief Executive Officer

There’s no much of flush [Speech Overlap].

Vinit Bhat — Arpwood Partners — Analyst

Any particular reason for that this year?

Sunil Reddy — Managing Director

I think it is mostly due to the last time COVID when the calvings are happened, the timing going wrong in terms of insemination followed by incessant rains that we had with the monsoons that came in like Tamil Nadu was hit for a huge amount of monsoon rain and that was the reason for major reason. One is the insemination and second is the monsoons, which normally incessant monsoons tend to bring a little bit of disease on which takes some time for it to get corrected.

Vinit Bhat — Arpwood Partners — Analyst

Got it. And just in terms of your value-added products, right. Like sir, could you tell me how now is your Ice cream sales and how has that performed to the pre-COVID level say two years ago? I understand that December is a slightly lower season for this, but just in terms of growth, how has that performed?

Sunil Reddy — Managing Director

Ice cream for us was just something which we started only just before COVID as a full-fledged operation. But Anjan will give you the specific numbers of ice cream, which is a smaller component of the overall. So Anjan, can you tell the numbers, Anjan?

Anjaneyulu Ganji — Chief Financial Officer

So for previous year, we were selling around 1,356 liters per day in terms of ice cream sales. This year we started selling around 1,854 liters per day the ice cream sales. So the net revenue contribution is around INR81 crores per day — INR81 million.

Vinit Bhat — Arpwood Partners — Analyst

INR81 million. Alright. Thank you so much, sir. I’ll come back in the queue.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vinod Malviya from Union Mutual Fund. Please go ahead.

Vinod Malviya — Union Mutual Fund — Analyst

Thank you for taking my question. Just couple of questions. First is on the margin side, you have given some broad idea about it, but just more from a longer-term perspective. Now in your domestic operation what has been observed before the COVID hit us, you used to make around 20% to 21% kind of a gross margin; when I say gross margin, it’s revenue less the raw material; which definitely increased during the pandemic period of more than 30% plus. Now in this quarter you have come back to 26%. So on a long-term trajectory, maybe like a three to four years kind of a period, what should be the right gross margin or a right spread that is the selling — milk selling price less the milk procurement price? What should the sustainable number for the Company or for the industry as a whole?

Sunil Reddy — Managing Director

So for the Company, I would say that we will maintain this 26%, 27% gross margin and we’re trying to reach the 9% to 10% double-digit EBITDA margin and that I think is the way we take it forward. Keeping that in mind is what we take our price increases or are doing our operational parameters. Like we keep repeating, it’s all we have to do as a trade-off between volume and margin. So this is the margins that we look for and based on that, we fight for the volumes.

Vinod Malviya — Union Mutual Fund — Analyst

But compared to pandemic — I mean pre-pandemic, what has really changed and what gives the confidence that now you would be able to sustain this kind of a margin of 20%, 21% what you used to do earlier?

Sunil Reddy — Managing Director

Vinod, so basically the price increase that we have taken as an overall increase is 3% of what we are getting from the sales for the procurement. We are only consistently keep on pushing for that margin profile now. So that might have an impact on a small percentage drop in our revenue, which we are trying to compensate by going into other areas. So, that is the reason. It’s simply the procurement and the sales price what we are pushing in the market and a lot of effort that we have put in in the back-end for improvement of quality, the visibility, the DRPs; all these are paying us now. So when a consumer is buying it, he’s preferring the quality and the strength of the brand is now coming forward.

Vinod Malviya — Union Mutual Fund — Analyst

Okay. And what about the competition co-operative? Have their profitability also gone up and they’re going to stick with the new profitability level or there could be some reduction from the co-operative?

Sunil Reddy — Managing Director

Co-operatives, I don’t think so. So, they’re still maintaining that same number of what they were doing as the old number. But it’s not been — I don’t think — I’m not sure of the exact numbers, but I don’t see much change at the time.

Vinod Malviya — Union Mutual Fund — Analyst

Okay. And the second question was on your Africa business. Now if you can correct me. If I remember rightly during the IPO meet, you had said that your strategy as far as Africa is concerned, you will not really try to grow that business and the focus would be more on generating cash and utilizing that cash itself. Now in this quarter there is a very sharp growth which we’re seeing in the Africa business and you rightly said it’s because of the increased operation in Uganda. So I just wanted to understand is there any change in strategy over there or you can just highlight what has really led to this kind of a growth in Africa?

Sunil Reddy — Managing Director

See basically, our strategy in Africa will remain same. Whatever cash is being generated there, if we get a smaller opportunity of strengthening our operations on the ground like example in Kenya, if we can get an opportunity which will strengthen our operation is what we look at. I think there’s major expansion in both. But this volume growth is something we still have capacity with us, we try to keep pushing to use our regular operations — improvement in regular operations.

Vinod Malviya — Union Mutual Fund — Analyst

Okay. And just last question on the domestic geographies front again. In terms of your geographical expansion, can you just like give some strategy over there like which are the new geographies you’re planning to enter or there is significant headroom in terms of improvement itself, growth itself?

Sunil Reddy — Managing Director

In geographical expansion, we have done a substantial expansion in entering into procurement into Maharashtra where we have also got around 1 lakh liters of milk coming in from Maharashtra now. So that is the strength that we have in terms of being able to go into areas where it’s more cost effective, where we are able to implement our own system of direct to farmer, and that is one thing that we have done. We have entered Maharashtra in a larger way for procurement. I think we will continue to concentrate on the improvement of procurement coming from Maharashtra for us. Regarding markets, there will not be anything for the current year other than strengthening these areas where we exist and maybe the peripheries of where we are operating from. So that will be our immediate goal for the immediate future, but we will definitely improve our procurement as we go forward in Maharashtra.

Vinod Malviya — Union Mutual Fund — Analyst

Okay. That’s all from my side. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Pranjal Garg from ICICI Securities, please go ahead.

Pranjal Garg — ICICI Securities — Analyst

Thanks for the opportunity. Good morning, sir. Sir, I have a couple of questions. First one being as you highlighted that Africa business have grown this quarter. Sir, is there a number in our mind that let’s say the total contribution, the total sales — sorry, let’s say is there a number in our mind that this is the maximum we want our revenue from the international business? Let’s say this was 7.5% in this quarter. Is that something…?

Sunil Reddy — Managing Director

It’s not a specific number, but we would definitely like to push it and take it up to let’s say maybe it will increase by 1% or 2% as a contribution of revenue to our overall business as we go forward. Again, as we said, I think it is all due to us keeping a sustained quality. Whatever we are able to push, consumers are buying because they prefer the product as a product of choice now and that leads to natural growth. So, we will keep pushing that. It will not be a substantial growth, but it will definitely have increase 1% or 2% to the overall revenue.

Pranjal Garg — ICICI Securities — Analyst

Okay. And sir, can you please share the differential in the operating margins between our India business and outside India business?

Sunil Reddy — Managing Director

Yes, I’ll just give you — you want the gross profit, right, or the EBITDA margins?

Pranjal Garg — ICICI Securities — Analyst

Yes, EBITDA margin should be fine.

Sunil Reddy — Managing Director

Okay. The EBITDA margins from — the answer Anjan will give you.

Anjaneyulu Ganji — Chief Financial Officer

This is Anjan. In terms of gross profit from Indian business for DDL India, we made for the Q3 ’22 our gross margins stood 26.1% whereas at a consol level for African business stood at — the gross profit stood at 32.8%. Coming to EBITDA India for this quarter, we made 8.2% whereas the Africa business contributed 16.2% EBITDA.

Pranjal Garg — ICICI Securities — Analyst

Okay. Thank you, sir. I will — that helps. I’ll get back into the queue if I have any follow-ups.

Operator

Thank you. The next question is from the line of Rohit from White Oak Capital. Please go ahead.

Rohit Chordia — White Oak Capital Management — Analyst

Thank you. And good morning, Sunil, B.V.K., and Anjan. Just a quick question on you spoke about taking your procurement in Maharashtra up further. If I look at milk procured in the last two quarters anyway have been meaningfully ahead of what you’ve been able to sell. So what are the benefits right now — and your procurement prices have also gone up. So while you’ve done a commendable job in terms of setting up your procurement in Maharashtra, what benefits are you seeing from this? I mean your sales volumes if I go by what you suggested for fourth quarter, volumes are likely to stay flattish or on the weaker side. So, what benefits are you getting from this push in Maharashtra?

Sunil Reddy — Managing Director

Good morning, Rohit. Very pertinent question. Maharashtra is a cheaper source for us in terms of landed cost for our North Karnataka operation and our Hyderabad operation. It is normally compared to let us say our highest in terms of other areas of where we procures, we could benefit around INR2 from our Maharashtra operation.

Rohit Chordia — White Oak Capital Management — Analyst

So despite that benefit coming in, you are stressed in terms of selling price minus cost of procurement, we have been under pressure. So when do we start seeing the benefit of all this investment that you’ve done in Maharashtra by when? Do you think they should start showing up in six to nine months from now?

Sunil Reddy — Managing Director

It will start moving up in another three, four months and we’ll start getting the benefit as more goes out because of the same procurement price parity, we have also increased the selling price. So, you’ll start seeing the benefits of this coming up as we go forward in the next few quarters. It will make our improvement from the previous quarters and move forward to better quarters.

B.V.K. Reddy — Chief Executive Officer

Because we said last year, February 16 was our first chilling center was opened. Right now only six chilling centers are running and three are in pipeline. By March 31, another three we’re going to open so next year it will add. The volume, it will become double.

Sunil Reddy — Managing Director

Because now whatever we have reached is only a progressive volume that is some of the volume will come forward now.

Rohit Chordia — White Oak Capital Management — Analyst

Very well understood. Just second question, sir. If you could talk about our volumes both on liquid milk and let’s say three components; skim milk, curd, and other VAP compared to the same pre-pandemic so 3Q FY ’20 level, have we started seeing some growth? Because now all your segments, whether it is household or HoReCa are all open so this last quarter was selling at close to normal as we have seen in the last since the pandemic. So, how have one [Speech Overlap]?

Sunil Reddy — Managing Director

Basically B2C or impact of HoReCa has been marginal, but Anjan will give you the specific numbers of our comparative quarters for milk and the VAT breakup. Anjan?

Anjaneyulu Ganji — Chief Financial Officer

So milk in Q2 — in the last quarter for the financial year 2022, we sold around 9 lakh liters per day in terms of milk whereas the value-added products we sold — in India business and value-added products we sold 257,000 liters per day. And in the Q3 2022 the milk sales stood at 9.11 lakh liters per day and value-added product sales stood at 2.42 liters per day. So overall for the dairy India, we sold around 11.6 lakh liters per day compared the same 11.6 lakh liters per day in the Q2 FY ’22. Whereas our African business we sold last quarter 63,000 liters per day and this quarter we sold 88,000 liters per day.

Rohit Chordia — White Oak Capital Management — Analyst

Sure. So, can you — the third question is that we should have perhaps seen some growth in volumes on a two-year basis versus the third quarter of fiscal ’20. Why has that not happened? Has there been no growth at an industry level or have we lost some share?

Sunil Reddy — Managing Director

We have not lost some share. Basically again the same Omicron, bad weather story that comes up as incessant rain because these were the cyclones that were consistent, almost we have lost 30 days, 40 days in terms of some major areas getting hit by cyclones and moment getting interrupted. That is the only reason. We have not lost market share, it was a general drop. I think as we go forward once the summer comes back into play, temperatures go up, we should see the numbers surging up again.

Anjaneyulu Ganji — Chief Financial Officer

But it’s majorly in the November month we had a huge monsoon in the southern part of India so Tamil Nadu, Andhra, and Karnataka; some parts of Andhra Pradesh and some parts of Karnataka hit by these monsoons — heavy monsoons. So, that’s where the demand went down. So other than that, we don’t see much of an impact on the market share.

Rohit Chordia — White Oak Capital Management — Analyst

So would it be fair to say that you saw some growth versus two years back in the month of October and December, it was really the rains in November that impacted volumes?

Sunil Reddy — Managing Director

The rains in November did impact volumes. So the average to get hit a bit and now we are again with Omicron like for example Chennai every weekend we get hit by a certain amount of volume. But I think this will all sort out by itself from Feb and March only.

Anjaneyulu Ganji — Chief Financial Officer

Yes. Lowest volumes recorded in the month of November. [Technical Issues] Rohit, if you see the same quarter last year, we were selling 10.4 lakh liters per day and this quarter we sold 11.6 liters per day in India. From Q3 last year to Q3 this year.

Rohit Chordia — White Oak Capital Management — Analyst

Sunil, last year you did — HoReCa was not completely open and hence the comparison perhaps is not that valid. Last question. Sunil and B.V.K. for you. How do you look at Amul setting up in AP and Telangana, the milk plant that they’re setting up? Does it change competitive dynamics?

B.V.K. Reddy — Chief Executive Officer

Sir, Amul is there in Telangana since six years, sir, not now. Amul is there. Amul has been selling since more than five years in Hyderabad City. So, there is nothing new. We need not worry about them.

Sunil Reddy — Managing Director

So what they’re saying their own plant to getting a plant to manufacture will not make much of a difference.

B.V.K. Reddy — Chief Executive Officer

They are already getting co-packing so instead of doing co-packing, they may go for their own plant. That also it will take another year or two to build their own plant.

Rohit Chordia — White Oak Capital Management — Analyst

So they are suggesting is their own plant will only replace the current co-packing volumes, it’s not going to lead to any incremental capacity in the market overall.

Sunil Reddy — Managing Director

I guess they won’t have to be dependent on co-packers but if they are [Indecipherable] more than the volumes or whatever because now they’ve got a reasonable sale volumes so depending on others, they’ll try to improve their margin by going for their own plant.

Rohit Chordia — White Oak Capital Management — Analyst

Well understood. Thank very much, gentlemen.

Operator

Thank you. The next question is from the line of Dhiral from PhillipCapital. Please go ahead.

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

Good morning, sir, and thanks for the opportunity. Sir, this INR2 price rise which you are going to take, sir, this will help you to achieve double-digit kind of an EBITDA margins?

Sunil Reddy — Managing Director

Yes. So, that’s the reason we are trying to keep our pricing at that.

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

Okay. And sir, what is the overall outlook on the milk procurement price for next year FY ’23?

Sunil Reddy — Managing Director

FY ’23 see, now we have to look at it mostly from a point of view of April, May because that is the period again when we enter into the lean period where the product move, we have to anticipate how much the lean period be. But I think with this price increase, we are prepared even for the couple of months if there is even a price increase, the following months when the prices do drop we should be able to compensate and maintain our margins.

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

Okay. And sir, how cheap is the Maharashtra procurement price as compared to the other south regions?

Sunil Reddy — Managing Director

For us landed at our plants of operation, we get a difference of INR2 because it’s also the distances from where we have started new operations of North Karnataka to Hyderabad or Northern Andhra Pradesh. So the movement wise and all put together, we say INR2 at landed at the plant.

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

Okay. And sir, what is our market share in South India and the revenue mix from south as well as non-south states?

Sunil Reddy — Managing Director

Milk for us, we only sell in the southern states, So briefly — Anjan will give you the numbers of the market share specifically. Other states we only sell our long shelf life products. We don’t sell much. So milk in the southern state market, Anjan can you go ahead?

Anjaneyulu Ganji — Chief Financial Officer

So I’ll let you know what is our contribution of overall revenue from each state. So AP contributes — in quarter three 2022. So AP, Andhra Pradesh contributed 34% of the volume and Karnataka contributed 40% of the volume and Tamil Nadu 16% of the volume and Telangana 10% of the volume in terms of volume compared to the overall volume of the Dodla Dairy.

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

So you said value-added product we are selling in the non-south region and only milk is being sold in the southern states.

Sunil Reddy — Managing Director

No. Products we sell also in the southern region, but we don’t sell milk in the northern region.

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

Okay. So what is the overall target to take these value-added products as a percentage of revenue let’s say in the next two to three years? Any target for that?

Sunil Reddy — Managing Director

Could you come again, sir. Target for revenue from the states you’re saying or…?

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

No, from the value-added product — all the value-added products because I know value-added are in business products?

Sunil Reddy — Managing Director

We will go up by 1% or 2%, sir. It all depends on again hopefully COVID doesn’t rear its head up in the summer months because summer months contribute a lot to our entire year’s product revenue from ice cream to flavored milk to all our fermented products. So we think we’ll go up by 1% or 2% from the last year, sir.

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

Okay. But any long-term target — any long-term target, may not immediate target?

Sunil Reddy — Managing Director

Long-term target is basically they keep pushing for trying to increase it year-on-year. But it is also a product profile, which I personally think it will not be something dramatic of increase because overall consumption pattern if you look at it from an Indian consumer, in the milk field is still I think — now this is my estimate not a general estimate, there should be around 30%, 35% is what a household will consume, 30%, 31%, 32%. And I think when we are already coming closer to that is where our numbers will be, sir.

Dhiral Shah — Phillip Capital India Pvt. Ltd. — Analyst

Okay. Got your point, sir. Thank you so much, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Pranjal Garg from ICICI Securities. Please go ahead.

Pranjal Garg — ICICI Securities — Analyst

Thanks for the opportunity again. Sir, I have — regarding the Dodla retail parlors, we increased from 509 to 546 in Q3. Sir, in which particular geographies have we done this expansion?

Sunil Reddy — Managing Director

In all geographies, it’s been a number that we are increasing. We’re going to use this to grow in all geographies not as one. So I guess if we divide it as the states, the lead will come from Hyderabad City. But otherwise, all states we have been increasing, sir.

Pranjal Garg — ICICI Securities — Analyst

Okay. And sir, what is the average revenue from our one-year running parlor? Actually I want to understand growth which can be achieved with the expansion of these parlors?

Sunil Reddy — Managing Director

I think they’re contributing — revenue wise now they are contributing 12%. So, the parlors are contributing 12% year-on-year, I think we’ll push forward for 15%, 16%.

Pranjal Garg — ICICI Securities — Analyst

Okay. And sir, can we get an indicative number what our one year running parlor gives in revenues average number?

Sunil Reddy — Managing Director

Each parlor wise, you mean average parlor wise, sir? So, we look at it as a — when B.V.K. looks at it, we target a parlor to achieve around 250 liters of milk sales per day. That is our primary objective followed by the value-added products that they add-on to it. So an average running parlor is 250 liters into let’s say INR50 or whatever the average realization per day, sir.

Pranjal Garg — ICICI Securities — Analyst

Okay, sir. Next is what is the geographical mix of sales for the quarter?

Sunil Reddy — Managing Director

Anjan, the geographical sales for our contribution. Anjan will just tell you.

Anjaneyulu Ganji — Chief Financial Officer

So the geographical wise for the quarter Q3 2022; the revenue from Andhra Pradesh contributed 36%, Karnataka contributed 35% revenue, Tamil Nadu contributed 17% revenue, and Telangana contributed 12% of revenue for this quarter. And for YTD, AP — Andhra Pradesh contributed 38%, Karnataka contributed 34%, Tamil Nadu contributed 17%, and Telangana contributed 11%.

Pranjal Garg — ICICI Securities — Analyst

Okay. Thanks. And sir, did we do any launches, relaunches of products in this quarter?

Sunil Reddy — Managing Director

No launches or relaunches, but we keep pushing all our products and the SKU variants do keep changing, nothing specific there. I mean for us we still consider ice cream as a whole — as one part of it. There will be a few flavors and variants that we push, nothing new.

Pranjal Garg — ICICI Securities — Analyst

Okay. Sir, my next question is regarding can you please give us a guidance of targeted margins what does the Company wants to achieve?

Sunil Reddy — Managing Director

So, the targeted margins as you said, sir, we will try to achieve and maintain a double-digit margin. Moving from the lower — from the single digit of 6%, 7% that we were in, we will try to move to the 9%, 10%, 11% margin.

Pranjal Garg — ICICI Securities — Analyst

Okay. Thanks, sir. That’s all from my side for now.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vinit Bhat from Arpwood Partners. Please go ahead.

Vinit Bhat — Arpwood Partners — Analyst

Hi. Sir, my question was again regarding the skim milk prices. Now I just wanted to get a sense as the prices in India versus international prices. Now if I look at the international skim milk prices, they are significantly higher than they are in India and this is not usually seen, right. So I’m just wondering why aren’t Indian dairy companies exporting more of the SMP to just enjoy the higher realizations that are there globally as opposed to the prices in India?

Sunil Reddy — Managing Director

So basically, sir, for us from India we are basically a net buyer or we use only for capital. We’ve never been in [Indecipherable]. But international prices also because of these vagrancies of not having freight, freight prices going up, and a lot of the issues; the prices have gone up. In India It is protected by imports also. So even if international prices do come down, they have import duties which make the prices be higher. And since we are not consistent exporters, we only do at some specific time, it’s very difficult for an Indian company to establish permanent powder sales globally because the Government of India in the past has banned a couple of times when India had a shortage of milk. So, people do not trust India as a sustainable supplier. This is my opinion, sir.

And also we have issues on terms of quality front, they’ll want — when the prices are low globally, they will not accept Indian product by claiming it to be quality issues of foot and mouth, we need certificate. And like now when the prices are high, you might find a little traction, but there is nothing consistent. That is why Indian powder exports do not move forward. Amul pushes it also, but pushes it as a commodity. Amul has never pushed it as a consistent supply outside here. So whenever India has pushed outside was when there was a surplus in the country when the government gave incentives was when we saw major push of powder going outside, but otherwise majority is sold domestically.

Vinit Bhat — Arpwood Partners — Analyst

And right now so you’re saying that there is no surplus SMP in the market, is it?

Sunil Reddy — Managing Director

There is — always SMP will be there. The commodity of pricing. The pricing impact we’ll actually feel in March-April of SMP, right. If there is severe shortage of milk and consumption doesn’t go up. Consumption of new goes up, then you’ll find the sales stiffening. But if the consumption of milk doesn’t go up for whatever reason and maintains status quo, the milk powder prices will remain the same.

Vinit Bhat — Arpwood Partners — Analyst

Got it. Sir. my next question is on the milk fat prices. Could you just help us with that as well, the current trend in that?

Sunil Reddy — Managing Director

Could you come again, sir? You were muffled a bit.

Vinit Bhat — Arpwood Partners — Analyst

The milk fat prices.

Sunil Reddy — Managing Director

Milk fat prices, the ghee prices. Again we don’t buy. We only sell our ghee in terms of the consumer market and we are not buyers. So our consumer price will be now in the range of — what are we selling our ghee at? INR450 to INR475, I’m not sure. We’ll get back to you, but around that range. We sell only — whatever little surplus we have, we sell as consumer ghee.

Anjaneyulu Ganji — Chief Financial Officer

We have very small quantity we sell, INR380 per liter.

Sunil Reddy — Managing Director

Sorry, INR380 per liter.

Vinit Bhat — Arpwood Partners — Analyst

Okay. Got it. And just a controv the ice cream volume that you told us in the earlier question, you said INR81 million is the total Q3 sales. So usually are we like thinking — like what is the run rate basis? So are we looking at around INR50 odd crores coming in or it will be somewhere INR60 crores, INR70 crores from — coming in from VAT sales?

Anjaneyulu Ganji — Chief Financial Officer

INR81 million for YTD FY ’22 so that is overall. So our daily average is 1,854 liters per day.

Sunil Reddy — Managing Director

Of course we will look it at the most doubling in numbers, nothing more — nothing major from there. It’s only another offering. We are not concentrating on it as a major value component for us.

Vinit Bhat — Arpwood Partners — Analyst

Got it. Thank you so much.

Operator

Thank you.

Aniruddha Joshi — ICICI Securities — Analyst

Sir, Aniruddha here. I have two, three questions. One, is it fair to assume that probably the milk cycle is turning upwards now so over past two years, the milk procurement prices were going down. Maybe COVID or closure of HoReCa or excess supply or even good monsoons and good flush seasons. So do we see a reversal in the cycle over next two years and only way to — I mean the cost inflation will remain high and only way to protect margins will be price hikes and then even after taking price hikes, there might be some downward momentum in the margins. So, is it a fair assumption to make?

Sunil Reddy — Managing Director

So, downward projection margins is depending like I said a trade-off between what we want as growth in volumes versus the profitability that we want to maintain. As we go forward for the next two years, I think milk procurement will start to see an increase. B.V.K. will take you through it. It will either increase. But price wise, personally I believe yes milk has always had an inflationary cost increase in the 3% to 4% because of all the commodities increasing; be it maize, be it rice husk, and all that as a feed ingredient do go up. It will go up, but the inflationary pressure and price increase I think as a trade-off, it will as it has been historically. So, it won’t be dramatically different. The production will come back and it will maintain the status quo. 4% inflation pressure will be there.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Sir, coming to second question. Now post IPO and with the internal accruals also, the Company has accumulated good cash reserves on the balance sheet. So, what is the plan going forward? Is there any dividend policy that you would like to work with or is there any inorganic route also we are exploring for the growth?

Sunil Reddy — Managing Director

Initially it will be the inorganic growth that we are looking forward. We will be coming with our policy very soon where we want to see that we have a certain amount of cash which we’ll always maintain to see whenever we get an opportunity that we should be able to go ahead and take it forward. We are definitely looking forward, we think we will be getting — going forward we’ll be moving into coastal Karnataka soon and like I’ve been saying, we’ll keep looking for opportunities in M&A and inorganic growth. Dividend policy, yes, another quarter later we will announce our dividend policy and take it forward from there.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. In terms of the new products we are seeing is that milkshakes are — almost each and every company is launching milkshakes be it Amul to even smaller companies also. So, how do you see growth in that market and what would be the strategy of Dodla as far as milkshakes are concerned?

Sunil Reddy — Managing Director

So milkshake or flavored milk is categorized both in the same as the difference in the packaging style that is going forward, which comes with a 12% GST. Now there’s been a tussle going and there is also a [Indecipherable] that is coming into play. We are going to bet more on the fermented. So I think we’ll bet more on the lassi, the buttermilk to be moving more than the milkshake, sir.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. So sir, these are the questions from my side. Thanks.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Aniruddha Joshi for his closing comments.

Aniruddha Joshi — ICICI Securities — Analyst

Thanks, Lizann. On behalf of ICICI Securities, we thank the senior management of Dodla Dairy for patiently listening to the investor queries and giving the answers. Now I hand over the call to the management for the closing comments. Thanks sir and over to you, sir.

Sunil Reddy — Managing Director

So thank you very much, ICICI and Aniruddha, for organizing the investor conference. I mean as we always say, we are very open and if any of you investors would like to come over and see our plants in Hyderabad or anything are more than welcome. You can fix up a time and you guys can come and have a look at it. And any further information you require, you can always contact Anjan and get more information. Thank you so much for giving us the opportunity and being on the call. Thank you.

Anjaneyulu Ganji — Chief Financial Officer

Please write to investorqueries@dodladairy.com so if there are any further queries.

B.V.K. Reddy — Chief Executive Officer

Thank you very much, guys. [Operator Closing Remarks]