Heritage Foods Ltd (HERITGFOOD) Q1 FY23 Earnings Concall Transcript

Heritage Foods Ltd (NSE:HERITGFOOD) Q1 FY23 Earnings Concall dated Aug. 01, 2022

Corporate participants:

Sonam Raghuvanshi — Investor Relations

M. Sambasiva Rao — President

Srideep M. Kesavan — Chief Executive Officer

Upendra Pandey — Chief Executive Officer

Analysts:

Digant Haria — GreenEdge Wealth Services — Analyst

Srideep M. Kesavan — Chief Executive Officer

Sameer Gupta — India Infoline — Analyst

J. Samba Murthy — Heritage Foods Limited — Analyst

Rohit Suresh — Samatva Investments — Analyst

Nitin Awasthi — InCred Equities — Analyst

Resha Mehta — GreenEdge Wealth Services — Analyst

Sneha Jain — SKS Capital — Analyst

Anupama Bothra — Arihant Capital — Analyst

Disha Anvil — Anvil Research — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Heritage Foods’ Q1 FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now like to hand the conference over to Ms. Sonam Raghuvanshi. Thank you, and over to you, ma’am.

Sonam Raghuvanshi — Investor Relations

Thank you. Good evening, everyone. I welcome you all to the earning call of Heritage Foods Limited for Q1 FY ’23. Today, we have with us the management represented by Dr. M. Sambasiva Rao, President; Mr. A. Prabhakara Naidu, management, Chief Financial Officer; Mr. Srideep N Kesavan, Chief Executive Office; Mr. J. Samba Murthy, Chief Operating Officer and Mr. Umakanta Barik, Company Secretary and Compliance Officer.

Before we get started, I would like to remind you that the remarks today might include forward-looking statements and actual results may differ materially from those contemplated by the forward. Any statements we make on this call today is based on our assumption as on date and we have no obligation to update these statements as a result of new information or any future event.

I would now like to invite Dr. M. Sambasiva Rao from Heritage Foods to make his opening remarks. Over to you, sir.

M. Sambasiva Rao — President

Thank you, Sonam. A very good afternoon to everyone joining us today on this call. We welcome you all to this Q1 FY ’23 earnings call of Heritage Foods. Let me start by giving you an overview of the financial and operational highlights for the quarter one. Consistent with our performance over the last many quarters, our consolidated revenue for Q1 registered a robust growth of 27% year-on-year at INR8,209 million. The EBITDA during this period stood at INR220 million compared to INR299 million in Q4 of FY ’22. During the quarter the PAT stood at INR73 million. In spite of our solid revenue growth, unprecedented increases in raw milk procurement costs and overall operational costs suppress the quarter’s net profits.

Now let us look at the operational aspects of our business in detail. In the dairy business, our average milk volume procured during Q1, stood at 14 lakh 66 thousand liters per day compared to 12 lakh 14 thousand liters during the corresponding quarter previous year, registering a growth of 20.76% year-on-year. While on the sales side, our average milk sales during Q1 recorded an increase of 15% year-on-year whereas curd, which is our most important value-added product in our portfolio, registered a massive growth of 45.4% during this quarter.

Revenue from the value-added products portfolio grew solidly by 62.5% year-on-year to INR2,838 million in Q1, compared to INR1,746 in the Q1 of last year. I’m pleased to inform you all that this helped our wrap business contribution to increased by an impressive 750 bps year-on-year to reach 34.9% of overall dairy revenue in quarter one. Despite this quarter’s suppressed profitability, our sustained volume growth, especially in the value-added portfolio gives us the confidence in recovering profitability in the coming quarters of flush season, when raw material, raw milk procurement prices are expected to [Indecipherable].

The company’s primary mission as you know is to be like every home with the quality products. In line with our plan, during the quarter under review, we have launched new value-added products, like gulab jamun and rasgulla in time for the festive season, buttermilk in cups addressing the new consumer segments and ghee [Indecipherable] and convenient spout packs. These launches further strengthen our value-added product portfolio and will strengthen our push towards becoming a more diversified value-added foods company.

The company is also constantly taking strategic initiatives to connect with our consumers better. Our marketing strategies are being redesigned to better our understanding of changing consumer preferences and behavior patterns. This helps us designing winning differentiated high-quality products. As we demonstrate sequential solid demand growth for our products, we are making concerted efforts to improve our profitability, procuring milk at reasonable cost amid generally lower yields from cattle would also be a near-term focus of the company in the coming quarters. We are also taking many long and short-term cost efficiency initiatives to reduce our cost of conversion and cost to serve. We are happy to inform that we are already seeing significant progress on both these counts and are confident of delivering better value to our shareholders in the coming quarters.

Now we open the floor for the question-and-answer session. Thank you.

Questions and Answers:

 

Operator

Thank you. [Operator Instructions] We have the first question from the line of Digant Haria from GreenEdge Wealth. Please go ahead.

Digant Haria — GreenEdge Wealth Services — Analyst

Yeah, hi. Am I audible.

Operator

Yes. Please go ahead.

Digant Haria — GreenEdge Wealth Services — Analyst

Yes, sir. Sir, my first question — firstly, congratulations on finishing 30 years and you started the 31st year with probably all-time high quarterly growth, so I analyzed like last 24, 25 quarters, we have been struggling in the INR600 crores to INR700 crores per quarter range and now we have straight away broken out to cross INR800 crores a quarter. So my first question was, is this run rate sustainable? Like, was there any one-off in this quarter that may not continue for the next three, four, five quarters? And then, if so, if you can give some more elaborate details on what all did we do to reach such high levels of value-added product sales and milk sale and milk procurement as well? So that’s my first question. I’ll take the second question later.

M. Sambasiva Rao — President

Sure. Srideep will respond to this.

Srideep M. Kesavan — Chief Executive Officer

Yeah. Thank you, Digant [Phonetics], for that question. Thank you for your good wishes for our 30th anniversary. The growth that we have seen in this particular quarter is actually consistent with the trend that we’ve been seeing in the last three or four quarters. There are many fundamental things that have fallen in place as far as our strategy is concerned, which gives us confidence in terms of ongoing performance in similar lines. So there are two or three things here. One is more predictability as far as our growth and volume numbers are concerned. Number two is a shift towards value-added products, which is more engineered drives an accidental and number three is growth in the geographic segments where we want growth to happen. So we are very happy to say that we are progressing well on the strategic priorities that we spoke in the previous quarterly updates and those efforts, which has resulted in the outcome that you’re seeing.

Digant Haria — GreenEdge Wealth Services — Analyst

Right, right. Srideep is it safe to assume that this should not be a one-off quarter. Like, there was no extra sales of fat sales or any special order from a bulk customer. We don’t do that. You’ve never done it in past, but just because of the huge revenue, I wanted to be sure that it looks more like a sustainable run rate.

Srideep M. Kesavan — Chief Executive Officer

Absolutely. Because, first of all, in this particular quarter, we have not made even INR1 of any bulk or institutional sales. There’s absolutely none. In fact, on the base revenues we might have some bulk sales. So despite having the base bulk sales or bulk revenue sitting in the base quarter without that just through consumer product sales, we have achieved these numbers. Like I mentioned before, we have — the strategy is on four steps actually, as far as market growth is concerned. Of course, I’m speaking only the market facing strategies that we have put in place.

First is to have segment our portfolio into six consumer centric product clusters. We said that now we are looking at liquid milk separately, dairy foods, dairy drinkable, dairy sweet, dairy fats and ice-creams and frozen versus separately. Because we are looking at product clusters differently, we are able to also decide on what’s fit for purpose, route to market that makes these products available in the hands of the consumer in the most efficient manner. The third thing that we have looked at is innovations that are consumer-centric and these last many quarters, we have made several corrections. And just in terms of launching new products, but we have recalibrated our pack price channel architecture to make our products performed much better on the shelf. And the fourth thing is a new format or a new framework for engaging with customers, especially, our key national as well as regional customers, which are helping us get tremendous growth and gain market as well. So there is a very clear plan in place which is being executed, which is resulting in the kind of growth that we’re seeing.

Digant Haria — GreenEdge Wealth Services — Analyst

Right. Thank you so much for this detailed answer. My second question is that with you in the last fall you’ve clearly explained that what we are doing to fight inflation. You explained three points, that one is not sourcing, second was basically operating efficiencies and third was increasing value-added products. So in this quarter, we actually saw the value-added products increase, but even then the margins are probably at 24 quarter low. So revenue is at 24 quarter high and margins are at 24 quarters low, so is this mostly attributable to the milk inflation we are seeing across the country? And if this continues for three, four quarters, is it even fair to assume that it will be 6%, 7% margins with this kind of mis-sourcing challenges?

Srideep M. Kesavan — Chief Executive Officer

Yes. See those margin expansion strategies are that you discussed just now that we spoke about in the previous quarters are directional in nature. Those are continuing activities, for example, expansion of gross margins through reduction of operational costs, it’s a continuous process. We have, at this point in time, at least eight projects of significant nature, which will help us reduce our cost of production significantly over the next many months. These projects are the reason why I said continuous in nature is that at this point in time as we are executing these projects, we are looking at other options or other projects that will kick in once these are completed. Similarly, there are many other stuff that we’re working on in terms of reducing our outward freight or inward freight through conversion of more and more and more of our vehicles to electric, reducing dependency on fuel cost inflations, etc.

That said, what happens in the first quarter, and this is not just, we are not the only ones that got impacted. This impact was felt across industries, across FMCG, across dairy industry. It was almost like a perfect storm. On one hand, we had global inflationary pressure due to the ongoing war and many other aspects and specific to our industry, there was severe milk shortage which was felt across the country, which was reported by many large cooperative companies as well.

And it was a combination of this, which impacted the profitability, the way that it did. While raw material prices or milk prices is something that has to cool off once the flush season begins to happen and we have already seen cooling off to certain extent in the last, I should say 45 days. But the other thing, let’s say for example, inflationary pressure on input material, packaging material or fuel cost, it’s not something that we can be assured of. So we have put several things in place to see whether it is alternate packaging materials or alternate ways of reducing costs to fight of these inflationary pressures. So, those are things that are already put in motion and we’re making good progress against those.

Digant Haria — GreenEdge Wealth Services — Analyst

All right, great. Thanks for that. My last one and the last question is for Ms. Brahmani and Mr. Rao that we’ve seen in the last decade, we had this Heritage French stores where we spent certain time and energy, then we sold it off for Future Group. That also — I think Future Group also went through its own share of volatility and then probably that consumes a lot of time and energy, but now like, can we really say that all those things of the past are over and company is completely focused on this new things? Like there are no vestiges of that phase where we went into ventures, which were away from the dairy segment. So that’s just my last question.

M. Sambasiva Rao — President

Yeah. Absolutely, all right.

Operator

Mr. Haria, does that answer all your questions?

Digant Haria — GreenEdge Wealth Services — Analyst

Right. Yeah. That’s done. Thank you.

Operator

Thank you. We have the next question from the line of Sameer Gupta from India Infoline. Please go ahead.

Sameer Gupta — India Infoline — Analyst

Hi, sir, and thank you for taking my question. First of all two book-keeping questions. Milk procurement prices and liquid milk prices this quarter.

M. Sambasiva Rao — President

Milk procurement, right? Liquid milk sale price?

Sameer Gupta — India Infoline — Analyst

Yeah.

M. Sambasiva Rao — President

Right?

Sameer Gupta — India Infoline — Analyst

Just to give this numbers, like sometime back…[Speech Overlap]

M. Sambasiva Rao — President

Yeah, Mr. Murthy will give.

J. Samba Murthy — Heritage Foods Limited — Analyst

Yeah. Procurement prices in the quarter [Indecipherable] and whereas the liquid prices are at about INR53.93. [Speech Overlap] It’s an average of all [Speech overlap]

Sameer Gupta — India Infoline — Analyst

So, sir, there is an equal increase in liquid milk price and milk procurement price. There is a 15% kind of sales growth in liquid milk. So is our VAP portfolio currently at a lower gross margin than our liquid milk portfolio? Because otherwise sequentially, your gross margins should not drop, right?

M. Sambasiva Rao — President

Yeah. just a moment. [Indecipherable] Yeah. He has given an average of all products for milk together. Only milk, if you take…

J. Samba Murthy — Heritage Foods Limited — Analyst

INR49.16 [Phonetics]

M. Sambasiva Rao — President

Yeah. Sameer, is it clear.

Sameer Gupta — India Infoline — Analyst

No, no. Sorry, I didn’t get it. I thought you were talking internally.

M. Sambasiva Rao — President

Milk procurement price average per liter is INR40.77.

Sameer Gupta — India Infoline — Analyst

Right.

M. Sambasiva Rao — President

Liquid milk price is INR49.16. What he earlier said was an average realization of milk and all products put together. You ignore that.

Sameer Gupta — India Infoline — Analyst

Okay. Got it. But again, since that average is also there and it’s pretty healthy. Sequentially — okay, the sequential that I’m looking at might be of the liquid milk price. So, sir, so my second question is this, and this is based on these data points only. That here on, we are at a gross margin, which is one of the lowest and we are — our milk procurement in a lean quarter is at INR1.5 million, which is one of the highest and at a time when the milk prices are supposed to be high. So, is this a mistake by chance that we have had and not had enough SMP stocks that led to this situation?

M. Sambasiva Rao — President

Not having?

Sameer Gupta — India Infoline — Analyst

So, typically you procure more in a flush season, so that it last in a lean season. What I see is that milk procurement is one of the highest this quarter and that too in a lean season where generally milk availability is lower and hence milk prices are higher. So have we made a mistake this time that we didn’t procure enough in our flush season and now it is being paid in the — in terms of margin pressures in 1Q or is that understanding wrong?

Srideep M. Kesavan — Chief Executive Officer

Yeah. You need not call it a mistake. It is a strategy to grow. So we wanted to raise sale volumes. The typical milk procured in the flush season gets converted into milk powder and it is used as an additional factor in the curd or other products also for reconstituting the milk. So irrespective of that, the growth has to come from the milk only. So we have grown on the sales side consciously as the milk prices cool off, then the benefit of margins will kick in as soon as possible. So it’s base expansion.

Sameer Gupta — India Infoline — Analyst

Got it, sir. Got it. That’s very [Speech Overlap].

M. Sambasiva Rao — President

Prices will not remain same throughout the year. I mean, if you go by the trend, there are two cycles or three cycles in a year where milk prices fluctuate and the lowest are expected to be in the winter months after the rain when the animal yield is very high. And that’s the time we get milk at a lower price and certain excess milk will be converted and kept in the powder form for the summer season, that continues as an operation every year. But this lean season growth is something which we can sustain in the flush season and we’ll have much more milk in flush season, coming flush season.

Sameer Gupta — India Infoline — Analyst

Okay, sir. Just a follow-up to that. Let’s say — let us suppose — because I have seen this in the past two, three years, what has happened is for some reason or the other, the milk prices are not very favorable in the flush season either. Sometimes there are unseasonal rains, sometimes there are late rains. So let’s say — assuming that these milk prices don’t correct in the flush season to our expectations, will be willing to increase our end consumer prices so that our margin stabilize back to our 6% to 7% range? Or we’ll still weather the storm and see wait for another better period of cooling off these milk prices?

M. Sambasiva Rao — President

No. We have already taken price hike towards the end of the quarter and the price benefit is a bit — there is a lag between the procurement price and sales price increases and there is — we have not taken full hike also. So one round of hike has been done in the quarter one. Another price hike will happen in quarter two. So therefore we try to reach the margin level, as it were earlier.

Srideep M. Kesavan — Chief Executive Officer

Already that process is on.

Sameer Gupta — India Infoline — Analyst

Great, sir. But I still heard that the flush season, the prices will cool off and our margins will come back. I understand that is the normal course of operations. But let’s say — because these are quite unpredictable times, the milk prices for some reason don’t cool off, will we be willing to take more price hikes or we will be thinking that this is just a one-off and let’s just wait and wait the season out, and just one year of depressed margins is okay?

M. Sambasiva Rao — President

Yeah. There are two elements, Sameer, for margin buildup as you know. One is procurement price cooling off. Second is the sale prices increased for end consumer. So both the levers we operate. Only thing, we don’t stretch passing on entire price burden to consumer in one go. It is staggered to if somewhere we see the prices — farm gate prices are falling, then we stop there to build the volumes. So it’s a kind of a careful synchronization of both the trends. It’s not that we just wait for the prices to cool off only. That is one of the two elements. And third element is also there. The increase in the contribution of value-added products, where the margin is slightly better. So we play with all the levers in such a way that we gain market share and we recover our profitability levels as early as possible. But the lag always will be there.

Sameer Gupta — India Infoline — Analyst

Fair enough. Sir, if I can squeeze just one more question with your permission. So now we are also in a sort of expansionary phase. Our milk procurement has gone up by 21% on a Y-o-Y basis. And we are expanding our value-added portfolio which would imply that we are reaching out to more distribution touch points, typically which don’t have a Heritage product, does that also put downward pressure on our margins? I know it won’t be very high, but something that we should factor in?

M. Sambasiva Rao — President

No. Because we are operating in the same regions where we have operated and the more and more we deepen our penetration in these markets, what we are experiencing at this point in time is that our net revenues have improved. Even though in quarter one, it is only — as you can only see part of this improvement, but in the last — like I said in the last 30, 40 days, we have seen significant improvement in net revenue. And number two, our cost of operation, whether it is in terms of efficiencies of those plants and those geographies or in terms of market discounts and other sales and distribution costs have all seen significant improvement. So you can imagine that our — let’s say — struck in one of these marginal markets earlier was carrying 50 percentage load and hence cost of operations was higher. Today it’s carrying 70% or 80 percentage of truck utilization in these markets. So costs are constantly coming down for us in these marginal markets. And we do not heritage right from the beginning, we do not — if you are consumers, you will also know from the markets that we do not go for deep discount kind of strategy because our products sell, because they are high quality products. And all this growth, we have got with just purely by acquiring more and more consumers and not at a discount.

Sameer Gupta — India Infoline — Analyst

Thanks, sir. That’s all from me. I’ll come back in the queue if I have any follow-ups.

M. Sambasiva Rao — President

Sure. Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Rohit Suresh from Samatva Investments. Please go ahead.

Rohit Suresh — Samatva Investments — Analyst

Good evening, sir. Thank you for the opportunity. So my first question would be, if you could give me the number of the contribution of the non-curd products in the value-added segment for this quarter and for last year sales?

M. Sambasiva Rao — President

Can you repeat, Mr. Rohit?

Rohit Suresh — Samatva Investments — Analyst

So in the value-added segment, the non-curd portfolio, what would be the share of that in Q1 and for the entire financial year 2022?

M. Sambasiva Rao — President

Non-deal?

Rohit Suresh — Samatva Investments — Analyst

Non-curd. Curd, curd.

M. Sambasiva Rao — President

Oh, other than curd. Okay.

Rohit Suresh — Samatva Investments — Analyst

Other than curd. Yeah.

M. Sambasiva Rao — President

Okay, okay. Sure.

Operator

Mr. Suresh, do you have any more question. No. I have only this.

M. Sambasiva Rao — President

They are roughly around 25% would be the contribution.

Rohit Suresh — Samatva Investments — Analyst

Okay. And sir, within this 25%, what would be the top two selling products, if you can give, like will it be ice-creams and all?

M. Sambasiva Rao — President

I think your voice is slightly muffled. We are not able hear you very well, Rohit. Please repeat the question.

Rohit Suresh — Samatva Investments — Analyst

Yeah, sir. So, sir, am I audible now?

M. Sambasiva Rao — President

Yes, much better.

Rohit Suresh — Samatva Investments — Analyst

Yeah. So you say, you indicated 25% is product apart from curd. So within that 25%, what would be the major segments that are contributing to the revenues, the top two, top three products?

M. Sambasiva Rao — President

Yeah. It would be paneer, ice-creams and drinkables would be the largest contributors on that.

Rohit Suresh — Samatva Investments — Analyst

And what?

M. Sambasiva Rao — President

In drinkables, we have a long-range of flavored milk, milk shake, coffee, buttermilk, lassi.

Rohit Suresh — Samatva Investments — Analyst

Got it. Sir, and just one more question was that right now will be or expansion will be focusing — we will be focusing only in the southern markets, right? Our existing markets will be penetrating much deeper. We won’t be getting into the North and Western markets, right?

M. Sambasiva Rao — President

We have presence in Delhi NCR, Mumbai and Pune, where we are deepening our presence rather than going horizontally. So you will see us more and more in parts of geographies of Mumbai and Pune and Delhi NCR. But, yes, you’re right. As percentage to our overall business, our business is still largely concentrated in the southern markets, especially, AP, Telangana, Southern Karnataka which is Bangalore and surroundings, and parts of Tamil Nadu.

Rohit Suresh — Samatva Investments — Analyst

Great, sir. Thank you so much and wishing you all the very best.

M. Sambasiva Rao — President

Thank you, Rohit.

Srideep M. Kesavan — Chief Executive Officer

Thank you.

Operator

Thank you. We have the next question from the line of Nitin Awasthi from InCred Equities. Please go ahead.

Nitin Awasthi — InCred Equities — Analyst

Hello, sir. I had one question regarding the upcoming flush season, which has been talked about by you and your competitors also. And what we’re seeing in the market is this is going around lumpy skin disease which is affecting a lot of cattle and cropping yields all around of the cattles that survive. So will that have an impact on the upcoming flush season? Do you think that there would be a path because of the drop, which you’ll see in the yields?

M. Sambasiva Rao — President

Not really, because this year at great monsoon, heavy rains all over and we expect green fodder availability be higher, temperatures to be lower and milk prices at farm gate being high. The interest of farmers is back, unlike two COVID affected years, where the farm gate prices were low and farmers interest was also lower in dairy. Now the interest is high and more and more care and we see the nutrition supplies, etc. So we don’t anticipate any such adverse impact on the yields in the coming flush season.

Nitin Awasthi — InCred Equities — Analyst

My question was with the specific rise of the disease, which was not something that we see normally in the industry.

M. Sambasiva Rao — President

We don’t see that as a big impediment for milk production. In fact…

Nitin Awasthi — InCred Equities — Analyst

Okay.

Srideep M. Kesavan — Chief Executive Officer

As we mentioned, there is always — this last year, in quarter two, quarter three, we saw foot-and-mouth disease in parts of Tamil Nadu. So don’t think that will be a serious impact.

Nitin Awasthi — InCred Equities — Analyst

Okay, sir. Got it. Noted. Thank you, sir.

M. Sambasiva Rao — President

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Resha Mehta from GreenEdge Wealth. Please go ahead.

Resha Mehta — GreenEdge Wealth Services — Analyst

Hi, thanks. So my first question is on the curd sales, right. So I think this is the highest ever curd sales that we’ve done. So the kind of growth that we’ve seen. So what really drove that? Was it that the demand in the market like came back in a big way after two lost summers? Or is it that we gained share from organized or unorganized players or is it that going deeper into existing markets is something that has brought us growth?

M. Sambasiva Rao — President

I think it’s a — Resha it’s a fair question. I think it’s a combination of all. Yeah. First of all, I think it was a great summer for — not just for us, I think even many related industries as well. We were perfectly poised because we had been working on correction of our portfolio, sales and distribution, our teams, organization structure, a lot of things. So we were in the right place at the right time. We were able to capture the opportunity. That’s the way, I’d like to put it. In addition to that, we had opened several new channels, for example, whether it is Quick commerce, which is seeing significant growth this year compared to — as a sub-segment of e-commerce. So we were one of the first movers in quick commerce, which gave us a tremendous boost as far as sales is concerned. Even many of the geographies where we have been working to build our presence, we’ve gone deeper this year. So it’s the combination of all factors, Resha.

Resha Mehta — GreenEdge Wealth Services — Analyst

Right, right. And so I just do some of the past participants, you did allude to your execution plan, right and the fact that you all have been able to recruit new customers. So can you like just elaborate a little bit more on this, on the execution front, like what has changed? What are we doing differently versus let’s say some quarters or years ago and which is helping us get this kind of growth?

M. Sambasiva Rao — President

Not so much that others can capture it. Yeah. So see. I’ll keep it at a very high level. Rest assured that we have weighty micro detailed plans that are being executed. But yes, because I have already mentioned, Quick commerce. I can confidently — I can probably speak about that. For example, today you can buy Heritage and whether it is Dunzo, Zepto, Blinkit, Swiggy Instamart, these are all channels that carry heritage products in most of the markets. Because we were one of the first movers, we have that advantage for those customer segments, just one example. There are several other common channel market combinations, which we have opened up this year, which was not there in the previous year.

Secondly, like I said portfolio correction is something that we have done so that we know where the market is, where the manufacturing happens. We have fixed that to the extent that we have the right pack in the right channel and the right market. That strategic fit has been done and today it is quite smooth.

Third is we’ve been speaking about organizational structure. So we have the right capability of people in the right markets, in the right place. We have divided the portfolio and multiple routes to market is something we spoke about in the previous quarters. Earlier, we used to have large part of our business coming from milk agent network. Today we have large professional FMCG distributors who take our products to market. We also have augmented — we have strengthened our sales through Heritage-owned parlors. We are also, at this point in time, building a unique distribution structure, which is at a very nascent stage but showing promising results. So these are [Technical Issues] we are working on and that’s what is giving us the results.

Resha Mehta — GreenEdge Wealth Services — Analyst

Right, right. And also a related question, right. So, I see that your Heritage distribution centers, they have almost doubled sequentially, right? So from 65 to 121 in Q1. So anything to lead your — and what kind of expansion are we looking at and how is this expected to help us in our top-line growth further?

M. Sambasiva Rao — President

Yeah. The only thing to read there is good news. The future is bright.

Resha Mehta — GreenEdge Wealth Services — Analyst

Got it. But this kind of aggression, we’ve not seen, so that’s why just was trying to understand a little bit on your pace of expansion of Heritage distribution centers and how that will help us in the revenue growth? Because I see that the number of parlors are the same, while the distribution centers have doubled.

M. Sambasiva Rao — President

So yes. So distribution centers and parlors plus plus kind of a concept. We have parlors as well as they also contribute to creating distribution network. And to be fair, last couple of years. That is from 2020 March till about March or April of 2021, life was difficult because of COVID, restriction of movement. We even lost — in certain markets, we had a little bit of a distribution shrinkage because some of our distribution partners stopping business during the pandemic and all of that. So that’s the reason why you probably do not see much of an expansion in that period of about 18 months. But since August — sorry since June of 2021, we have been aggressively building these busy — working on these strategies and I feel it will pay us the dividend in coming months and quarters.

Resha Mehta — GreenEdge Wealth Services — Analyst

Right. And if I can squeeze in a last one. So you also spoke about nil flat revenues in this quarter. So structurally, is it possible? So I think historically as PAT revenues have been in the range of 8% to 10%, right. So structurally, is it possible that we bring down this number a little more? And because this is anyways a low margin kind of business.

M. Sambasiva Rao — President

Can you repeat Resha, your presumption. I couldn’t get you with. You said milk revenue PAT.

Resha Mehta — GreenEdge Wealth Services — Analyst

No, no. Sorry. So, I’ll just repeat. So you did mention that the PAT revenues were almost nil for Q1.

M. Sambasiva Rao — President

PAT revenue. [Speech Overlap] Let me clarify. In the base quarter which is quarter of FY ’22, quarter one, we had some revenues coming from bulk sale of butter — bulk sale of fats. So just clarifying there was a gentlemen, I think it was Digant [Phonetics] who asked the question, how much of it is repeatable sale and how much of it is one-time sales? So I just reassured him, but we don’t have any more one-time sale because we are doing everything as consumer products.

Srideep M. Kesavan — Chief Executive Officer

Yes. In the last financial year, there was some surplus butter, which was sold in the bulk packs, not in the consumer packs. That factory is not there in this year. Basically, he was trying to present the change in scenario. There is no institutional sale. There is no bulk sale. It is all consumer pack sale. In that context, he mentioned that.

Resha Mehta — GreenEdge Wealth Services — Analyst

Got it, got it. So now safe to assume that 90% plus would be B2C sales for us?

Srideep M. Kesavan — Chief Executive Officer

Yes. Why 90%.

M. Sambasiva Rao — President

100%.

Resha Mehta — GreenEdge Wealth Services — Analyst

Got it. All right. Thank you so much. And all the best.

M. Sambasiva Rao — President

Thank you, Resha.

Operator

Thank you. We have the next question from the line of Sneha Jain from SKS Capital. Please go ahead.

Sneha Jain — SKS Capital — Analyst

Hi, sir. Thank you for the opportunity. My first question would be, so will be, always be dependent on the fluctuation of the milk prices? Like if things go ahead like this, how are we planning to hedge ourselves against it?

M. Sambasiva Rao — President

It’s inbuilt nature of the business, the dairy sector. There is — there are two seasons in a year, summer and winter. In winter season, animals yield more milk after the lactation cycle begins. As lactation cycle ends, in summer season, the milk yield comes down. So availability of milk is dependent on the biological reproductive cycle of the animal in the beginning of lactation to end of lactation. That synchronizes this winter and summer. And in summer, the sale consumption — consumer side consumption goes up, demand goes up because of the ambient temperatures being high in summer. So that puts more pressure in the summer season for more produce and more sales. And in winter, consumption comes down, on the other hand because of the chilled weather, so it reduces the demand. So it’s a combination of availability and demand in a reverse manner in winter and summer. So as long as we depend on the fresh produce and we depend on fresh sales, this cycle I think is inevitable. There is no method of undoing the cyclical nature of the dairy business in India, unless we go into the preserved products, like UHTs or where you have long shelf life, you can undo the seasonality, but country being a fresh products business, consumers preferring only fresh products and we don’t have processing capacity in the country for handling entire year’s production and then hold on for in ambient temperature for the next season. I don’t see any possibility of hedging the price fluctuations in the next decade.

Srideep M. Kesavan — Chief Executive Officer

Yeah. That’s said, if I could just add. So that said, one of the strategies we have discussed and what we have — we are working on in which, where we are seeing significant progress is increasing value-added products portfolio. Now, the more and more value-added products that we have, we will be able to decouple ourselves a little bit and if I can explain, roughly 70 to 75 percentage of the revenue that we get is — the raw material prices or raw milk price would be about 70 to 75 percentage of our net revenues. The more and more value-added product portfolio grows, the salience of raw milk to NR will keep reducing. So that’s just one clear strategy that we have, which also helps us expand our margins. So that the impact of raw milk cyclicity will be reduced, but there is no way or at least, we as a Heritage alone cannot make much impact in terms of producing the cyclicity because that’s the nature of the industry. I hope together, we have been able to answer your query.

Sneha Jain — SKS Capital — Analyst

Yes. So that was very helpful. Building on that, what are we planning? Like what should be our future — as in value-added products versus milk percentage in our revenue that you’re looking at?

Srideep M. Kesavan — Chief Executive Officer

So last year we closed at 26.5% and we said that in the next three to four years’ time, we are planning to take it to 40% and, which means that a good milestone for us to have this year is about 31%. We are internally targeting that kind of jump in terms of value-added products’ contribution improvement. And this quarter, we have delivered 34.9%, roughly around 35%, but then like President alluded to it in the quarter two and quarter three. This value added product portfolio comes down a little bit. So overall, this year we are expecting VAP contribution to jump significantly up from last year and on good way towards our 40% contribution in the next three years — three or four years.

Sneha Jain — SKS Capital — Analyst

Okay. Sir, another thing, what do we have a vision for strengthening our business model going on from here on? Any thoughts on that?

M. Sambasiva Rao — President

If it moves in the same direction, like we are expanding our wealth, in terms of back-end, we are expanding in the front end and we are expanding value-added product sales. So we continue to grow every year on year with higher mix of value-added products.

Sneha Jain — SKS Capital — Analyst

Okay. And lastly, sir. I wanted to ask like macroeconomic situation. Basically, the entire thing if you view in an entirety, what would you — do you think would drive growth going ahead in the coming quarters at least, in the near and the long-term?

Srideep M. Kesavan — Chief Executive Officer

Yeah. It’s only organization. As you know, we are all in the packed product segment in the urban areas, urban markets. And now we are also getting into suburbs or tier 1, tier 2 cities markets. So the urbanization is one factor where the milk is not available in lose form anywhere, and the health consciousness which is shifting people towards the packed products coming from the brand where quality is taken care by the companies. And third is the affordable income, increased income from the families, particularly the convenience also is one of the factors where making these products at home was profitable ones, but now everybody is under time pressure so ready to consume products are gaining ground, so you have population increased, urbanization, increased health awareness towards dairy products and inclination for packed products for health reasons and convenience of the product availability and access to products and most of the consumers get home delivered today through various channels and we are in predominantly home delivery model with e-commerce, without e-commerce also our model is essentially home delivery model since beginning. So these are all the factors, which continue to help us grow in the market irrespective of the major economic factors fluctuating and this being one of the essential products and low-cost source of nutrition, including proteins.

Sneha Jain — SKS Capital — Analyst

And sir, one last thing. Any thoughts on how can we improve multiple compared to our other competitors who are like might not play in the same period, any thoughts on that?

M. Sambasiva Rao — President

Pardon.

Srideep M. Kesavan — Chief Executive Officer

Yeah…

Sneha Jain — SKS Capital — Analyst

I mean…

Srideep M. Kesavan — Chief Executive Officer

Yes. We value multiple site.

M. Sambasiva Rao — President

Value multiple, right?

Sneha Jain — SKS Capital — Analyst

Yeah.

Srideep M. Kesavan — Chief Executive Officer

Sneha, is it you’re talking about value multiples?

Sneha Jain — SKS Capital — Analyst

Yes, sir. I am talking about value multiples, yeah.

Srideep M. Kesavan — Chief Executive Officer

Right. It’s only our strength in terms of growth, in terms of quality of the brand and our strength in the balance sheet, our principles of governance. These are the factors which market has to perceive in right perspective and rate us.

M. Sambasiva Rao — President

So we — I think this question came up — comes up in most conversations, we are focused on our work. We will continue to grow revenues and grow revenues, profitability in the long term. We are building our value-added product portfolio, we are building a portfolio of brands, which consumers love.

Sneha Jain — SKS Capital — Analyst

And that’s right. Thank you so much. That’s it.

M. Sambasiva Rao — President

Thank you, Sneha.

Operator

Thank you. We have the next question from the line of Anupama Bothra from Arihant Capital. Please go ahead.

Anupama Bothra — Arihant Capital — Analyst

Thank you for taking my questions. So I just wanted to understand what is the product mix, like for FY ’22 revenue by milk value-added and fat, in terms of percentage? And what is the highest margin contributors?

M. Sambasiva Rao — President

FY ’22, right, you’re asking?

Anupama Bothra — Arihant Capital — Analyst

FY ’23, sorry. FY ’23.

M. Sambasiva Rao — President

’23 is not ready, no.

Srideep M. Kesavan — Chief Executive Officer

She’s asking quarter one.

M. Sambasiva Rao — President

So, I heard FY ’22. You’re asking current quarter Q1 ’23?

Anupama Bothra — Arihant Capital — Analyst

Yeah. Current Q1, product mix, in terms the percentage or numbers whatever.

J. Samba Murthy — Heritage Foods Limited — Analyst

From milk 62%, VAP 33%, fat 3% and other actually 2%.

Anupama Bothra — Arihant Capital — Analyst

Thank you. Okay. And one more question is what is the capex that the company is planning for FY ’23 and FY ’24?

J. Samba Murthy — Heritage Foods Limited — Analyst

There is slight correction milk 60%, VAP 35%, fat 3% and others 2%.

Anupama Bothra — Arihant Capital — Analyst

Okay.

J. Samba Murthy — Heritage Foods Limited — Analyst

Okay.

M. Sambasiva Rao — President

Thank you.

Anupama Bothra — Arihant Capital — Analyst

And any capex plan? If you can like elaborate or quantify for FY ’23 and ’24?

J. Samba Murthy — Heritage Foods Limited — Analyst

Yeah. Generally [Indecipherable] INR120 crores per annum. So even in coming years also it is going to be INR120 crores per annum.

Anupama Bothra — Arihant Capital — Analyst

Hello, actually, I could not hear you. Can you repeat that capex thing?

J. Samba Murthy — Heritage Foods Limited — Analyst

It is going to be INR120 crores capex per annum in coming two years also it is going to be like this.

Anupama Bothra — Arihant Capital — Analyst

Okay, okay, fine. Thank you so much.

Operator

Thank you. We have the next question from the line of Digant Haria from GreenEdge Wealth. Please go ahead.

Digant Haria — GreenEdge Wealth Services — Analyst

Yeah. Thanks again for the opportunity. We have always explained that margins in liquid milk are 6%, curd will be around 9% and then other value-added will be around 12%, but I assume that 12% in value-added comes when we have scale in those value-added products, so I just wanted to check, have we achieved — how far are we from that scale in paneer, drinkable, ice-cream, which are our three largest value-added products after curd?

M. Sambasiva Rao — President

You’re asking about contribution?

Srideep M. Kesavan — Chief Executive Officer

Sambasiva bhai, he is asking about the profitability.

M. Sambasiva Rao — President

Yeah. This quarter is being exceptional quarter because of the raw material prices, fuel prices, energy prices, packing material prices and not passed on fully to the consumer, has done in a staggered manner with a lag. So this quarter may not be a reference quarter from these numbers. We will perhaps give you a better picture as we go into the financial year.

Srideep M. Kesavan — Chief Executive Officer

Right. I’ll just add about 4.5 to 5 percentage was the impact because of procurement price to sales price, so we can say that whether it is milk or value-added products that 4 or 5 percentage got negative because of that.

M. Sambasiva Rao — President

Right.

Digant Haria — GreenEdge Wealth Services — Analyst

No, no. Srideep. My question — sorry, my question is more on, let’s assume that raw material fluctuation is not there. And even in paneer, if we have to the 12% operating margin, we at least would need some scale. We will not achieve 12% margin, that had INR20 crore revenue, but we may achieve that a INR200 crore revenue. So I’m just asking that on that scale level, have we reached that critical mass in this towards the value-added products, like drinkables, paneer and ice-cream, that we can actually someday see that 12% margin, when there is a raw material stability?

Srideep M. Kesavan — Chief Executive Officer

Yeah. Maybe we will get into this next round, next following quarters. It’s not really readily available that and we also didn’t see that perspective as we were going through a normal price scenario. I’ll certainly assure you will explain next time.

Digant Haria — GreenEdge Wealth Services — Analyst

Okay, sir. Thank you so much.

Srideep M. Kesavan — Chief Executive Officer

Thank you.

Operator

Thank you. We have the next question from the line of Disha from Anvil. Please go ahead.

Disha. This is the operator. I’m sorry we cannot hear you.

Disha Anvil — Anvil Research — Analyst

Hello, am I audible now?

Operator

Yes, you are. Please go ahead.

Disha Anvil — Anvil Research — Analyst

Good afternoon, sir. Sir, since we are entering the flush season, we expect whether lower milk prices or margins still go up from here on? That’s the first question. Second, what is the margin difference between liquid milk and value-added portfolio? And the third question is on a subsidiary Heritage Nutrivet. We have an ambition to achieve INR500 crores sales. So if you can throw some light on that? Thank you.

Srideep M. Kesavan — Chief Executive Officer

Yeah. First one, yes. Milk procurement prices are expected to cool off as flush begins. Flush typically begins towards the end of September, beginning of October. That’s the season we have to watch out for.

And the second one. The difference between the liquid milk margins and value-added product margins at a consolidated level will be almost double. The milk to products margins would be double in any season.

And coming to Heritage Nutrivet growth ambitions, I request CEO, Mr. Upendra Pandey to elaborate a bit.

Upendra Pandey — Chief Executive Officer

Thank you, Srideep. We did roughly around INR100 crore business last financial year and our outlook is that we want to grow with 25%, 30% kind of year-on-year growth the next few financial year. And we have our strategies in place. We have two state-of-the-art plant and our captive business is growing well. So we are focusing on deeper penetration in our captive network. At the same time, we are also expanding in our general trade business, having the right product, right margin and right channel. We are quite hopeful that we will be able to achieve the growing numbers which we are referring.

Disha Anvil — Anvil Research — Analyst

Okay, sir. Sir, so when you mentioned that the flush season will start from September and October, so we’ll have a margin — positive margin impact from Q2 onwards or we have to wait for Q3?

Srideep M. Kesavan — Chief Executive Officer

Something has kicked in Q2 also, but the real flash and the best price scenario, that’s the production scenario will emerge from October.

Disha Anvil — Anvil Research — Analyst

Okay, thank you so much. And when we say that we want the 40% value added, sir, what overall margin guidance do we say on the overall portfolio in coming three years.

Srideep M. Kesavan — Chief Executive Officer

It would not alter much because of that increased contribution as there is a cost of growth period. So post stabilizing at a particular level, we can look for an alteration in the overall margin structure.

Disha Anvil — Anvil Research — Analyst

Okay, sir. Earlier you had mentioned that we will have a 6,000 turnover with 40% value added with 8% margin, is that assessment, I mean, right? We are going on the same…

M. Sambasiva Rao — President

Yeah, that is the ambition.

Disha Anvil — Anvil Research — Analyst

Ambition, yeah. Okay. That’s it from my side. Thank you, sir.

Srideep M. Kesavan — Chief Executive Officer

Thank you.

Operator

Thank you. Ladies and gentlemen due to time constraints, that was the last question. I would like to hand the conference over to Dr. M Sambasiva Rao for closing comments. Please go ahead.

M. Sambasiva Rao — President

Thank you very much for your valuable time in joining us for this call and also sharing your thoughts. The company is confident in creating sustainable value for its stakeholders. And we thank you all for your continued interest and faith in us. Please do contact Dickenson World or us directly. Should you have any further queries. I wish you all a great evening. And I look forward to reconnecting with you for the next call after Q2. Thank you.

Operator

Ms. Raghuvanshi, would you like to make any closing comments?

M. Sambasiva Rao — President

I guess she is not listening.

Operator

Okay.

[Operator Closing Remarks]