Procurement prices likely to soften in the next 5-6 months: Kesavan

Heritage Foods Ltd has said it is confident of achieving the target of becoming a ₹6,000 crore revenue company in the next three years.

“We set out a target to become a ₹6,000 crore revenue company about five years ago. But unfortunately, we were hit by the pandemic. That affected not just our business but many businesses across the country. There was a couple of years of slowdown after that,” Srideep Kesavan, Chief Executive Officer of Heritage Foods, told businessline on the sidelines of the Food Conclave held here recently.

The 30-year-old dairy firm, which has a presence in 11 States, registered an income of ₹2,423 crore for the ninth-month period ended December 31, 2022, as against ₹2,681 crore for the full year 2021-22. In FY19-20, the company registered an income of ₹2,726 crore.

Kesavan said, “After the slowdown, for the last six-seven quarters, we have been consistently registering revenue of growth of 20 per cent. We have kept that momentum. The top line is growing robustly and we will be able to achieve ₹6,000 crore turnover within three years.”

Procurement costs

Asked for his comments on the spiralling cost of procurement and how it is impacting the company, Kesavan said, “We started seeing the increase in December 2021. From the beginning of 2022, there has been no stopping at all. Prices have been going up almost every month. In the last financial year alone, the procurement costs have gone up for us by at least 15 per cent.“

He added, “For the last one month or so the momentum of increase in prices has slowed down.”

Kesavan further pointed out that they are “hopeful the current momentum of milk production in the rural areas continues.” He said, “We are confident that in the next five to six months, we will see the prices soften and it will be good for all dairy companies.”

Milk and non-milk revenue break up

Replying to a question on the revenue contribution from product segments, Kesavan said milk contributed about 63 per cent, a couple of percentage points from the animal feed business, and 34-35 per cent from value-added products.

“We break up the value-added product segment into fats (butter and ghee) and other value-added products because of the margin profile of the former. We will be close to about 30 per cent of value-added products and about 4 to 5 per cent of fats,” he said.

Asked whether more and more dairy companies expanding to their non-core areas would pressure on the margins, Kesavan said, “Heritage has been operating in multiple States for a long time. Many of our non-core markets are as profitable as our core markets. It is a matter of finding the right business model. I really do not see any challenge because operating in a different State would have a different profitability offering compared to the home State.”