Heritage Foods Limited — Call Transcript 2019

Nov 4, 2019

Ref: SECT: STOC: 64 - 19

4th November, 2019

'l'o 'l'he Secretary BSE Limited Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai - 400 001

To The Manager, Listing Department, National Stock Exchange of India Limited Exchange Plaza, C-1, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai- 400 051

Scrip Code: 519552

Scrip Code: HERITGFOOD

Dear Sir / Madam,

Sub: Transcript of Conference Call with the Investors/ Analyst

In Continuation of our letter dated October 19, 2019 the Company had organized a conference call with the Investors/ Analysts on Friday, November 1, 2019 at 16.00 PM (1ST). A copy of Transcript of conference call held with the Investors/ Analysts is enclosed herewith and the same has also been put up on the Company's Website at www.heritagefod\$.in.

Kindly take note of the same on record.

Thanking you,

Yours Faithfully,

For HERITAGE FOODS LIMITED

UMAKANTA BARIK Company Secretary M. No: FCS-6317

. Encl: a/a

HERITAGE FOODS LIMITED

(Formerly known as M/s. Heritage Foods (India) Limited) CIN: L15209TG1992PLC014332 AN ISO: 22000 CERTIFIED COMPANY FSMS 002

Regd. Off:# 6-3-541/C, Panjagutta, Hyderabad- 500 082. Telangana, INDIA. Tel.: +91-40-23391221, 23391222 Fax: 30685458 email: hfl@heritagefoods.in, website: www.heritagefoods.in

"Heritage Foods Limited Q2 FY '20 Earnings Heritage Foods Limited Q2 FY '20 EarningsConference Call"

November 1, 2019

MANAGEMENT: E MR. J. SAMBA MURTHY MR. UMAKANTA BARIK - A DR. M. SAMBASIVA RAO – PRESIDENT MR. A PRABHAKARA NAIDU – CHIEF FINANCIAL OFFICER MS. BRAHMANI NARA – XECUTIVE DIRECTOR URTHY – HEAD (DAIRY DIVISION) - COMPANY SECRETARY

Dr. Sambasiva Rao: Thank you. Good thank you for showing continued interest in results of the Quarter website and exchange site of previous year Quarter Quarter-2 versus 48.92 crores during the previous year of the last financial year Margins were down during this quarter compared to the increase of the raw material prices that is milk and impacted the margins of the quarter year's financial year, we growth. EBITDA of the current year's first half year is 78 crores versus 95 crores financial year first half. PAT, Afternoon, I Welcome you all for the earnings call of Heritage Foods showing Heritage. I would first explain the standalone Quarter-2 of the current financial year, which were already uploaded on our sites also. We achieved a net turnover of 666 crores against 612 crores of Quarter-2, that is, 9% growth. EBITDA 27.41 crores during the current year 2 48.92 year. PBT 10.36 crores versus 33.48 crores year. PAT 14 crores versus 19.96 crores of the previous financial year the last financial year mainly because of prices the milk powder which significantly quarter. If you take six months of this financial year versus last have achieved 1376 crores versus last year's 1247 crores with 78 year. PBT, current first half year 44 crores versus 64 crores of the previous year 35.75 crores versus 40 crores of the first half year of last year. first standalone 2 We crores ng current 33.48 year. milk six financial year versus achieved a 10% crores of the last first year's of achieved is 680

Now, I will move onto consolidated results of the Quarter crores versus 619 crores of the previous year crores versus 50 crores of the previous half year crores of the second quarter last year quarter. First half year of current financial year with the last half year, current half year half year we have achieved 1401 crores turnover versus growth. EBITDA, PBT 37.4 crores of first half year of this year compared to 66 crores of the first half year of last year. PAT, 29.5 crores for the first half year versus 42 crores last year data, milk procurement during this quarter is 13.86 lakh liters per day versus 13.37 lakh liters per day last year 11,44,000 liters per day in the second quarter o Quarter-2. The turnover year's second quarter at 10% growth half year. PBT, previous quarter of 6.83 versus year. PAT, 10.6 crores versus 21 crores of the last year same year year achieved 1401 crores 1261 crores last year with 11% 74 crores first half year this year versus 98 crores of the last year first half 29.5 versus year. Coming to volumetric quarter day year. Milk sales volume 12,09,000 liters per day during this quarter versus 11,44,000 liters per second of last year. growth. EBITDA 25 previous of versus 35 crores versus of current year, first 4 year of half. of the per

Value-added 24.5% to the revenue versus 23% last year on second quarter end day processing capacity and 17 lakh per day milk packing capacity franchisee partners in the half year. Coming to debt, we have 186 total of 213 crores discussion, interaction, feedback, suggestions, and queries products, growth in the current year second quarter is 14.5% versus year. I will now explain the capacities of the company as end. We have 20.71 lakh liters per day chilling capacity, 25.7 lakh liters per capacity. We also have 1408 in front end. We have incurred 28.69 crores of CAPEX during the first 186 crores long-term debt and 27 crores working capital, crores both long-term and working capital together. Now, I open the session for queries. Thank you very much. 14.5%. Contribution is will now the hilling 25.7 incurred CAPEX term The first question

Moderator: Thank you very m is from the line of much. We will now begin the question and answer session. Percy Panthaki from India Infoline. Please go ahead.

Percy Panthaki: Sir, my first question is on the milk price inflation, for the quarter we have seen about 11% inflation in milk price, one of the have witnessed a 23% milk price inflation, so just wanted to under inflation so different in different parts of the country and are we at the lower end or I mean what is your take, just some flavor on what you think about this, and secondly, as we stand today are the milk prices lower than the Q2 a the quarter Maharashtra-based players mentioned on their call that they inflation, understand is the milk price different the at take, flavor you average and if so by what amount? question the milk price based on call stand milk different I some verage India. It is highest in

Dr. Sambasiva Rao: You are right, milk price inflation is different in different geographies in India the northern states of Maharashtra is next side even 5% to 6% because there is no competition there, it is all the milk, so some areas of Andhra Pradesh also prices have not gone up particular buffalo milk areas price increase is only 4% to 5% during this quarter, so differential price scenario existed this year because of the seasonal condition, certain states have prolonged summer and high mid-July in certain states, so there was a production issue in certain parts of the country Maharashtra you has gone to Rs. 31 area. Similarly, in has gone to Rs. 46 different states in different states. is Punjab, Haryana, Rajasthan, UP side during this quarter next in line where the prices have gone up high. Karnataka would be low on the almost one federation procuring , areas Andhra particularcondition, have high-heat summer. This year heat was very high in the summer and extended to July you may recall the numbers, last year it was around Rs. 20-22 per litre, this year it 31-32 a litre of cow milk, that is the kind of increase they Punjab, Haryana, and Rajasthan also it was Rs. 36-37 a litre of buffalo milk Rs. 46-47 in this year's second quarter, so the price hike was very different in t depending on the availability, competition for the milk which is different again quarter, and Karnataka some particularly in the areas price the July states, in country. 22 year y have seen in that

The second part now beginning, there were two reasons normally begins, this year there were certain states where elections came in the last week of October, so everyone is waiting for Diwali to go Diwali time demand for milk inc part, the price reduction as far as this year is concerned is yet to happen, it is just in October middle of the month price drop certain were happening and also Diwali October, increases significantly, so no one would like to lose that 37 so competition which as is just in middle of re and then because reases to

opportunity so milk prices are almost same level of Quarter now we see the change happening in the last one week it has come to Rs. 290 Rs. 270, so the beginning of price drop starts with milk powder and it started in the fi of November, so we do anticipate the season to pickup states, the entire month of October was having rains also impacted availability and the prices, so we are week itself. so Quarter-2 for the month of October, but the first starting with the milk powder Rs. 20 drop one week per KG. The buffalo milk powder was Rs. 310 in the last week and this Rs. 290. Similarly, cow milk powder was at Rs. 290, now it is qu powder of November, pickup. Now the rains are almost over in all the states, of rains, which is again very unlike in the past that anticipating price drop to happen from this some Foods 1, 2019 2 of with has happened Similarly, powder was 290, quoted at it first week is to that we between basis digit

• Percy Panthaki: Sir, that is the normal seasonal price drop so if it just happens at the same quantum that we saw last year between Q2 and Q3, then on a YOY basis in Q3 we might still have a double d inflation, is that more or less likely or what is your thought if it saw in a less is your thoughts on that?
• Dr. Sambasiva Rao: Most unlikely because availability will suddenly back to normal pricing ost because suddenly increase any day, so it is expected that we go pricing. This aberration of Quarter-2 will not continue from now. day, single hikes already
• Percy Panthaki: So Q3 this year versus Q3 last year, we might go back to a single digit kind of inflation? digit
• Dr. Sambasiva Rao: Most probably, yes.
• Percy Panthaki: Sir, in light of this kind of scenario you might have taken some amount of in Q2, are you planning anything or have you taken anything in Q3? in kind price hike
• Dr. Sambasiva Rao: Q2 we have almost completed the price hikes in a phased manner entire increase in one shot, different markets, different markets once we have done have absorbed 50% into margins, which gets released with the drop in the prices. intend to hike prices further in Q3. you taken manner. We also did not pass on the one timings, and some markets twice, some have done. We have passed on 50% of the price hike to consumers and we pass the margins, gets prices. We do not
• Percy Panthaki: Sir, for Q2 for the quarter on an average I think there is a 5% price increase, but the exit price increase might be higher because you might have taken it in a phased manner, right? the intend prices further an Quarter-3, you are right. Q2 I increase, 6% there. The
• Dr. Sambasiva Rao: The full effect will come in Quarter
• Percy Panthaki: That will be enough to restore margins a margins at the 6% to 7% kind of levels that you are targeting?
• Dr. Sambasiva Rao: Coupled with the procurement price drop, it should be feasible, both have to be there price hike, as you during the quarter, other half will be absorbed by the procurement price drop and some quarter price said 11% to 12% increase happened on the procurement, we passed on half happened on during the quarter, be by some

impact will be there in Quarter-2. there. The September price hike benefit will come in the entire quarter fo the entire quarter for this

Moderator: Thank you. Management Services . The next question is from the line of Viraj Mehta from Equirus Portfolio Services. Please go ahead.

Viraj Mehta: Sir, if I look at the spread between your procurement of milk and selling price of milk, almost at a 12 same timeframe, so if I look at over at least be able to decrease in the RM prices? look of milk 12-13 quarter low at Rs. 5.9 and our average has been between 6.5 and 7 in the a slightly longer period, would it be fair to say that we will able to mean revert to between 6.5 and 7 with the price increase coupled with the in the procurement it is low at and be he with passed certain consumer. We

Dr. Sambasiva Rao: Certainly, a combination of both have absorbed some amount, that gets released as the procurement prices go down and equate with the past, that is the strategy increase was very and November, so with that assumption we have absorbed a par should get released from now. both, we have passed on certain increased cost to consumer released go the strategy. We did not pass on entire increase abnormal and they are likely to anyway come down in the month of October absorbed part in the Quarter it will on increase because this year normal likely come t Quarter-2 and that

Viraj Mehta: Sir, if I look at our curd sales and curd sales as a percentage of our procurement, it is at one of the lowest in last 12 quarters, can you just throw some light why that happened? look one you just a Quarter-2 or any

• Dr. Sambasiva Rao: This year weather is a very, very different weather compared to past years Quarter quarter, starting middle of July till now there was no let up visitor evening 4 o'clock or 5 o'clock the entire city is looking like air consumption of products like curd, lassi, buttermilk, flavored milk, ice cream all would come down that also has resulted in scenario, and the second also, the curd is one item the sale of curd will increase with the auspicious days are celebrated are lower and now they are beginning, so this quarter also had disadvantage of less number of auspicious days where the congregation happen and celebrations happen, that is a smaller issue, but bigger issue and real issue is the weather, non released from it is why very, there up. In our markets, it is like a daily o'clock rain starts. Temperature during the day is around 23 city air-conditioned, the lower the ambient temperature the would the lower sale in this quarter, absolutely attributed to weather in the quarter. The Quarter-2 number of auspicious days where the weddings ebrated so this also of bigger non-stop continuous rains. our around 23-25, conditioned, the the the the the increase 2 they ontinuous rains.growth have growth in
• Viraj Mehta: Sir, our milk procurement growth is also below what we had actually guided at the start of the year, would it be possible be a stretch now considering that we quarters. milk the still this year to do around 10% growth in procurement or that will have done low single digit growth in the first two

Dr. Sambasiva Rao: Yeah, this season will begin, no now procurement volumes will jump.

Viraj Mehta:	Sir, just last question on the future shares that we have, I understand that locklastonlock-in will get over
	early next year by MarchMarch, now there is only four months to go for that, has theBoard decided
	what to do with that money,tohow will you return it to shareholders including the majority andshareholders
	the minority, because that is a big capital of 400 crores that isof 400stuck there for us?
Brahmani Nara:	This is Brahmani Narahere. Around mid of next year is when the lock-in is expected to bein
	overover and Board is yet to takea decision and now that they are getting closer to the lockarethe lock-in
	period getting done, I think now is the time that we will have toapproach theBoard at think ofa strategy.
Moderator:	Thank you. The next question is from the line ofShiv Kumar from Unifi Capital Pvt. LtdLtd.Please go ahead.
Shiv Kumar:	Sir, what is the share of curd in the valueof curdvalue-added products?
Dr. Sambasiva Rao:	It is 80% for QuarterQuarter-2.
Shiv Kumar:	Higher than what we registered in Quarterin Quarter-1 of 77%?
Dr. Sambasiva Rao:	ItIt is actually because others have gone down like lassi, buttermilk, ice cream bechavehavelikecreambecause of the
	rainy season.. This share has moved up, rather it is more on other items,other value-addedproducts.
Shiv Kumar:	Have you taken price hikes in the valuevalue-added products also, Sir?
Dr. Sambasiva Rao:	Yes.
Shiv Kumar:	Sir, coming back to the margicomingthe margin on a standalone basis, the margin of 2% slightly on the lowern
	side in a sense that I think we need to go backeight quarters back to actually seetoa margin
	similar to 2% and when I compare you2%you with the other listed peers who alsooperates in the
	southern Indian market, we do not see that kind of marginerosion in case of that player, so isofplayer,
	there anything specific to any particular market where you are facing challenges?any particularyou
Dr. Sambasiva Rao:	As I explained earlier in the first question came on the procurement prices, the procurementearlier
	priceprice hike is different in different states, some players who procure more inisisinprocureKarnataka and
	Tamil Nadu had an advantage because of the lower level of increase, whthewhereas we have higherereas
	increase in certain states likeMaharashtra,Maharashtra, Punjab, Rajasthan, even Telangana,these states had
	a higher increase because of the local weather conditions and competition scenario, so youhigherincreasetheconditions
	may not have similar impact on allsimilaron all. Second, some of them have SMP produced in their owne of
	companies during the peak season last yearduringyear. They would have availability of SMP which
	helped them higher realizations when they sell, sohigherwhoever had SMP stocks before December,

the cost price was low and post Februa advantage in the sale of SM stocks of the previous season, we are actually consuming by buying also apart from our own production, w procurement influence the margins of the companies operating in this geography. February, the realizations are very high, so there will be certain in SMP if they had stocks of the previous season, so we did not have are we buy from market and consume for certain products, so this could be price arbitrage opportunity and sale price of milk powder. margins mentioned earlier, you are saying now things have kind of come back to normalcy ry, the will be they previous of e buy . These two would

• Shiv Kumar: Like you mentioned e and you expect to come back to 5% or 6% margins in Q3, right Sir?
• Dr. Sambasiva Rao: Yes.

Shiv Kumar: One last question, the price inflation in your procurement was 11% earlier, but the price hike in your selling price markets where you operate, so why are we playing selling price also immediately because as things stand eve price on the procurement side, so why are we actually holding back the price hikes immediately? 11%-12% which you ment in was just 5.6%, I believe you are we so defensive in taking price hikes on the everyone would be incurring the same price why short-term aberration, this happened only for two months in the summer, arlier, you are back 12% mentioned are the leader in the in taking ryone the on the this happened only go components hike;

• Dr. Sambasiva Rao: Because it is a very two months in farmer prices go down you have to rollback some, there are two components in the price hike one is a natural price hike of procurement milk which we passed once in a lifetime kind of thing happened in this quarter so much of price hike and we will not be able to pass on entire thing and it happened only in certain geographies, so the price drop expected from this season would nullify that, so for the s to go back and become so expensive in the market compared to competition. this quarter not even three months, so if you pass on entire cost then when to in price which passed. This is unnatural, quarter and able certain geographies, the expected sake of two months we would not like abnormal, a kind in be pass thing and in ake Fund. during our requirement of 13.96 lakhs
• Moderator: Thank you. The next question is from the line of Please go ahead. go compared from Nitin Ghosal from Invesco Mutual Fund

Nitin Ghosal: Sir, two questio of challenges in terms of volume procurement? questions, one is on the procurement part during the quarter, did we witness any kind of challenges here nothing terms we anyway our requirement

Dr. Sambasiva Rao: There is nothing in terms of procurement, we have got anyw around 14 lakhs we h terms of volume hike in certain select markets, certain select states to come, but the rest of the areas, main pri Rajasthan, Maharashtra, and Telangana, pressure. Coming to have procured compared to 13.3 lakhs in the last year same quarter of volume, there was no challenge, in terms of price there were issues, too much of price in states. There we did not encourage more vol of price challenge markets are these are the markets where we had Tamil Nadu, Andhra, and Karnataka, there was not much of ave to 13.3 in quarter. In there was challenge, of of we volumes e Punjab, Haryana, a higher price was of issue in terms

of price, so the had no issues. of so there actually we procured more and these areas we procured reasonably, so we . Whatever milk is required to meet the market demand, we could get it.

Nitin Ghosal: Second question is with regard to the had a very good monsoon, typically in past whenever this kind of monsoon happens, how does the availability of milk, A, and how does the price behave with the availability going forward keeping in mind this time we how and how does for a period of 12 to 24 we milk is required to this typically of months?

Dr. Sambasiva Rao: Actually, this kind of monsoon or rainfall we have never seen in the last 10 years, in these areas there were two reservoirs on Krishna river, they were open release water into sea months more than once they have released water into sea, so much of rainfall even today in the month of November water is going into sea from these reservoirs, so this is a very exceptionally high rainy season, but when there are good rains with t there is drying up and cattle will go out to graze and just move around space to move, all over wet, slushy and muddy and everywhere water delayed arrival of the flush season, by now it got delayed production of volume and low prices at the farm gate, which we anticipate to happen in November, it should have of open, every month sea, Srisailam and Nagarjuna Sagar reservoir even Tungabhadra, into sea, much today in high three days is will around. This year there was wet, water, so this milk should have been overflowing everywhere but delayed. Generally speaking good monsoon, availability of plenty of water leads to high volume we happened in October but now it is likely to happen in November. of years, they want to , even in three more going into so hree days-four days gap, no , this has resulted in

Moderator: Thank you. The next question is from the line of Please go ahead. Shailesh Kumar from Sunidhi Securities

• Shailesh Kumar: Sir, you have answered this question previously, but I this. On the listed players who have declared results, we have seen margin contraction during the quarter. procurement, but industry concern on demand front because anyway other FMCG companies are facing the heat, so is dairy industry would request you to put more light on On seen . We believe everybody has faced some sort of price pressure in terms of has not passed that increased price fully, has there been some front industry also facing the heat? and happened in in November.Shailesh Sunidhi Securities. believe some d demand ifferent markets. The dominant
• Dr. Sambasiva Rao: Not from the consumption side, there are different players in d players belong to cooperative brands in most of the markets, they would not like to pass on the price fully to the consumer unlike us, so we cannot unilateral we passed on, the abnormal element which occurred this year is not passed on with an assumption the procurement price will anyway cool of nullified, so for It is like a Rs. 40 per litre Rs. 5, the consumer also starts unbranded milk, loose milk, different markets markets, would price consumers, there are certain different requirements for those like unilaterally pass on entire hike which is abnormal. A normal price hike off from the flush season two-three months sake, no brand would like to pass on the entire 10% increase a litre of milk, Rs. 2 consumer accepts without much resistance, make it , consumer thinking and there will be shift to cooperatives or low milk, or the lower end of the spectrum, so we do not want to disappoint in of , there are different requirements organizations abnormal occurred and this gets , increase. , thinking there be low cast the

our customers, consumers absorb couple this is the thought process which has influenced us to take that line. consumers, and lose them because of two months' margin pressure, so you of months and bring normalcy in the margin as the procurement prices go down, and margin procurement profitability are we expecting

Shailesh Kumar: Now, we are expecting lower profitability at least looking at the first half, some reduction in our planned CAPEX in H2? which at CAPEX to future requirements so that will not be influenced

Dr. Sambasiva Rao: CAPEX is related to growth and significantly with one month profitability issues g month or two month and that we will absorb. month-two month issue. Our mission we want to achieve gets addressed, every year you will face some kind of pressure in one and the

Shailesh Kumar: Sir, my third question is this RC will be final on November 4 dairy will be a part of this third RCEP negotiations which are currently in the final phases and it 4th, so as a significant player in dairy industry what do you think, ry treaty or it will be excluded? ets every kind pressure are in industry you how made a public

Dr. Sambasiva Rao: I do not know how to answer this question Shailesh, should I go back to my old Government days and get some information because public stand you stand and all cooperatives, all private companies have openly requested Gover dairy out of it because it impacts lives of of imported goods not only in th small marginal farmers milk to companies, the would adversely impact th Government and requested have to see next four days we understand the meeting is starting today of India is participating information have seen, Amul has ry of millions of farmers in India. Any low of this sector, any sector here the dairy is the livelihood of very farmers who are keeping two cows or three cows, four cows their price will go down, any low-cost product available adversely the farmers income, farmers price, so everyone and appealed to Government not to keep dairy in RCEP, and even participating in this meeting, I am sure they heard us. volume, Foods 1, 2019 private Government to keep low-cost dumping ry hree cows, cows and supplying in the market e income, suggested to but we Prime Minister

Shailesh Kumar: Sir, just final question to this is allowed so entire cost will be borne by the farmer itself or the industry will also suffer because your fodder cost is not going to go down in the same proportion? particular thing just a hypothetical scenario, assuming this thing

Dr. Sambasiva Rao: This is a bit speculative not supported by any data or any volumes, like the initial proposal was what came in the media Zealand proposal of not more than 5% of and that should be at a lower customs duty, so what would be that 5% volume, if you convert New Zealand's exports because 5% is measured in terms of export value not quantity because multiple products will be there, they cannot fix the price, so they may send milk powder, they may send whey powder, they underplay the price they can push more volume, so how much volume will be allowed allowed cost by s is supported any proposal came in media. The Commerce Ministry delegation was entertaining the New proposal New Zealand's exports will be sent to I be duty, so and what constitutes 5% and whether they maintain the same price quantity they send cheese, they may send butter ilk whatever they want to send they can send scenario, cost or s is a bit speculative by was Indian market a what constitutes same of butter, they may send. If volume

under that 5% proposal and how much of it products and what happens that product and the related milk and which state will consume what, so if New Zealand where there are four to five metros in India this. New Zealand sends only cheese, n sends milk powder compete with them if their price is allowed is Rs. 270. will eat into our local domestic sales of d related sends only cheese, it will not impact anybody except the four metros re cheese companies and the cheese consumption is 80% is in five metros India, so the cheese and cheese producers and cheese consumers are concerned with nothing else, it has a different impact at a lower price to India, powder making companies will not be able to with allowed, it is Rs. 200 international price per KG, in eat different will body umption , so and othing a impact. If New Zealand powder Rs. per India it

If there is no duty or lower duty, the Rs. 200 powder is sent to India by happens to the powder making plants, they can sell will bear, whether year, Rs. 50 per KG India has given Government has incurred 20% of the exported value as incentive last yea allow imports and again extend export incentive, it is kind of a peculiar scenario Zealand want to send to India, what quantities, at what price, what duty unless those details are exposed, you will not be able to comment on explained, the cheese it impacts cheese companies, if it is milk powder it impacts milk powder companies, they cannot send milk companies, and then we can calculate and assess and tell, this is going to happen if imports are allowed reduced duties or no duti is New Zealand, o making the companies who have got huge capacities whether at Rs. 270 or they have to sell at Rs. 210, Rs. 190, Rs. 200, so this Rs. 70 who , Government will subsidies like Maharashtra and Gujarat have don they have given in the last financial year in both states 20% export incentive to move the stocks out of India, so on one side incurred exported year, would is unless comment the impact, who gets impacted at how much cheese impacts fresh milk anyway, it is not feasible to send fresh milk, so fresh what happens to their sales, so it depends on the fine print, detailed numbers this to are duties. the line of Resham Jain from DSP Mutual Fund added turnover Foods 1, 2019 what t have done last given both states. Government of incentive so one r, they like to scenario. What New India, what quantities, at what much. As I companies, depends on and at

Moderator: Thank you. The next question is from the go ahead. Fund. Please

Resham Jain: I just wanted to understand on the volume growth side, now we are operating in three different geographies, if you can just give some color on that, how the volume growth been in thre geographies? different that, growth for sales just how Telangana? wanted understand volume now how three Yeah, understand Maharashtra,

Dr. Sambasiva Rao: You are looking for sales volume or procurement volume?

Resham Jain: Yeah, whatever you can give, just to understand how is the growth different in versus Punjab and Haryana versus AP and Telangana

J Samba Murthy: Particularly in June for zone four, North it is at about 24% value-added products is almost doubled 107% and turnover wise also around 18% volume growth is there there in which doubled 18%. When you

say North, we operate in Pradesh and part of UP also, we Punjab, Rajasthan, NCR Delhi, Haryana, Uttarakhand, and Himachal these are the ones.

Resham Jain: Maharashtra?

J Samba Murthy: Maharashtra, actually but w Value-added products almost 14% to 15% in this quarter. ?volume growth, has a continuous rainy season, there is no much of growth whereas in South there is a growth of almost 9% growth is there in volume and the 14% in is Andhra and Telangana as a percentage of the overall sales now is hereas is there in Tamil together.

Resham Jain: What is the mix now, Sir, the or South?

Dr. Sambasiva Rao: Approximately 30, 30 both the states and around 24% in 24% in Tamil Nadu and Karnataka

Resham Jain: Sir, just to understand your strategy going forward next three to four years, as we look at targets which we have set for, how are we you can just give a broader thought on the same? looking at growth coming from all these regions, if next the

Dr. Sambasiva Rao: We expect higher rate of growth in northern states, because we have established ourselves now, infrastructure is almost ready retail outlets, marketing activities are on, so the rate of growth will be higher on a lower base in northern states and similarly Maharashtra also except this quarter we had a and all that. Our second plant is also getting ready value-added products give value-added products, so we are not able to grow on a single product milk unl the range of products, so the new plant coming up maybe by summer will help us in adding range of products in plant and value are the two areas, Maharashtra and Delhi of volume numbers Tamil Nadu, and Karnataka, these four s growth depending on the seasonality etc. of because established ready. We are expanding our distribution network, distributors, , the northern ready near Mumbai, which will be able to offer added products. Currently one plant is there near Pune, this does not have capacity to added single unlrange of the new Maharashtra and additional capacity for milk also, so coupled with new plant and value-added products, Maharashtra rate also will be higher in the coming zone where we increase our presence more in terms of numbers, but the rate of growth will be high in these two states. In AP, Telangana, states will perhaps continue at 10% to 15% rate of is function of Foods 1, 2019 expect in of abnormal rainfall added are milk unless we add range so plant milk so with new coming years, these

Resham Jain: Sir, just a question related to this, in it still significantly lower than? North are the margin similar to the company average or is

Dr. Sambasiva Rao: Not yet, they are lower only because of particularly this year is a different year, the price increase is very high in those states compared to the rest of India, that being an abnormal feature of this quarter, we do restore the margins in the quarter thr lower for the next one year to one and vehicles is improved, that is the function of volume. t, only this year, three and four, but they will be one one-and-a-half year till the utilization of capacities, manpower tates will 10% 15% t, they lower of compared the that ee half capacities,

	Heritage Foods LimitedFoodsNovember 11, 2019
Moderator:	Thank you. The next question is from the line offromAnirudh Doshi from ICICI Securities Ltdi from ICICILtd.Please go ahead.
Anirudh Doshi:	Sir, just one question how do you see the marginjustmargins panning out for full-year, I guess in lastyear,quarter you had indicated around 6% to 6.5% kind of margin for fullindicated6%offull-year, do we still consideryear,
	that we would be achieving that number or you see any downside to that number for fullweachievinganytofull-year,
	I guess Q3 considering OOctober was also monsoon continued, so probably prices are still atctober
	elevated level and probably same thing may continue in first two weeks ofcontinueNovemberNovember also, so
	probablyprobably the Q3 margins will also be lower, so where should we look at margins for fullalsobeshould wefull-yearnow?
Dr. Sambasiva Rao:	It will be definitely lower than expected because of thislowerexpectedQuarter-2 impact and we2shall wait for
	another one week to know the outcome of thisBangkok meeting also whether the processedmeetingthe
	products will be allowed and it will come down, thawillcomethat will change the scenario in terms oft will
	prices once again, but it will be lower by 1% we can estimate lower than last year, 1bewelowerlast1% to 1.5%
	impact would be there, but it will be more clear at the end of the QuartermoreQuarter-3.
Anirudh Doshi:	100 to 150 BPS lower than whawhat we achieved in FY '19 kind of?
Dr. Sambasiva Rao:	Yes, and we will be able to give more claritywillafter Quarter-3 where the price fall3 wherewill be clearly
	visible in the next one month and thisthis RCEP outcome also will be clear.
Anirudh Doshi:	Even if the outcomoutcome like the New Zealand imports are allowed, but do you see that it willareit
	commence immediatelyimmediately or it may take time, so it may not probably impact FY '20 at all andittakeand
	may impact only H2 of FY '21, right?
Dr. Sambasiva Rao:	Yeah, if the country is behaving onthe PAT yes, but perception is what is driving us.
Anirudh Doshi:	Are we also looking at any opportunity that we straightaway import SMP itselfwethatthatstraightawayfrom New
	Zealand, is there any thought given by the company to that?
Dr. Sambasiva Rao:	Definitely, why notnot. We have exported till now small quantities and we will start importing if
	the window is open and the price is advantageous to us, wehave no problem with that.
Moderator:	Thank you. The next question is from the line ofHimanshu Nayyar from Systematix GrouGroup.
	Please go ahead.
Himanshu Nayyar:	Sir, could you explain theworking capital movement because I see tables increasing by sevenseeby
	days, which seems like a significant improvement, so what drove that?aso what

• J Samba Murthy: As on September 30, 2019, inventory days payable eight days, around 10 days is the working capital cycle. inventory are 14 days, trade receivable four days and trade and an any reason , in to a six
• Himanshu Nayyar: So this seems like an improvement from where we were last year, so any specific reason you can…? days is in prices, how do we claim
• J Samba Murthy: Last year was 16 days, now it has come to 10 days.
• Himanshu Nayyar: Given that we were facing procurement challenges in terms of high prices this improvement in payables, are the farmers giving us more time to pay them and that day change there?
• J Samba Murthy: As on March 31, 2019, there were month of April we have realized that 25 crores, otherwise, trade receivable days are two days only on an average, then stocks we have liquidat stocks as inventory on March 31 fat products are not there, it has been liquidated now. These are here?some exports trade receivable around 25 crores that in the then liquidated in the first half of actually what are 31st we have liquidated, this is a fast movement of this thing and fat liquidated. There is no surplus fat in the company as of are the reasons actually to improve the working capital cycle. of ed of the
• Himanshu Nayyar: Second and final question on our JV with date of plant commissioning that you are expecting now and any outlook you can share on any marketing initiatives we are planning on those products? our Novandie so just wanted to understand what is the and can asically in full swing right now, but however, we see some delays in the
• Brahmani Nara: Sure, basically works are on construction of our factory which is happening very close to There have been many months of rains and literally no work could be done, no cranes could move etc., but now we are back to action and the progress has been done on the marketing side concerning what kind of flavors, what kinds of products, what consumer offer, etc., and some work has also been done on the team building side, so we have a GM in place now to head the project for the JV and that is progressing quite well too we are looking at launching the product anytim just in time for the summer season. construction close to Mumbai again because of rains many no we been consumer is needed we want work a to anytime in the first quarter of the next financial year, so date you delays of rains. etc., to etc., and the too. At this stage,
• Moderator: Thank you. The next question is from the line of Ltd. Please go ahead. season.line Vikrant Kashyap from Kedia Securities Pvt.
• Vikrant Kashyap: Does competitive intensity new player comes into South, where you have large volumes, does it impact the prices? . in the states you are impact the prices of procurement for you, if a e Vikrant in of new player comes into you and let us say
• Dr. Sambasiva Rao: All companies pay more or less similar price of the similar quality of the milk one state is Karnataka state is procuring 80 lakh liters a day have quality day. On 80 lakh liters more or less liters

everyone pays the same prices, may be 10 pais minus. If a new player comes into that state and he sta get more milk prices, paisa -15 paisa plus or minus or 20 paisa plus or that starts paying Rs. 1 more, he will definitely milk, but he cannot take 80 lakh liters.

• Brahmani Nara: Also I would like to stress upon the fact that for a new player to come to procurement, it is not just the function of other benefits the company is extending to the farmer which we do on a very big way as part of normal course of business, not even CSR activities, so it is really a function o different things I the price, but a function of several other things such as infrastructure and what is which we as of even things also especially for a newer player that is entering the market. plus more, Also new al such course CSR of several other
• Dr. Sambasiva Rao: Establishing the trust an certain value addition through the veterinary care, nutrition, financial tie many other activities which all companies do at a different level, some companies do 100%, some companies 20% to 30%, so this price alone does not drive the milk immediately even if it drives assuming, the new player cannot absorb the 60 lakh l lakh liters of Karnataka, there will be certain impact but definitely the new player cannot influence the whole market. Establishing and ability to extend the supports and payments on punctual basis, veterinary tie even es liters of milk in Tamil Nadu or 80 d and -ups, there are so at 20% to iters of be participant plant Mumbai and
• Vikrant Kashyap: Another question growth in Northern states will help volume growth, but do you think th heading 3500 crores of revenue in 4.5 years that we have stated till now? Sir, to the earlier participant you said the new plant nearby Mumbai volume you these steps will help in
• Brahmani Nara: I just want to correct that the target is to grow about 20% year normal year where procurement prices are more normal and seasonality is more normal, so in fact revenue target would be higher than that and 40% contribution at overall revenue year. 3500 is 20% year-on-year going forward on any be again to increase Value which stands at about 25% of our revenues across the year year are normal -added products to
• Vikrant Kashyap: We standby 6000 crores of revenue by 2024?
• Brahmani Nara: Yes, that has to be our target. target.

Moderator: Thank you. Ladies and will now hand the Gentlemen, due to time constraints that was the last question conference over to Dr. Sambasiva Rao for closing comments. question for today. I

• Dr. Sambasiva Rao: Thank you very much all the participants for your suggestions, queries, clarification actively engaging with us on a continuous basis and we wish to extend Diwali greetings to all of you. Thank you very all very much. for much clarifications, and engaging continuous , concludes
• Moderator: Thank you very much Thank you for joining and much. On behalf of Heritage Foods Limited, that concludes this conference. and you may now disconnect your lines.