Heritage Foods eyes expansion, launch of more value-added dairy products

“Our core markets are the Telugu-speaking states. The second would be adjacent markets, that is, Karnataka and Tamil Nadu. Then, you have developing or emerging markets. The core markets would be the slowest growing, and emerging markets the fastest. In about three or four years, the shape of the business will be very different from what we have today,” Srideep Kesavan, chief executive officer of Heritage Foods, said in an interview with Mint.

Currently, the southern states account for over 87% of the company’s business. In FY24, Heritage Foods reported a revenue of ₹3,794 crore, with a profit ₹91 crore. The company sells milk, cheese, butter, curd and paneer, among other products.

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“About 12% comes from the rest of India—primarily from western Maharashtra and NCR (National Capital Region)-Haryana. We have capacity that would suffice for at least one or two years in these markets. For example, during covid, we invested close to ₹100 crore in Maharashtra.  In the north, we acquired a dairy business from Reliance Retail Ltd (RRL) in 2017-18. I don’t think we’re going to make immediate greenfield investments in these markets. If our growth trajectory remains strong, we will need to expand capacities in the next couple of years,” Kesavan said.

India’s dairy market was estimated at ₹13 trillion in 2023, per market research firm IMARC. The liquid milk segment accounted for approximately 61% of the dairy market. Traditional value-added products make 34% of the market, and emerging value-added products (milk-based drinks, cheese, flavoured yogurt) contribute the remaining 5%.

However, given its fragmented and unorganized nature, the dairy industry is dominated by regional players. That’s because the industry relies on local procurement of milk from farmers. Several large players such as Amul, Nestle, Mother Dairy, Karnataka Milk Federation’s Nandini brand, etc., compete in the market. Last year, Nandini entered the Delhi-NCR market with its milk products.

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Kesavan said Heritage Foods will launch and expand capacities in value-added dairy products. Fresh milk accounts for 59% of the company’s revenue. However, the bulk of investment in the last couple of years has been in value-added dairy products.

“That’s where we’re building capacity to grow,” he said.

The Indian dairy market is shifting towards value-added products like curd, cheese, yogurt, flavoured milk and probiotic drinks to meet growing consumer demand for health and convenience, coinciding with growth in discretionary spending. Such value-added products are expected to grow between 14% and 19% per annum for the next five years, per industry estimates.

In the September quarter, the company announced setting up of a new ice-cream manufacturing facility in Telangana with an investment of ₹204 crore. It also invested ₹45 crore in a flavoured milk line in Karnataka.  “Value-added products are the fastest-growing category for us (and account for 33% of the business). Other areas where we see tremendous potential are protein and probiotics,” he added.

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Kesavan said demand for dairy products remained strong despite a broader slowdown in consumption. However, price increases are now “imminent” on the back of escalating raw material prices.

“We took up prices in April of 2023. Every year, you need at least a 3-4% price increase in line with inflation; that hasn’t happened.  At the risk of impacting the momentum in volume growth, we will be obliged to take price increases. The timing has to be decided because you don’t want to increase prices when consumption is weak,” he said.