Heritage Food - Dairy Product going to become a Brand - Go LongGST relief for dairy products
The revised GST rates, effective September 22, are set to benefit the organized dairy sector significantly. Key changes include:
UHT milk: reduced from 5% to 0%
Butter, ghee, cheese: cut from 12% to 5%
Paneer: brought down from 5% to 0%
This move is expected to make packaged dairy products more affordable, boosting demand across India and giving a direct push to branded players.
Heritage Foods among key beneficiaries
As one of India’s prominent dairy firms, Heritage Foods is poised to benefit from lower tax incidence, potentially improving sales volumes and consumer reach. The announcement also sparked optimism across other dairy counters such as Hatsun Agro, Parag Milk, Dodla Dairy, Umang Dairies, and Nestle India (value-added dairy portfolio). FMCG majors like Britannia and ITC are also seen as indirect beneficiaries.
Market outlook
Brokerage houses believe the GST cuts are a strong positive catalyst for the dairy industry, aiding profitability and consumption growth. Investors now await Q2 results to see the real impact of the new tax regime on revenue momentum.
Record Revenue: Q1 FY26 delivered the highest ever quarterly revenue at INR 11,368 million, marking the third consecutive quarter of double-digit revenue growth. Management attributes this to “strength of the core business and agility of our supply chain networks”.
Profitability:
EBITDA: INR 739 million, margin at 6.5%.
PAT: INR 405 million, margin at 3.6%.
Margins were “softer due to seasonality, input cost inflation and a temporary product mix shift”, but are expected to “normalize in coming quarters as volume-led operating leverage kicks in.”
Brand & Product Initiatives
360-degree Brand Campaigns: Rolled out across Andhra Pradesh, Telangana, Tamil Nadu, and Karnataka. Notable campaigns for curd (season three) and first-ever milk brand campaign focused on “purity.”
Heritage Livo Platform: Launched fortified flavored milk (vitamins A & D) and high-protein yogurts. Targeting “growing health-conscious consumer segment.”
Margin & Cost Dynamics
Input Costs:
Raw milk procurement price up 4.74% YoY, “a tad higher than what we would have liked, but nothing extraordinary.”
Sequential increases in procurement prices due to lean seasonality (May–June).
Management chose to “hold price increases to ensure volumes stay strong” in April–May, especially for VAPs.
Gross Margin Analysis:
Margin knock (160–180 bps) attributed to VAP mix decline, not bulk fat losses.
Standalone VAP (ex-fats) share: 36.1% vs 37.5% YoY; management expected 39% if growth had continued.
Lower volumes in VAPs led to suboptimal cost absorption and plant utilization.
June saw normalization; July onwards expected to be “normalized.”
Inventory & Working Capital
SMP Inventory:
6,197 MT as of 30 June 2025 vs 4,586 MT YoY.
Higher stock due to lower consumption in Q1 (VAP demand hit); expected to be consumed in Q2–Q3.
Working Capital:
Cycle days at 19 (inventory: 35 days, receivables: 3 days, payables: 17 days).
Commitment to maintain <20 days, aided by B2C model and fresh nature of products.
Industry Headwinds:
Q1 impacted by “erratic monsoon and unseasonably cool summer,” leading to VAP demand shrinkage and margin softness.
Management expects “normalization” as volumes recover and operating leverage improves.
Milk supply expected to be stable; procurement prices may see minor increases but “nothing extraordinary.”
SMP inventory to be absorbed in Q2–Q3 as VAP demand recovers.
Growth Guidance:
No formal guidance, but management aspires to return to 15–16% revenue growth and ~20% VAP growth for FY26, assuming normalization of demand.
EBITDA margin expected to recover by “at least a percentage correction.”
