Heritage Foods FY26: Revenue Held Up, Margins Felt the Milk Inflation

Heritage Foods ended FY26 in a difficult dairy cycle. Milk availability stayed tight even in periods that are usually supportive, and procurement inflation remained elevated through the year. Despite this, the company delivered consolidated revenue growth of 9.5 percent to 4,526.0 crore in FY26. In Q4 FY26, revenue rose 10.4 percent year on year to 1,157.6 crore.

Profitability was the weak spot. FY26 EBITDA declined to 266.3 crore from 331.0 crore in FY25, and the EBITDA margin compressed to 5.9 percent from 8.0 percent. Q4 FY26 EBITDA fell to 52.2 crore, with margin at 4.5 percent versus 7.6 percent a year earlier. Management attributed the pressure largely to unprecedented raw milk procurement inflation and commodity volatility, partly offset by price actions, product mix improvement and operating efficiencies.

The core operating data explains the squeeze. Q4 FY26 procurement volumes declined 7 percent year on year to 1.64 million litres per day, while the procurement price increased 8 percent to 46.67 rupees per litre. On the demand side, milk sales volumes were steady, with Q4 milk sales at 1.17 million litres per day, up about 1 percent year on year. The average selling price improved to 57.80 rupees per litre from 55.6 rupees per litre last year.

Mix shift continues: value-added products are the growth engine

Heritage continued to push its portfolio away from bulk-like exposure and toward branded, higher value products. In Q4 FY26, milk revenue grew 5.2 percent year on year to 610.2 crore. Value-added products revenue grew much faster, up 17.7 percent to 395.7 crore. Fat products revenue declined 11.9 percent to 73.7 crore, while the Others bucket grew 60.8 percent to 78.0 crore.

For FY26, milk revenue rose 5.9 percent to 2,466.1 crore and value-added products revenue grew 12.6 percent to 1,467.8 crore. Fat products revenue was 322.6 crore and Others revenue was 269.5 crore.

Management also highlighted that if consumer packs of ghee and butter are included, value-added products revenue reached 466.8 crore in Q4 FY26, up 22.5 percent year on year, with contribution to total revenue at 41.9 percent versus 36.8 percent in Q4 FY25.

One structural theme management called out was changing household behaviour in the South. Packaged curd penetration remains low by their commentary, but is rising as households shift from making curd at home to buying it ready. This supports VAP growth but can mute milk volume growth, even when the overall franchise remains stable.

Financial snapshot

Capacity build-out: ice cream and drinkables get funded

FY26 capex was higher than typical, and management explained that the bulk of spend was on expanding manufacturing capacity. On the concall, the CEO said roughly 300 crore of capex went into plant production capacity expansion, led by two greenfield projects.

The largest project is the ice cream facility at Shamirpet, Hyderabad. The investor presentation states the facility has 24 million litres annual capacity and that commercial production has started. It also presents an ambition to scale ice cream revenue from 106 crore in FY26 to 500 crore plus by FY30.

On the concall, management gave utilisation guidance. They expect 35 percent to 40 percent utilisation in the first year and said it could take six to seven years to fully utilise the facility, assuming 20 percent to 25 percent year-on-year growth.

The second major capex theme is a greenfield flavoured milk line in Tirupati. In addition, Heritage expanded curd production capacity by another 50 tons per day, and said it made smaller investments in buttermilk and other value-added capacities. It also invested close to 20 crore in procurement and chilling infrastructure, aligned with yearly network expansion.

For FY27, management indicated capex may normalize to around 200 crore.

Operating model and distribution: FMCG posture, dairy constraints

Heritage positions itself as a large FMCG-style dairy business, supported by a federated supply chain. The presentation highlights 190 chilling centres, 18 processing plants, 7,500 plus distributors and 225,000 plus retail outlets. Management described the model as reducing distance travelled by milk and maintaining freshness.

The company also stressed channel agnosticism. On the concall, management said general trade contributes about 80 percent of revenue, while modern trade and e-commerce including quick commerce contribute about 20 percent.

Working capital saw stress in FY26. Trade receivables increased to 71.2 crore in FY26 from 38.0 crore in FY25 as per the balance sheet table, and management attributed the increase primarily to organised trade salience and a year-end timing effect, stating collections improved in April.

Subsidiary performance: Nutrivet adds a profitable growth leg

Heritage Nutrivet Limited, a wholly owned subsidiary, reported FY26 revenue of 2,454 million and PBT of 205 million, which converts to 245.4 crore revenue and 20.5 crore PBT. The presentation also states feed volumes grew 40 percent year on year and revenues grew 32 percent year on year in FY26.

Its product portfolio is dominated by cattle feed at 84 percent, with fish feed at 13 percent and feed supplements at 3 percent.

Takeaways

FY26 was defined by supply tightness and cost inflation, and the financials show that clearly through margin compression. However, Heritage still delivered revenue growth above 9 percent and continued to improve the quality of its mix, with faster growth in value-added categories.

Near-term profitability remains linked to procurement prices and commodity cycles, which management described as structurally volatile. The strategic response is visible in capacity expansion for ice cream, drinkables and curd, and in the stated goal to raise value-added product contribution by 2 percent to 2.5 percent per year. If execution holds and industry conditions normalise, the combination of mix and operating leverage is what management is betting on to rebuild margins over time.