Heritage Foods Limited | 30th Annual Report 2021-22

Financial Statements Company Overview Statutory Reports 59 FY 2020-21, 70-74% of the Indian dairy and milk processing market was part of the unorganized sector. State-wise segment: Uttar Pradesh, Rajasthan, and Gujarat have been the major milk producing states in India. Uttar Pradesh is the largest dairy and milk-producing state because it is home to the highest buffalo population and the second-highest cattle population in the country. The majority of the rural population in this state is engaged in livestock rearing and dairying. Gujarat has numerous cooperative dairy milk unions, private dairy plants, and primary milk cooperative societies, which play crucial role in the production of milk in the state. Value-added product: Apart from milk, the revenue of the Indian dairy and milk processing industry is generated from several value-added products such as butter, curd, paneer, ghee, whey, flavored milk, ultra-high temperature (UHT) milk, cheese, yogurt etc. The value-added products market is under-penetrated, thus having tremendous scope for the growth and is expected to grow at much faster rate as compared with the commodity market. Export/Import: From India, the export of dairy products has increased to countries like Bhutan, Afghanistan, Canada, Egypt, and the United Arab Emirates. India has also imported a significant amount of dairy products from countries like France, New Zealand, Ireland, France, Ukraine, and Italy. Key growth drivers of the market: India’s livestock sector is regarded as one of the largest in the world with a bovine population of 299.90 Mn, which comprises of cow’s and buffalo’s. The growth of the Indian dairy and milk processing market is ensured by the steady supply of milk which is the primary raw material for this industry. The major challenge faced by the Dairy Industry is the organization of the supply chain and logistics. The good part is that challenges are nothing but opportunities in disguise and in order to meet this challenge head on, proactive steps need to be taken to empower farmers and provide a stronger supply chain for them to rely on. Even though India is the largest producer of milk in the world, the industry itself is largely unorganized, with only 26-30% percent of the total milk produced being channelized in an organized manner. The first step to countering this would be to shift the focus to smaller dairy farms, which sometimes lack veterinary facilities and basic nutritious fodder etc. Increasing Demand for Milk and Value-Added Products: With an increase in the spending power of the population, the demand for milk and other value-added dairy products is expected to increase in the coming years. In order to meet the rising demand, there needs to be a marked shift from the unorganized to the organized sector. Moreover, consumers now-a-days are not only hold greater buying power but also health conscious regarding what they consume. Value added products are produced by some modification or enhancement via addition or segregation of liquid wholesome milk. Value-added products include cheese, paneer, ghee, yoghurt and probiotic drinks etc. These products are produced by alteration and enrichment via use of additives, microbial fermentation or simply mixing with liquid milk. There is thus a necessity to provide healthy dairy products which can be readily consumed. This creates an opportunity for boutique dairy farms to set up local operations providing fresh cow or buffalo milk to consumers. Over and above with people having less time these days, the demand for premium value added products such as probiotic yoghurt, cheese, milk shakes etc. are on the rise. These products not only have a higher margin but also have a longer shelf life which makes the supply chain easier and cost effective. There is immense room for the organized sector to gain market share of marketable milk from unorganized sector as per the Department of Animal Husbandry, Dairying and Fisheries, the organized milk handling is expected to grow from 26-30% at present to 50% by FY23. Organised players account for just 26-30% of the overall milk market and expect their share to grow going forward. Also expect rising milk procurement prices to be passed on by B2C players, resulting in stable margins. Government Initiatives: Government is progressively taking initiatives to promote the dairy industry in India, in which inclination towards cattle breeding, clean milk production, dairy development and feed fodder management are included. The Department of Animal Husbandry, NDDB, and other government affiliated institutions manage these initiatives in a constructive way. Utilizing the available resources for dairy industry to their full extent is the main objective behind these initiatives. The manner in which Dairy industry would enhance milk production and upgrade milk processing technologies, is also supervised by these departments/agencies. Your Company is a strong player in the curd segment and has expanded its product basket by entering into the fastest growing product like Yoghurt, through a Joint Venture Company. The motto of your company is to empower farmers by doing the following activities Ɣ Facilitating loans for the purchase of cattle through commercial banks/ NBFCs Ɣ Facilitating cattle insurance; Ɣ Conducting veterinary camps for animals at frequent intervals; Ɣ Supply of high quality cattle feed and fodder seeds; Ɣ Ensuring timely payment to farmers. In its bid to become a pan India player, your Company has expanded its distribution of products to 11 states in India covering South, West and North India. It has direct procurement network of 0.3 million dairy farmers across eight major milk producing States namely, Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, Maharashtra, Rajasthan, Punjab and Haryana. The direct Board’s Report