32nd Annual Report 2023-24 Heritage Foods Limited GROWTH TONED FOR
Milk: A True Superfood! Milk has been an important constituent of the human diet for centuries. Nutritious and delicious, milk and other dairy products are a key building block of health and happiness when consumed as part of a wholesome diet. Their unique blend of nutrients provide several health benefits for people across all ages. Milk is thus irreplaceable in the food system. Toned for Growth We are among India's largest dairy companies and are proud to deliver this superfood and sustainable dairy goodness, ensuring nutrition for all. Having built strong foundations, we are primed for growth, underpinned by our key levers of sustainable increase in milk procurement volumes, organic and inorganic expansion, rising share of valueadded products, growing footprint in existing and new markets, and growing other businesses, such as premium yogurt and cattle feed (in joint venture company and wholly-owned subsidiary company). We have incredible raw materials produced on the pastures of Indian farms, a business supported by talented and committed teams, and an exciting opportunity to create value. With milk being a superfood, it is natural for us to be toned for growth!
About Us Focused on Scale, Science and Sustainability Established in Andhra Pradesh in 1992 by N. Chandrababu Naidu, Heritage Foods is a prominent dairy company with brands that are household staples. With a rich legacy of over 32 years, Heritage has created a strong presence in 12 States, serving 1.5 mn+ households daily through a robust omnichannel distribution network. Having built a milk processing capacity of 2.78 million litres per day, the company serves a large farming community through sustainable milk procurement as well as via various cattlecentric development activities. Mission Vision Delighting every home with fresh and healthy products and empowering the farmer. To be a nationally recognized brand for fresh and healthy products. To embrace the right technology to delight our customers. Be the employer of choice by nurturing entrepreneurship and promoting empowerment, alongside transparency. Advocating the balancing of economic, social and environmental aspects to create a better tomorrow. Empowering the farmer community through our unique 'Relationship Farming Model’. To anticipate, understand and respond to our customers’ needs by creating high-quality products and making them available through innovative and convenient channels. STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 02 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
LONG-TERM AND SHORT-TERM CREDIT RATING BY CRISIL 2.36 MLPD MILK CHILLING CAPACITY YEARS OF EXPERIENCE STATE-OF-THE-ART MILK PROCESSING FACILITIES 18 HAPPINESS POINTS 237 VEHICLE FLEET FOR DISTRIBUTION 2,100+ A+ | A1 MILK CHILLING UNITS 203 32 VILLAGE-LEVEL MILK PROCUREMENT CENTRES 10,000+ VALUE-ADDED PRODUCT DISTRIBUTORS MILK AND FRESH PRODUCT DISTRIBUTORS 300+ 6,000+ RETAIL OUTLETS IN THE GENERAL TRADE HERITAGE PARLOURS 180,000+ 850+ DISTRIBUTORS DELIVERING HERITAGE PRODUCTS DAILY TO CONSUMERS’ DOORSTEPS 6,900+ MILK PROCESSING CAPACITY 2.78 million litres per day (MLPD) 03 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24 32ND ANNUAL REPORT 2023-24 STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS
Our Presence Our company has built an integrated distribution network that provides our consumers convenient access to our products. This encompasses our own stores, including 237+ Happiness Points, 850+ Parlous and 180,000+ General Trade Outlets, facilitating sales in 12 Indian states. Our presence is well-established in both the modern trade and e-commerce retail. Through our fleet of 2,100+ vehicles and an extensive network of 6,900+ distributors, we deliver products to our consumer doorstep on a timely basis. Procurement Sales Andhra Pradesh Karnataka Maharashtra Odisha Punjab Rajasthan Tamil Nadu Telangana Uttar Pradesh Andhra Pradesh Haryana Karnataka Kerala Madhya Pradesh Maharashtra NCR Delhi Odisha Tamil Nadu Telangana Uttarakhand Uttar Pradesh With regards to milk procurement, our approach involves the utilization of a tech-integrated network comprising 10,000+ Village-Level Milk Procurement centers located in 9 Indian states. STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 04 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
INDIA’S PER CAPITA MILK CONSUMPTION, WHICH IS LOW COMPARED TO DEVELOPED ECONOMIES SHARE OF LIQUID MILK SEGMENT IN THE INDIAN DAIRY MARKET INDIA’S DAIRY INDUSTRY IS EXPECTED TO GROW TO ₹49,953.5 BILLION BY 2032, REGISTERING A 13% CAGR SHARE OF TRADITIONAL AND EMERGING VALUE-ADDED SEGMENTS IN THE INDIAN DAIRY MARKET GROWTH IN MILK PROCUREMENT VOLUMES FROM FY1993 TO FY2024 VALUE-ADDED PRODUCTS TO THE REVENUE Over time, we have ensured a steady expansion in our market footprint, establishing milk procurement centres in 9 States and facilitating milk and milk product sales in 12 States. There is significant potential in India's value-added dairy products with a more prosperous and consumptionoriented society. We are committed to increase the share of value-added products in our portfolio. It took us only five years to add net I 1,000 crore+ revenue over 4-years, from I 2,726 crore in FY2020 to I 3,794 crore in FY2024, which points to our long-term growth potential. We are enhancing our R&D and innovation capabilities to launch new high-quality nutritious products. We are focused on increasing milk procurement, the starting point of our business, by investing judiciously in village-level milk collection infrastructure, chilling centers, etc. We are focused on building a range of milk and milk-based value-added products to serve the needs of traditional as well as next-generation consumers. Dairy is the gold standard from the perspective of nutritional value and affordability. We at Heritage are committed to unlock the full value of our integrated dairy model as we enter a new phase of growth. Heritage: An exciting business story rooted in India's dairy potential 81 kg per year 61% 13% CAGR 13% 15% CAGR 30% Sources: Investec India, Research report on India Dairy Sector Milking the Rising Consumption Trend https://www.imarcgroup.com/dairy-industry-in-india www.fortuneindia.com/macro/milk-production-in-india-may-reach-300-million-tonnes-by-2030/116561 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24 05 STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS
Growth Toned for With an experience of 32 years in the dairy business, we at Heritage Foods have built robust competencies that position us well for sustainable growth and value creation. Few of our strengths comprise a robust milk collection and distribution network, a large and growing portfolio of value-added products, an established presence in major consumption markets, balance sheet strength, a large and committed workforce, among others. 06 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS
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Our Offering Nutrition, health and happiness - packed with love and care! STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 08 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
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Built to Last Turnover FY24 37,343 FY23 32,087 FY22 26,429 FY21 FY20 24,070 26,811 (In H Million) PAT FY24 910 FY23 659 FY22 1,015 FY21 FY20* 1,452 571 (In H Million) EPS FY24 9.81 FY23 7.19 FY22 11.10 FY21 FY20 15.87 (17.49) (In H) Heritage recorded a sound performance in FY2023-24, with growth achieved across all KPIs. On a standalone basis, the company’s revenue from operations grew by about 16% to I37,343 million, while net profit grew by around 38% to I910 million during the year. Key performance drivers were expansion in sales volumes, growing share of value-added portfolio due to premiumization trends, improved operational efficiencies, optimised product distribution, and ongoing marketing and promotional activities. *Before FVTPL EBIDTA FY24 1,821 FY23 1,350 FY22 1,781 FY21 FY20* 2,497 1,330 (In H Million) *Before FVTPL STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 10 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
Return on Capital Employed FY24 15.79 FY23 10.60 FY22 19.95 FY21 FY20 31.70 10.99 (In %) Net Worth FY24 8,035 FY23 7,367 FY22 6,605 FY21 FY20 5,938 4,623 (In H Million) Net Fixed Assets FY24 6,859 FY23 6,011 FY22 5,462 FY21 FY20 5,563 5,156 (In H Million) Dairy Product Contribution FY2024 (In %) 59% 30% 8% 3% MiLK Value-added products Fat products Ice cream and others STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 11 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Awards and Accolades As one of the most awarded dairy companies of India, external endorsements are always a motivation in the journey of excellence. IAMAI National Awards The company won two gold medals for the best packaging and best video campaign for its Heritage Buffalo Milk at the prestigious IAMAI Awards, 2024. SKOCH Awards The company was conferred with the distinguished SKOCH Award under the following two categories at the 97th SKOCH Summit in March 2024: • Platinum Award in Digital Transformation for “Heritage Vet+” Project • CIO of the Year for the Agri Sector STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 12 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
National Energy Conservation Awards, 2023 The company’s dairy plant at Bayyavaram (V), Andhra Pradesh, won the second prize in the dairy sector at all-India level for effective energy conservation process/ methods for the year 2023. The award function was organised by the Bureau of Energy Efficiency, Ministry of Power, Government of India, on December 14, 2023. With this award, the company’s tally of National Energy Conservation Awards has reached a total of 15 awards. Best Corporate-Cash Management Services Heritage Foods has been awarded the "Best Corporate-Cash Management Services" by HDFC Bank in the dairy sector for quick transformation from cash collections to 100% digital mode. STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 13 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Message from the Chairperson Dear Shareholder, I am delighted to express my thoughts as we reach the end of another exciting year at Heritage Foods. In FY2024, the company experienced a journey characterised by diligence, commitment and achievements in the ever-changing Indian dairy landscape. We are aiming to develop a range of value-added products that will aid our margins, going forward. “ “ STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 14 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
India is a frontier market opportunity. The country is becoming prosperous and more people are getting into the consumer class with increasing discretionary income. There are structural opportunities in the premiumisation and urbanisation trends too, with health, fitness and nutrition taking centre stage in peoples’ lives. These are clear growth opportunities in the mid to long-term, especially with India setting itself the ambitious target of becoming a $7-trillion economy and capturing the slot of the third largest economy by 2030. Over the past few years, we have seen a significant increase in the demand for quality packaged dairy products that has lifted the growth rate of the sector as a whole. Beneficiaries have been frontline players like Heritage that have focused on execution to gain scale and market share. This has been accelerated by innovation across the board that has given us the growth momentum. Given the improving macroeconomic prospects, we have focused on enhancing our fundamentals, be it across our supply and distribution ends, operations, human resources, or in our financial management. We have maintained flexibility and responsiveness, giving our consumers new products as well as venturing into new high-potential markets. We acknowledge the importance of integrating environmental, social and governance (ESG) factors into our culture and operations. Our key objectives are to preserve natural resources, empower our farming community who form the backbone of rural India, and encourage practices that are ethical, transparent and help build trust. Dairy farmers are the key support of our company. Their welfare has a direct influence on our performance and achievements. We have prioritised empowering our farmers by implementing grassroots programmes to improve their social and economic welfare. Many thousands of farmers have been with us from day one which is a matter of great pride for us. In closing, I would like to express my gratitude to all our stakeholders who have placed their trust with us. We appreciate your ongoing support in our journey and will continue to focus our efforts on being a sustainable and value-generative dairy enterprise. Thanks, A V Girijakumar Chairperson This past year demonstrated our commitment to achieve the highest standards of quality, as seen by notable accomplishments in expanding our operations and promoting sustainability. STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 15 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Vice-Chairperson & Managing Director's Update Dear Stakeholder, In Heritage Foods' 32-year journey, we have faced and overcome numerous challenges, driven by a "can-do" spirit that has enabled the company to deliver results, even in times of uncertainty and challenges. The year under review presented challenges too, yet the company relied on its characteristic resilience to adapt and thrive, registering a strong financial and operational performance. Against this backdrop, it gives me pleasure to present a view on the year gone by and our plans for the future. We have created a strong brand legacy that has paved the path towards an exciting future. “ “ STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 16 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
India today presents a field of opportunity. The government's continuous thrust to strengthen the country's economy through policies and regulations, infrastructure development, capital spending, etc., have contributed to GDP growth of over 8% in 2023-24. This has set a strong foundation to realise the Viksit Bharat vision. During the year in review, the company harnessed its strengths and benefitted from a strong industry environment, thus registering a stellar financial performance for the year. The company's consolidated revenue rose by 17.1% to ₹37,939 million in 2023-24. EBIDTA increased by 51.6% to ₹2,095 million with an EBIDTA margin of 5.52%. Likewise, net profit charted a strong growth of 83.6% to ₹1,065 million. On the operational front, our average milk procurement grew by 11% YoY to 1.55 MLPD, indicating our improving procurement and processing capabilities. We have built an overall 2.78 MLPD milk processing capacity, indicating our preparedness for future growth. The highlight of this past year was our success in growing the share of the value-added product segment. Revenue from these products grew by 18.7% to ₹11,063 million, against ₹9,322 million in the previous year. Furthermore, revenue from the fat products and ice cream segment grew by 102.9% and 38.4% to ₹3,046 million and ₹761 million, respectively, for the year. This shows growing consumer affinity for our products and also mirrors the premiumisation trend playing out in the consumption space. Revenue from milk registered an impressive 8.1% growth to ₹22,190 million during the year, which is creditable considering a high base. With a commitment to providing nutritious, delicious and enjoyable products to our consumers, we launched several products under Heritage brands in 2023-24, including toned and skimmed milk, new ice cream variants, new flavoured curds, new variants of fresh milk, etc. The launch pipeline for the current year is strong too, especially as we see an opportunity in healthy variants of traditional sweets using millets, etc. Dairy farmers are the backbone of our enterprise. Truly, their success is our success. In fact, the company was started with the noble objective of serving the farming community in India. We have strived to empower our dairy farmers through many development-centric initiatives, such as free veterinary care, provision for subsidised cattle feed, cattle insurance, etc. Furthermore, Heritage VET+ app has helped revolutionise farm communities through providing knowledge and insights about animal care, diseases, etc., right in the hands of farmers. Having built the institutional strengths necessary to operate a successful dairy enterprise, we have formulated a multi-pronged growth strategy that will help unlock the full potential of our buisness. Some of these include: • Prudent investment in village-level milk collection infrastructure • Growing the share of value-added products, especially considering growing consumer inclination towards branded, healthier and nutritious alternatives • Enter new geographies and enlarge our presence in existing ones, especially on the back of our strong distribution network • Expand our product portfolio, centered around consumer delight • Fortify our farmer empowerment activities, enabling them to increase their livelihood, etc. Overall, our aspiration is to be a nationally-recognised brand distinguished by our healthy, nutritious, fresh and accessible dairy products. In closing, I take this opportunity to appreciate the support and cooperation of all our stakeholders. You been instrumental in contributing to build what the company is today. N. Bhuvaneswari Vice-Chairperson & Managing Director STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 17 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Business Review by the Executive Director N. Brahmani Executive Director We are toned for growth, ready to focus on accelerated value creation. “ “ Q. How would you sum up the last year for Heritage Foods Limited? A: The year that went by was excellent in terms of significant progress on all strategic priorities, despite a challenging external environment. Revenue and EBITDA both showed strong doubledigit growth and productivity benefits were well ahead of our target. At the same time, we continued to progress on the execution on our strategy, further improving the mix, significantly strengthening our value-added portfolio, acquiring a higher wallet share from the existing consumers and continuing to acquire new consumers, while deepening our commitment to long-term ESG goals. It may be recalled that the second half of the last financial year was marred by one of the biggest crises in the recent history of dairy industry. Severe imbalance in the supply and demand situation, exacerbated by poor post-Covid supply side economics, resulted in severe shortage of raw milk. This had resulted in poor financial performance towards the last couple of quarters of FY’23. This financial year was a year of recovery from the crisis and your company took several initiatives to steadily improve the bottom-line performance, without sacrificing the growth momentum. This was a balancing act which we could not have achieved so skilfully had we not had clarity on our strategic priorities. We stayed prudent in our investments, made hard calls in making choices that ensured our growth momentum, and further accelerated longterm growth potential, at the same time improving profitability. AQ& 18 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS
Q. What gives you confidence in the growth potential of the business? A: We are blessed to be in a very attractive industry. In a country with over 40% vegetarians, dairy products are the primary source of protein. At the same time, large part of traditional value-added dairy products are still catered to by the unorganized sector players. T his is rapidly changing with urbanisation and growing demand from consumers for high and consistent quality products. Another aspect that is driving the growth is the consolidation of customersales channels, especially the rapid growth of quickcommerce. I believe HFL is well-positioned to deliver sustainable organic growth in this evolving scenario for multiple reasons. In each of our platforms of milk, VAP, fat products, ice-creams/ frozen dessert, yogurt and animal feed, we are one of the leading players and we are steadily growing our market presence and share. We have one of the best supply chain capabilities delivering the highest quality products and we have strong farmer relationships that assure us of raw milk supply, in line with our growth ambitions. Further, our distribution network, omnichannel presence and strategic partnerships with key customer partners all combined give us a unique proposition for our customers and the potential to deliver attractive returns to our shareholders. Q. Where does HFL go from here? A: HFL is poised to grow from strength to strength. We execute our strategy through our growth framework, which is based on four pillars, serving consumers being at the core. We have been executing this framework over the past few years, successfully driving growth across the business. Our steadfast commitment to consumers, efficient operational management and optimized supply chain has enabled us to navigate volatile market conditions, maintaining and expanding our market share. Our sustained emphasis on cost optimization has kept fixed costs in check, while productivity enhancements have yielded tangible results, ensuring the long-term sustainability of our business. We have a compelling purpose, a clear strategy and a strong balance sheet providing the ability to invest for growth. We are committed to delivering sustainable value and long-term growth for all stakeholders. We expanded our contribution from value-added products with the launch of over a dozen of new products that better reflect the consumer aspirations of today, across all 6 product clusters such as drinkables, ice-creams, etc. We also increased our investment in consumer-facing marketing properties, which expanded our consumer base by inducing trials, increased repeat buys from existing consumers and increased brand loyalty. Q. What is your strategy for cultivating excellence at HFL? A: At Heritage Foods, we are committed to highest level of quality in everything we do. In fact, it is our commitment to quality, which has been the primary building block of our brand strength. The way we look at quality is through the lens of excellence in everything we do. It transcends our commitment to quality across our supply chain and even extends to the way we conduct every process within the company. Our commitment to product quality is quite well-known in the industry. It starts with bringing in the highest quality of raw milk from the villages where we procure. Our teams work closely with our farmer-producers in imbibing best farm and milking practices. Our strategy of limiting the distance travelled by raw milk, with a distributed network of chilling centres, is in line with our philosophy that high quality raw materials produce great products. We sustain this no-compromise approach to producing and delivering the highest quality products at every stage of the production and distribution process. We invest a lot of our efforts and resources in creating packaging that is of the highest quality in terms of aesthetics, ergonomics and economics. Q. What has been the biggest area of change you’ve seen over the last few years at HFL? A: As an ambitious organization that is aggressively chasing growth, we continuously change every aspect of our business for the better. While there are many aspects of HFL that are different today, if I had to pick two things that have changed the most, it would be our focus on serving the evolving needs of our consumers by building brand assets and our commitment to foster a high-performing team and investing to grow human capital. Serving our consumers and customers is at the centre of everything we do. Post Covid, we have step-changed our investment in our approach to consumer centricity. We have instituted brand health trackers and several other consumer research initiatives that give us unique perspectives on evolving consumer needs. Alongside this, we have built great strength in R&D department that allows us to create unique offerings that solve consumer problems and create products that are superior to others. We are investing in people to create a leadership bench and talent across all critical functions. This, coupled with the winning culture we are consciously trying to build at our company will help us accelerate ahead of the industry peers. 19 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24 STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS
Our Board Our Board brings valuable leadership experience and expertise. Our Board diversity ensures a fertile ground for debate, discussion and thoughtful outcomes that are in the best long-term interest of the company. Mrs. Bhuvaneswari Nara Vice-Chairperson & Managing Director Bachelor of Arts and a dynamic leader, she has vast business experience. Her leadership has been successful in guiding Heritage Foods to new heights. She is associated with the company since 1994. She directs and supervises the overall operations of the Company. Mr. Rajesh Thakur Ahuja Non-Executive Independent Director Graduated from Pune University Engineering College with a degree in Production Engineering. He has completed the Owner President Management Program at Harvard University in the US. In 1993, he founded Silver Line Wire Products as a manufacturer of plastic-coated wire products for household use. Mr. A V Girijakumar Chairperson, Non-Executive Independent Director Commerce Graduate, MBA, AIII and a Member of Financial Services Institutions Bureau under the Ministry of Finance, Govt. of India. Former Chairman and Managing Director of Oriental Insurance Co. Ltd and held various positions in insurance sectors in India and outside India, also served as Independent Director in conglomerates, having more than forty years of experience. Dr. V. Nagaraja Naidu Non-Executive Director Postgraduate degree in commerce as well as a doctorate in financial management. He began his career in 1972 at the Administrative Staff College of India, Hyderabad, and has held various positions in prestigious universities, such as Professor, Dean Director and Professor of Finance and Business Economics at the Postgraduate and Doctorate levels. For about ten years, he was the Registrar (Administrative Head) of the Dr. B R Ambedkar Open University. Dr. Naidu served as the Company’s Wholetime Director/Managing Director from 1995 to 2007 and is well-versed in the dairy industry. STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 20 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
Mrs. Aparna Surabhi Non-Executive Independent Woman Director Is a Fellow Member of Institute of Chartered Accountants of India, Bachelor of Commerce from Bombay University, and Bachelor of Law from Bombay University and has been practicing as a Chartered Accountant since 1991. She has more than 25 years of experience in handling audits of all kinds and has been a consultant for many start-up businesses. She is working as CFO & CHRO in Caliber Technologies Private Limited. Mr. M P Vijay Kumar Non-Executive Independent Director A Fellow Member of the Institute of Chartered Accountants of India (ICAI), the Institute of Cost and Management Accountants of India (ICMA), and the Institute of Company Secretaries of India (ICSI), with more than thirty years of experience. He also serves as a Member on the IFRS Interpretation Committee of International Accounting Standards Board and IFRS Advisory Council of the IFRS Foundation, London. He served as Council Member of ICAI (20162022), was Chairman of Accounting Standards Board and Ex. Officio Member of NFRA (2019-2022). He was a member of MCA, SEBI and the CFO Forum in the CII. He was awarded the Business World CFO of the Year for 2021 and among the 100 most influential CFOs in India by CIMA. He is working as a Executive Director and Group CFO in Sify Technologies Limited. Mrs. Brahmani Nara Executive Director Graduated with a Bachelor of Science in Electrical Engineering from Santa Clara University in California and a Master of Business Administration from Stanford University. She holds a degree in communication engineering from Chaitanya Bharathi Institute of Technology, Hyderabad. She is associated with Heritage Foods since 2013. STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 21 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Managing Our Capitals We harness our six capitals to create sustainable value for our stakeholders. These capitals encircle all aspects of our business. Human Capital Natural Capital Manufacturing Capital Intellectual Capital Financial Capital Social & Relationship Capital STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 22 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
Human Capital Manufacturing Capital Our employees comprise our human capital. Most of them are professionally qualified and contribute a wealth of expertise and integrity. We invest significant financial capital in building our human and intellectual capital to attract and retain these high-calibre employees that are the backbone of our Company. They are passionate and committed to quality and operational excellence. This capital consists of our production assets, distribution infrastructure and facilities that enable us to conduct our business. We invest in these assets to expand our portfolio to deliver on our brand-specific value propositions. We also deploy these resources to create systems and processes conducive to constant improvement. HOW WE CREATE AND PRESERVE VALUE USING HUMAN CAPITAL HOW WE CREATE AND PRESERVE VALUE USING MANUFACTURING CAPITAL • Ensured ongoing employee benefit programs, including health insurance, etc. • Focused on inclusion, diversity and fair treatment of all employees • Ensured benchmarked compensation and rewards and recognition 3,225 Total employees 3,263 Total contractual workforce • We implemented several initiatives in augmenting production processes and supply chain that resulted in efficiency improvement • We utilised ways to optimise resource consumption, enabling lower wastages, etc. • We ensured strong cost discipline across our operations 10,000+ Village-Level Milk Procurement centres 2.78 MLPD Total milk processing capacity STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 23 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Intellectual Capital Natural Capital Offering our customers superior quality product is at the heart of our intellectual capital. Internally, our intellectual capital is reinforced by our systems and processes that facilitate the day-today business. Focus areas include deployment of appropriate and effective process methodologies, data-driven insights, sector leading policies and processes, excellent governance standards, etc. We rely on natural resources, such as land, energy and water for our operations and we are mindful that we need to preserve them by mitigating potentially negative environmental impacts through responsible use. HOW WE CREATE AND PRESERVE VALUE USING INTELLECTUAL CAPITAL HOW WE CREATE AND PRESERVE VALUE USING NATURAL CAPITAL • Research and implement best practices in dairy • Focused on adhering to all internal policies and processes • Robust governance practices endorsed through awards by both national and international bodies 127 Trademarks registered in India One trademark registered in overseas • Un-compromised adherence to policies and processes, including EHS policy, etc. • Targets have been consistently achieved for reduction in water consumption, electricity use, etc. • Environmental awareness has been integrated into our training programs 5.40 MW Solar power generation capacity 6.30 MW Wind power generation capacity Managing Our Capitals STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 24 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
Social & Relationship Capital Financial Capital This capital incorporates our relationships with the communities in which we operate and that we serve as well as other key stakeholders who benefit from or impact on our work. Transparency, responsiveness and open dialogue characterises our stakeholder relationship management approach. Our financial capital includes cash, investments, debt and equity resources. We use a combination of these resources in our business operations to ensure financial sustainability. Financial capital is used as part of our daily business operations to ensure we achieve our strategic financial expectations. HOW WE CREATE AND PRESERVE VALUE USING S&R CAPITAL HOW WE CREATE AND PRESERVE VALUE USING FINANCIAL CAPITAL • Organised several initiatives and programs with regards to community development and uplift • Focused on enhancing impact through initiatives fundamental to society, such as healthcare, welfare, etc. 3,00,000+ Total farmers benefitted 1,73,432+ Total VET+ app registrations • Sustained health liquidity levels • Maintained balance sheet strength • Continued with sustainable cost and capital expenditure management Rs. 959 crores Gross fixed assets Rs. 686 crores Net fixed assets STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 25 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
People Excellence Our people play a vital role in value creation. We cultivate an empowering environment that fosters continuous learning, professional development, and a culture of innovation and inclusion. Human capital is a critical asset for us, playing a pivotal role in our success. In the dynamic dairy sector, the knowledge, skills and expertise of our employees are paramount, as dairy is inherently a people-centric business. Nurturing a skilled, adaptive, committed and qualified workforce is a long-term strategic priority. Continuous training programs and talent development initiatives ensure that our employees stay abreast of industry trends and best practices and possess the right skills and talents required for the evolving dairy and consumer landscape. Implementing employee retention strategies is equally vital to maintain our institutional knowledge and intellectual expertise. TOTAL TRAINING HOURS SKILL DEVELOPMENT PROGRAMS CONDUCTED 214 77,837 STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 26 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
Our goal is to attract and retain the best people, ensure continuous engagement with our talented employees, promote their wellbeing, invest in their development, and recognise their performance and accomplishments. Our aim is to enable our teams to be focused and productive so we can meet the needs of our consumers and the society Create leaders for tomorrow Sustain a strong pipeline of talent Ensure agility in market response Build an adaptable and resilient culture Ensure commitment and long tenure Achieve our targets and objectives Redef ine our ways of working Enhance our capabilities Improve our people experience Raise the performance bar STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 27 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Building Brands Our brands are loved across households and are at the heart of our business. We have devised new and innovative branding and communication strategies, keeping in mind local tastes and festivals that have enhanced brand visibility and market share. Curd campaign Paneer campaign STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 28 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
Tapping into the sporting fever through World Cup digital campaign Associate sponsorship of Big Boss Telugu Season 7 TV Day STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 29 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
SOLAR POWER GENERATION CAPACITY WIND POWER GENERATION CAPACITY 5.40 MW 6.30 MW Environment Climate action We are committed to climate action, focusing on the key aspects of enhancing resource efficiency, optimising waste management and minimising our carbon footprint. Through concerted efforts, we strive to step up our environmental performance and contribute to the larger goal of combating climate change. Waste management We have developed a waste management plan aimed at minimizing waste generation. This emphasizes reducing waste at its origin, prioritizing recycling wherever possible, and strictly adhering to proper disposal system. Energy management Our operations are energy-intensive. We have thus taken action to minimise energy consumption, enhance efficiency and integrate renewable energy sources into our daily operations. We aim for energy self-sufficiency as part of our green initiatives. We have already set up 11.70 MW total renewable energy capacity, meeting 44% of our electricity requirement. Our Approach to ESG Dedicated to environmental stewardship STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 30 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
Social Committed to grassroots progress Farmer empowerment We work for the welfare of our dairy farmers through our Heritage Farmers Welfare Activities (HFWA). Under this program, we organise camps and programs to enable them to enhance cattle milk productivity, income generation, etc. Our Heritage VET+ app also contributes to farmer empowerment. It represents a single-stop solution for milch animal management and provides remote primary veterinary care, nutrition and best practices in dairy management. The app has led to the treatment of thousands of cattle too. CATTLE TREATED 1,50,414 CATTLE HEALTH CAMPS CONDUCTED 2,978 STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 31 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Governance Compliance with conformance Board composition Our Board comprises accomplished individuals possessing extensive experience in diverse industries. Their collective expertise ensures the effective oversight and guidance necessary to steer our organisation towards continued success. Promoting transparency We have implemented several measures to promote transparency and disclosure of information to stakeholders. These measures help us foster transparency, enabling stakeholders to make informed decisions and build trust. Our Approach to ESG STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 32 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
A large and growing family of dairy farmers As we sustain our growth momentum, what gives us strength is our large and growing family of 300,000+ farmer-producers. Many of our dairy farmers have been pouring milk to Heritage Foods for decades and over multiple generations. Our commitment to ‘empower farmers’ that is enshrined in our vision, has guided us to remain 100% accurate in our measurement, fully fair and transparent in our pricing, and truly punctual with our ‘payment on pay-day’ promise. We have never delayed any payment in the last 32+ years. This absolute consistency in our dealings gives us comfort on the raw milk supply side, in line with our growth requirements. A committed high-performance team At the core of our growth engine is an experienced, high-performance team. Our business is highly purpose driven, which inspires and engages our committed workforce. Led by seasoned leaders who have a track-record of many accomplishments, our wider team of associates possess deep expertise in their respective areas. We are focused on building a work environment where everyone belongs and feels valued. We cultivate a winning culture with clearly defined growth behaviours and we celebrate heroes who help us stay ahead of the peer group. We are a fast-evolving organization, always acquiring new-age capabilities and having human capital strategies like any cutting-edge FMCG organisation. A sustainable business model We are focused on building a working environment where everyone belongs and feels connected. In line with this strategy, we recognise that each employee has an important role to play in creating and sustaining an inclusive and thriving working environment. Our peoples' well-being and safety are of utmost importance, and we take great care to safeguard their health. Stringently implementing essential safety protocols throughout our facilities, we have left no room for any health risks to affect our workforce. Simultaneously, our commitment to their growth remains unwavering, as we provide essential skill development training to elevate their expertise. Strong category tailwind India ranks as the top producer of dairy products globally, contributing to over 25% of worldwide dairy production. With a large vegetarian population, dairy products are an indispensable source of nutrition and the primary source of essential proteins and calcium. Per capita spends towards high nutrition food, especially dairy, is growing ahead of GDP growth. A growing young population, changing lifestyle patterns, increasing disposable incomes, and rising health awareness are the primary factors driving dairy consumption in India and, within that, providing strong tailwind for private dairy product companies offering a diverse range of products and adapting quickly to changing consumer preferences. A resilient brand synonymous with high quality Heritage is a household brand name and enjoys high preference and loyalty among its consumers across markets. In a category that is characterised by regional competition, we have invested in strong R&D capability that enables us to offer a wide array of delicious and highly nutritious value-added dairy portfolio. Our supply chain network penetrates deep, procuring milk directly from farmers and manufacturing units closest to consumers, which assures freshness and the highest level of quality that differentiates us as a national brand. The brand enjoys the highest consumer loyalty in South India, as per internal brand health reports, and is expanding its consumer base much faster than the industry. Wide network of customer partners We are diligently building an omnichannel network that gets us closest to our consumers. Today, our footprint spans 12 states for sales and we are adding more states and cities to our network. Through our e-commerce partners, we reach 70% of the pin codes nationally with our ambient value-added products. We are equally committed and invested across the traditional distributor network, emerging channels like e-commerce/q-commerce as well as our own exclusive channels, such as Heritage Happiness Points and Parlours. We are also investing to grow our D2C consumer base through our W-Comm solution linked to our Happiness Points, which allows our exclusive channels to have a digital reach. 01 04 02 05 03 06 Our Investment Case STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 33 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Heritage Nutrivet - An emerging leader in animal health Heritage Nutrivet Limited (HNL) is a wholly-owned subsidiary of HFL. The company supplies dairy farmers with high-quality livestock feed and feed supplements. PRODUCT PORTFOLIO We have established state-of-the-art feed manufacturing facilities in Hindupur and Mallavali, Andhra Pradesh. Our goal is to offer cost-effective dairy farming solutions to farming communities. 34 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS
Heritage Novandie is a 50:50 JV between Heritage Foods and Novandie Foods. The company aims to bring a range of delicious yogurt offerings to consumers through its brand Mamie Yova. Heritage Novandie - A range of delicious yogurt offerings 35 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24 STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS
10-Year Financial Highlights PARTICULARS 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 Earnings per share* (`) 6.16 12.11 31.98 6.60 9.12 (17.49) 15.87 11.10 7.19 9.81 Cash earnings per share* (`) 13.60 19.65 11.91 9.71 13.87 11.47 21.17 16.53 13.07 16.11 Book value per share (`) 20.80 25.86 63.92 83.84 86.75 49.82 63.99 71.17 79.39 86.59 Debt: equity ratio## 0.82:1 0.53:1 0.26:1 0.35:1 0.35:1 0.63:1 0.10:1 0.02:1 0.22:1 0.16:1 EBITDA/Turnover (%) 3.96% 5.43% 18.92% 5.77% 7.33% (3.14)% 10.37% 6.74% 4.21% 4.88% Net profit margin (%) 1.36% 2.33% 15.64% 2.58% 3.36% (5.97)% 6.03% 3.84% 2.05% 2.44% RONW (%) 15.17% 25.59% 70.24% 8.81% 10.54% (25.25)% 27.49% 16.18% 9.43% 11.82% Key Indicators PARTICULARS 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 Turnover 20,730 23,806 18,714 23,440 24,823 26,811 24,070 26,429 32,087 37,343 Other Income 70 66 37 72 111 83 84 103 113 119 Fair value gain on equity securities - - 2,468 3,954 1,311 2,945 - - - - Total income 20,800 23,872 21,219 27,466 26,245 29,839 24,154 26,532 32,200 37,463 EBITDA 821 1,293 3,541 1,353 1,820 (841) 2,497 1,781 1,350 1,821 Depreciation & amortization 340 345 249 370 437 480 441 500 539 584 Finance cost 159 155 96 175 207 208 178 32 32 82 Loss due to changes in fair value of derivative liabilities - - 385 3,870 1,311 5,116 48 - - - Profit before tax 391 860 3,233 881 1,287 (1,447) 1,962 1,352 893 1,274 Provision for taxation 109 306 307 277 452 153 510 337 234 364 Profit after tax (PAT) 282 554 2,926 604 834 (1,600) 1,452 1,015 659 910 Cash profit/(loss) 622 899 1,092 890 1,271 1,051 1,940 1,515 1,197 1,495 Proposed dividend (%) 30 30 40 40 40 50 100 100 50 50 Proposed dividend amount (Incl. tax on dividend) 84 84 112 112 112 112 116 232 232 232 Equity share capital 232 232 232 232 232 232 232 232 464 464 Reserves and surplus 1,698 2,168 5,700 7,548 7,818 4,391 5,706 6,373 6,903 7,571 Net worth 1,930 2,400 5,932 7,780 8,050 4,623 5,938 6,605 7,367 8,035 Gross fixed assets 4,623 5,184 3,050 4,632 5,551 6,318 7,140 7,376 8,292 9,591 Net fixed assets 2,807 3,120 2,874 4,247 4,757 5,156 5,563 5,462 6,011 6,859 (Standalone) (In H Million) Note: *EPS and book value per share have been adjusted for all the years on account of rights issue during the year 2022-23 ##Debt includes non-current and current portion of long-term borrowings, loans repayable on demand, deferred payment liabilities and lease liabilities 36 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS
Corporate Information *Key Managerial Personnel **Dissolved on 18/10/2023 Board Committees Audit Committee Mrs. Aparna Surabhi Chairperson Mr. N Sri Vishnu Raju (upto 21/10/2023) Mr. Rajesh Thakur Ahuja Mr. M P Vijay Kumar Mr. A V Girija Kumar (w.e.f 21/10/2023) Dr. V Nagaraja Naidu Nomination & Remuneration Committee Mrs. Aparna Surabhi Chairperson (w.e.f 21/10/2023) Mr. N Sri Vishnu Raju Chairperson (upto 21/10/2023) Mr. Rajesh Thakur Ahuja Mr. M P Vijay Kuma Mr. A V Girija Kumar Stakeholders' Relationship Committee Dr. V Nagaraja Naidu Chairperson Mr. N Sri Vishnu Raju (upto 21/10/2023) Mr. Rajesh Thakur Ahuja Mr. A V Girija Kumar (w.e.f 21/10/2023) Mrs. N Bhuvaneswari Risk Management Committee Mr. Rajesh Thakur Ahuja Chairperson Mrs. Aparna Surabhi Mr. N Sri Vishnu Raju (upto 21/10/2023) Mr. A V Girija Kumar (w.e.f 21/10/2023) Mrs. N Bhuvaneswari CSR Committee Mr. Rajesh Thakur Ahuja Chairperson Mr. N Sri Vishnu Raju (upto 21/10/2023) Mr. A V Girija Kumar (w.e.f 21/10/2023) Mrs. N Bhuvaneswari Management Committee Mrs. N Bhuvaneswari Chairperson Mrs. Aparna Surabhi Mr. M P Vijay Kumar Mr. N Sri Vishnu Raju (upto 21/10/2023) Mr. A V Girija Kumar (w.e.f 21/10/2023) Rights Issue Committee** Mrs. N Bhuvaneswari Chairperson Mr. N Sri Vishnu Raju Mrs. Aparna Surabhi Mrs. N Brahmani Board of Directors Mr. A V Girija Kumar (DIN : 02921377) Chairperson, Non-Executive Independent Director (w.e.f. June 01, 2023) Mr. Rajesh Thakur Ahuja (DIN: 00371406) Non-Executive Independent Director Mrs. Aparna Surabhi (DIN: 01641633) Non-Executive Independent Woman Director Mr. M P Vijay Kumar (DIN: 05170323) Non-Executive Independent Director Mr. N Sri Vishnu Raju (DIN: 00025063) Non-Executive Independent Director (Upto October 21, 2023) Dr. V Nagaraja Naidu (DIN: 00003730) Non-Executive Director Mrs. N Bhuvaneswari (DIN: 00003741) Vice-Chairperson and Managing Director* Mrs. N Brahmani (DIN: 02338940) Executive Director* Senior Management Dr. M Sambasiva Rao President* CA A Prabhakara Naidu (M.No:FCA 200974) Chief Financial Officer* CS Umakanta Barik (M.No:FCS-6317) Company Secretary & Compliance Officer* Mr. Srideep M Kesavan Chief Executive Officer* Mr. J Sambamurthy Chief Operating Officer STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 37 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24
Registered Office H. No. 8-2-293/82/A/1286, Plot No. 1286, Road No-1 & 65, Jubilee Hills, Hyderabad - 500033, Telangana, India Tel: +91-40-23391221/2 CIN: L15209TG1992PLC014332 E-mail: hfl@heritagefoods.in www.heritagefoods.in Registrar and Transfer Agents Kfin Technologies Limited CIN: U72400TG2017PLC117649 Karvy Selenium Building, Tower B, Plot No. 31 & 32, Financial District, Gachibowli, Hyderabad - 500 032, Telangana Listing BSE Limited, Mumbai National Stock Exchange of India Limited, Mumbai Bankers Consortium Bank of Baroda Union Bank of India ICICI Bank Limited Kotak Mahindra Bank Limited HDFC Bank Limited Statutory Auditor Walker Chandiok & Co LLP Chartered Accountants (FRN: 001076N/N500013), Unit No – 1, 10th Floor, My Home Twitza, APIIC, Hyderabad Knowledge City, Raidurg (Panmaktha) Village, Serilingampally Mandal, RR District, Hyderabad – 500 081, Telangana Secretarial Auditor Savita Jyoti Associates (FY23-24) Practicing Company Secretary #E-86, Sainikpuri, Secunderabad- 500094 Telangana, India Ravi & Subramanyam Company Secretaries (FY24-25) Practicing Company Secretary #5-9-22/63/4/ A, Hill Fort Road, Adarsh Nagar, Near Birla Mandir, Hyderabad-500063, Telangana Internal Auditors J V S L & Associates Chartered Accountants – Hyderabad Raju & Prasad Chartered Accountants – Hyderabad B V Rao & Co. LLP Chartered Accountants – Vizag Rao & Shyam Chartered Accountants – Vizag P Praveen & Associates Chartered Accountants – Nellore R. Sridharan Chartered Accountants – Salem K. M. Mohandass & Co Chartered Accountants – Chennai G M J & Co Chartered Accountants – Mumbai Gupta Dua & Co Chartered Accountants – New Delhi E Phalguna Kumar & Co (upto 31/03/2024) Chartered Accountants – Tirupati Ch Veerababu & Co (upto 31/03/2024) Chartered Accountants – Guntur D H Rama Associates (upto 31/03/2024) Chartered Accountants – Ananthapur Khire Khandekar & Kirloskar (upto 31/03/2024) Chartered Accountants – Sangli M N S & Co (upto 31/03/2024) Chartered Accountants – Bengaluru Ajit M. Josh & Associates (w.e.f 01/04/2024) Chartered Accountants - Kolhapur Punniah & Co (w.e.f 01/04/2024) Chartered Accountants – Guntur S C J Y & Associates (w.e.f 01/04/2024) Chartered Accountants – Hyderabad Murali & Venkat (w.e.f 01/04/2024) Chartered Accountants – Bengaluru Corporate Information STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS 38 32ND ANNUAL REPORT 2023-24 | HERITAGE FOODS LTD
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