You are using an older browser version. Please use a supported version for the best MSN experience.

Heritage Foods bets on value-added dairy business to boost growth

LiveMint logoLiveMint 11-07-2017 Sounak Mitra

When Nara Brahmani, daughter-in-law of Andhra Pradesh chief minister Chandrababu Naidu, joined family business Heritage Foods Ltd as executive director after completing her Masters in Business Administration from Stanford Graduate School of Business in 2013, the company’s sales growth was sliding.

Even after two decades, the dairy firm founded by Naidu was restricted to southern India, had a loss-making retail unit, and the market was not favourable.

Once she took charge, Brahmani, granddaughter of charismatic actor-politician N.T. Rama Rao and daughter of actor Nandamuri Balakrishna, decided to take the company national, spin off the loss-making retail unit, expand the dairy business through acquisitions, and change the way Heritage was marketed as it shifted focus back to its core business of dairy.

Heritage Foods is currently in talks with a European firm for launching flavoured yoghurt in India. “The focus is going to be value-added dairy products. At present, the value-added portfolio accounts for 24% of our dairy revenue which we aim to take to 40% in five years,” said Brahmani. The firm already sells value-added products such as flavoured milk, curd, butter milk, frozen dessert and ice cream.

On its 25th anniversary in April this year, the firm announced plans to treble revenue to Rs6,000 crore by 2022 from Rs2,642 crore in the year to March 2017. Of this, dairy accounted for Rs1,870 crore. “Our aim is to become a nationally recognized brand by 2022. We’ll focus on dairy, especially value-added products. We’ll focus on growing organically, and will be opportunistic on acquisitions,” said Brahmani.

To expand, the firm had in October 2016 announced the acquisition of the dairy unit of Reliance Retail, the retailing arm of Mukesh Ambani-led Reliance Industries Ltd. The acquisition, completed in April, gave Heritage entry into five states and two brands: Dairy Life and Dairy Pure, besides strengthening its presence in west India. It is now present in 15 states. Prior to this, it had bought Karnataka-based Teja Dairy in May 2016.

While the acquisition was in process, Heritage sold its loss-making retail arm along with agri-sourcing and bakery businesses to Kishore Biyani-led Future Retail Ltd, in which Heritage has a 3.65% stake. The deal took place in November. “Retail requires scale which we did not have and it was not our core,” said Brahmani.

Heritage Foods, which has so far spent about 0.5% of revenue on marketing, plans to double its marketing spend starting this year. It has already changed its logo and packaging and started campaigns aimed at positioning itself as a ‘fresh’ brand.

“In each market, consumers get milk within five hours of collection. The five-hour window keeps the milk fresh, and this is an advantage we have over competitors,” said Brahmani.

However, the market Heritage is planning to tap is crowded and has seen the entry of a bunch of multinational companies, primarily in the value added segment. These include American food and beverages company PepsiCo that extended its Quaker Oats brand into the dairy segment recently and its rival Coca-Cola which stepped into the market earlier.

Besides, two home-grown giants with wide retail networks—ITC Ltd and Tata Global Beverages Ltd—are readying to tap the value-added dairy market.

The estimated Rs80,000-Rs 90,000 crore dairy market in India is dominated by cooperatives such as Gujarat Cooperative Milk Marketing Federation Ltd that owns the Amul brand. Other significant competitors include Swiss packaged food firm Nestle India Ltd, French food products firm Danone SA, Britannia Industries Ltd, Mother Dairy Fruit and Vegetables Pvt. Ltd, and Parag Milk Foods Ltd.

Analysts, however, are bullish on Heritage. “The company is smartly straddling the high-returns pouch milk segment and high-growth and margin accretive medium shelf life curd and yogurt segment. Unlike high shelf life products like cheese, branded ghee and flavoured milk, curd and yogurt entail higher margins — 1.7-2x liquid milk — but do not involve high working capital and hence returns are much better,” brokerage firm Edelweiss Securities Ltd said in a report on 14 February 2017.

More From LiveMint

image beaconimage beaconimage beacon