In its note, domestic brokerage firm HDFC Securities maintained its positive view on Heritage Foods, highlighting how its well-diversified product portfolio, robust distribution network, strong long-term relationships with farmers, and commitment to high-quality premium products position it to capitalize on India’s growing dairy industry.
The company has a robust balance sheet with minimal debt, growing margins, and positive operating cash flows.
Although its EBITDA margins are somewhat lower than those of its closest competitors, HDFC Securities believes that stable milk procurement prices—due to a normal monsoon and the forecast of a healthy flush season—will help sustain margins in the liquid milk sector.
In addition, an increased share of higher-margin value-added items is expected to promote future margin expansion.
The business aims to increase its value-added product segment to a topline of ₹6,000 crore within three years while sustaining EBITDA margins in the high single digits. This would be achieved by boosting the VAP contribution to the overall mix.
Heritage Foods entered the ice cream market in 2009, and the segment contributed approximately 9% to its value-added dairy segment in Q1 FY25. It generated ₹31 crore in ice cream income, with an annual run rate of ₹110-120 crore.
The company’s existing factory has reached capacity, therefore it wants to expand into India’s ever-growing ice cream industry. The ice cream sector in India is considerably underpenetrated as compared to the total Impulse retail space.