Nourishing by Nature HERITAGE FOODS LIMITED 28th Annual Report 2019-20 www.kalajyothi.com

Heritage Foods Limited CIN: L15209TG1992PLC014332 #6-3-541/C, Panjagutta, - 500 082, Tel: 040-23391221/2 | Fax: 040-23318090 E-mail: [email protected] | Website: www.heritagefoods.in

Title_Heritage AR 2019-20_Kala3T.indd 1 30-07-2020 14:37:14 Contents Key Numbers defining

Company Overview FY2020 Understanding Heritage Foods Limited 02 Our Journey from B2B to B2C 04 Our Expanding Presence 05 Message from the Chairperson 06 13.77 Lakh 11.47 Lakh liters per day liters per day Message from Vice-Chairperson & Managing Director 08 procured Milk sold In Conversation with the Executive Director 10 Board of Directors 12 Financial Review 14 Our 10-Year Financial Highlights 15 We nourish… 26.70 Lakh 3 Lakh By Supplying Quality and Nurturing Products 16 liters per day We nourish… Farmers touched By Creating Goodness for all Generations 18 Processing capacity We nourish… By Improving Socio-Economic Livelihood 20 Farmer Spotlight 22 We nourish… Through Convenient and Innovative Channels 24 15 Lakh 1.5 Lakh We nourish… By Creating an Effective Supply Chain 26 Households served General trade Our Strategic Roadmap 28 retailers It’s Far More Than a Game 30 Helping Farmers Improve Cattle Productivity 32 Being People Positive 34 Corporate Information 36 12,610 942 Procurement Exclusive franchise Statutory Reports representatives parlours Notice to Shareholders 37 Director’s Report 48 Management Discussion and Analysis 102 Corporate Governance 115

Financial Statements Standalone Financials 142 Consolidated Financials 196 To get this report online and for any other information, log on to www.heritagefoods.in

Title_Heritage AR 2019-20_Kala3T.indd 2 30-07-2020 14:37:14 Nourishing by Nature

Our purpose is to ‘Nourish by Nature’. Further substance is added We win with nutrition, through a healthy supply to our purpose ‘nourish by of fresh and pure milk that is rich in both taste nature’ by placing greater and the essential elements of nourishment. emphasis on sustainable We value the real nourishment of milk for farming practices, thereby our consumers. By retaining its freshness, reducing carbon footprint purity, nutrition and by procuring it directly and safeguarding the from milk farmers, we create goodness for all planet’s well-being. We generations. contribute to the larger Nourishment is also passed on through tastier Sustainable Development and healthier food choices, high-quality and Goals and create long- sustainably produced foods, in line with term value for all our evolving tastes. stakeholders. The milk supplied by us is healthy, with a high nutritive value. We also organise cattle healthcare and ensure the well-being of farmed animals. When the cattle are in perfect health, the consumers benefit even more.

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Haritage_AR_Inner Colour Pages_kala2T.indd 1 30-07-2020 16:51:35 Understanding Heritage Foods Limited

We are one of the… Our objective is to… Our capabilities include… Leading and fastest-growing private Distinguish Heritage Foods as a leading State-of-the-art milk processing sector Indian companies, serving dairy company that caters to changing facilities; R&D infrastructure with 15 lakh households. consumer tastes and trends. technologically-advanced equipment and testing laboratories; stringent With a key focus on product We are guided by a… quality control; and dedicated and innovation… 28-year legacy and domain expertise in experienced team. We have developed a strong portfolio of the dairy business through: milk and value-added products including We procured 13.77 lakh liters of • procurement of milk from 3 lakh curd, ice cream, frozen dessert, paneer, milk per day from milk farmers. dairy farmers butter milk, flavoured milk, lassi, A2 milk Our 16 modern milk processing units and milk powders under the Heritage • distribution of processed milk and have a processing capacity of 26.70 lakh brand. milk products to households in liters per day, and packaging capacity of 11 states 17 lakh liters per day. Our vision is… • our strong portfolio of products Delighting every home with fresh and and brands healthy products and empowering the farmers.

We have established… A reputation for fusing the vision of dairy cooperatives with corporate Product contribution to portfolio efficiency. Fat - 5.48% Others - 2.09% Value-added products - 26.96%

Milk - 65.47%

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From Grass to Glass – The Milk Value Chain

Milk Procurement Heritage Control Centre Materials Management Digitally-automated procurement This digitally-enabled operation There is a digitally-enabled approval systems are in place to inform creates SMS alerts on milk stock, process from Purchase Requisition the Procurement & Inputs team tanker monitoring, procurement to Purchase Order release. Processes about quality and quantity, tanker representative feedback, weekly status are also in place for physical invoice acknowledgments, and vendor reports and other related activities. submission tracking and communication payments. Automated mail alerts of capex material status. are created on procurement-related operational matters.

Operations Sales & Distribution Consumers The entire logistics chain is IT-enabled sales automation sends Pure and high-quality milk and milk technologically-enabled to facilitate periodic analysis of sales and inventory products are supplied to more than online monitoring. Digitally- to channel partners through SMS alerts. 15 lakh consumers through innovative enabled operations handle dispatch channels such as general trade retailers, (through GPS), product shelf life and franchise partners, exclusive parlours, merchandising. distribution centres and e-commerce platforms.

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Haritage_AR_Inner Colour Pages_kala2T.indd 3 30-07-2020 16:51:36 Our Journey From B2B to B2C

We started our journey of building a strong company in 1992. Today, after almost three decades, we are one of the leading private sector dairy companies in , delivering high-quality products to the consumers using new-age marketing initiatives and platforms, and making them available through innovative and convenient channels.

2019-20 Won India Food Safety Summit Award Won India Dairy Award 2018 Launched Alpenvie Ice-cream range Won India Food Safety Summit Award by Confederation 2017 of Indian Industry Revamped the Heritage brand in our Silver Jubilee Year Launched Polypropylene (PP) flavoured milk Established Heritage Nutrivet Limited, a subsidiary for cattle-feed 2016 Received Golden Peacock Award for Excellence in Commissioned the first wind power plant Corporate Governance Received the Golden Peacock Award in Corporate Governance Received Board approval regarding demerger of retail undertaking 2014 Entered into India’s prestigious list of ET Top 500 Companies 2013 Set up first solar energy plant Awarded 1:1 bonus equity shares to shareholders 2007-08 VP & MD, Mrs. N. Bhuvaneswari named among the 50 Most Powerful Business Women in India by Fortune India Launched value-added products like curd, lassi, , paneer, flavoured milk and frozen dessert First exclusive franchisee parlour launched Started Agri division 2006 Started Retail division – Heritage Fresh Stores

2002 Buyback of shares

1994 Initial Public Offering which was over-subscribed 54 times

1993 Commenced commercial production on April 26, 1993

1992 Incorporation of the Company on June 5, 1992

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Our Expanding Presence

We deepened our penetration across our existing markets. We are also developing a robust sales and distribution network by opening up new avenues and exploring new geographies.

Andhra Pradesh Telangana Odisha NCR Haryana Uttarakhand Sales Rajasthan Procurement Uttar Pradesh

Map not to scale. For illustrative purposes only.

Winning Awards Awarded the ‘Best Customer Service Provider of the Year’ for the transformation brought about in the way India Food Safety Summit Awards 2019 consumers are served by the Company.

Won the 2nd Award for ‘Technology Innovator of the Year’ for technology advancements in seamless integration of milk procurement from farmers and delivering fresh and nutritious milk to consumers.

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Haritage_AR_Inner Colour Pages_kala2T.indd 5 30-07-2020 16:51:36 Message from the Chairperson

Dear Shareholders, We are pleased to present to you our 28th Annual Report at the conclusion of another busy year. I am happy to state that throughout our history, despite changing market dynamics, we have remained true to our philosophy and vision of delighting every home with fresh and healthy products and empowering the farming community through our ‘relationship farming’ model.

With this, we have evolved into one of the leading players in the Indian dairy industry. Today, we are a premier provider of pure and fresh milk and value-added products.

Now let me give you a brief on the global and domestic dairy industry and impending growth drivers, before reflecting upon what the future holds in store for us.

Global dairy segment The changing lifestyle of consumers is driving the demand for new, innovative, healthy, and on-the-go dairy options. Convenience, time, and goodness are some key factors that brands are focusing on in the dairy industry – from traditional dairy products to value- added products and drinkable options. More and more health-conscious consumers are gravitating towards dairy alternatives at a rapid rate because We have remained true to our philosophy and these are healthier and bring variety to vision of delighting every home with fresh and their diet. healthy products and empowering the farming community through our ‘relationship farming’ model.

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Indian dairy industry – a growing individuals and businesses worldwide, Dairy exports are also seen as a huge market completely changing the way we live untapped opportunity for India, which India has transformed itself from a and work. currently has only 0.01% share of the country of acute milk shortage to the global dairy export market. world’s leading milk producer. In 2019, Being a processor and manufacturer of India produced 188 million tons of milk, essential commodities – milk and milk Initiatives are being taken to improve which was 22% of the year’s global products, we did not let the nationwide the productivity of dairy co-operatives milk production of 843 million tons. It lockdown, imposed to control the along with investments by private is the past few decades that have seen spread of the virus, get in the way of domestic players to boost the the tide turning for India. In 1970, India delivering nutrition for our consumers. performance of the dairy sector. produced 20 million tons of milk, which Our manufacturing units operated amounted to only 5% of the global normally to meet the public demand. Conclusion milk production. Since then, India has We ensured that our supplies continued Given the attractive sector dynamics increased its production, becoming one unhindered, by delivering products to and being a key contributor to India’s of the world’s largest milk producers. the consumers’ doorstep. We are proud dairy industry, we at Heritage Foods With a projected milk production of of our on-ground staff who constantly believe that we are at an exciting phase 254.5 million tons by 2021-22, India is put themselves in the line of risk to of our growth journey. To realise our expected to become the world’s largest ensure that our consumers are not full potential, we continue to evolve our milk producer. India’s milk production inconvenienced. business model and all our functions has grown by 6.4% annually in the 4 across the value chain. Moving ahead, years preceding 2018, well above the We respected all the directives from with a sizeable amount of investment in 1.7% growth rate of the global dairy the local administration, government, production and distribution capacities, industry. industry bodies and regulators. As a we are confident about increasing our (https://www.thebullvine.com/news/5-facts- responsible corporate citizen, we joined market share. about--dairy-industry/ ) hands with the Government in these tough times. We contributed an amount On behalf of the Board, I would like Growing demand for value-added of ` 1 crore to the Government to help to sincerely thank our shareholders, products it battle the COVID crisis across the customers, consumers, employees, While the demand for liquid milk drives country. investors, and our business partners the Indian dairy industry, the value- for their persistent support and Future outlook added products hold more potential unshakeable confidence in us. We look Rising disposable incomes, growing and promise growth of 15% to 20%. forward to your continued trust as we consumer preference for branded and Growth is driven by value-added build a stronger company. products such as UHT milk, cheese, ice- value-added milk and milk products, creams, flavoured milk, curd and butter and increased awareness of nutrition Regards, milk, among others. This segment is is driving the demand for dairy seen expanding to 30% of the dairy products in India. India’s per capita milk D. Seetharamaiah industry by 2020. consumption is increasing at 3% CAGR, Chairperson compared to 1% CAGR globally, and will COVID-19 response further increase, led by growth in the Over the past few months, the growing value-added segment. outbreak of COVID-19 has impacted

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Haritage_AR_Inner Colour Pages_kala2T.indd 7 30-07-2020 16:51:36 Message from Vice-Chairperson & Managing Director

Dear Shareholders, Recalling our journey since our inception in 1992, every single year has been fulfilling. With a vision to empower dairy farmers, we have remained committed to strengthening the milk value chain.

Today, with India set to become the world’s largest milk producing country, we are proud to have emerged as one of the leading private sector Indian dairy companies, serving milk and milk products to 15 lakh households across 11 states. Our endeavour is to expand the business, grow our brand, deepen our reach and seize future market opportunities at the national level.

Key highlights The global dairy industry has been facing frequent fluctuations in dairy prices in the past decade. It is estimated that milk powder prices may remain flat at USD 2,165.2 per MT for Skim Milk Powder, and USD 2,910.3 per MT for Whole Milk Powder until 2028. The cost of dairy inputs in India is rising, leading to increased cost of production, thus constraining the margins.

Today, with India set to become the world’s largest milk producing country, we are proud to have emerged as one of the leading private sector Indian dairy companies, serving milk and milk products to 15 lakh households across 11 states.

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