Heritage Foods (India) Ltd. (HTFI), a milk retailer, targets to increase ice-cream sales fivefold in three years and expand other dairy products to lift operating profit margin that fell to the lowest in four quarters.
The retailer will boost ice-cream sales to 50,000 liters a day by adding capacity, President M. Sambasiva Rao said in an interview in Hyderabad yesterday. It will spend 350 million rupees ($5.8 million) on the business over the period, he said.
Heritage expects rising incomes and increasing consumer preference for healthy food to drive demand for dairy products. It will compete with companies including Unilever (ULVR), which introduced its Magnum brand ice cream in south India this year, and Dunkin’ Brands Group Inc. (DNKN)’s Baskin-Robbins in a market where frozen dessert sales are estimated by consulting firm Technopak Advisors Pvt. to double to 15.6 billion rupees in 2018.
“To achieve substantial growth in ice cream sales, Heritage would have to venture outside its traditional south India market,” said Arun Kejriwal, director at Kejriwal Research & Investment Services Pvt. “The southern Indian ice cream market is just not large enough to support ambitious expansion plans for a new entrant.”
Shares of Heritage rose 0.8 percent to 217 rupees as of 11:03 a.m. in Mumbai trading. The stock has dropped 13 percent this year, compared with a 0.4 percent fall in the benchmark S&P BSE Sensex.
Heritage has over the years been reducing its dependence on milk by adding value-added products and building a network of fresh food and grocery stores. Its operating profit margin was 5.35 percent in the three months ended June, the lowest in four quarters, according to data compiled by Bloomberg.
The company aims for value-added products such as ice creams to contribute 23 percent of its dairy sales in three years, up from 15 percent now, Rao said.
“Health consciousness is increasing and people are tilting toward milk-based products from carbonated drinks. So the market is growing for these products,” said Rao. “We are looking at products like ice cream, curd, butter milk, ghee and butter as these products give us better margins than milk.”
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