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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to Godrej Agrovet Limited 2Q FY '23 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions]Please note that this conference is being recorded. I now hand the conference over to Mr. Ranjit Cirumalla from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Vivian. Good afternoon, everyone, and thank you for joining us on the Godrej Agrovet Q2 Earnings Conference Call hosted by IIFL Securities. From the company, we have with us Mr. Nadir Godrej, Chairman of the company; Mr. Balram S Yadav, Managing Director; and Mr. S. Varadaraj, Chief Financial Officer.
We would like to begin the call with a brief opening remarks from the management, following which we will have the forum open for an interim question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Nadir Godrej to make the initial remarks. Thank you, and over to you, sir.
Good afternoon, everyone. I welcome you all to the Godrej Agrovet earnings call. I hope and wish you are doing well. Godrej Agrovet clocked a healthy top line growth of 13.5% in quarter 2 fiscal year '23 and 19.5% in half 1 fiscal year '23 year-on-year. However, it was a challenging quarter in terms of profitability, as it was impacted due to volatile commodity prices, higher input costs and limited transmission of those costs.
During the quarter, crude palm oil prices corrected sharply from all-time high levels in May 22 on account of oversupply from Indonesia and Malaysia post the lifting of export ban. The Southwest monsoon was erratic and unevenly spread. Prices of rice bran extraction jumps sharply in quarter 2 and maize prices continue to trend higher. Coming to the key financial and business highlights of each of our business segments. In Animal Feed, we achieved 6% year-on-year volume growth in quarter 2 and 8% in the first half of fiscal year '23. The volume growth in quarter 2 was mainly led by market share gains in the Animal Feed segment. On the margin front, the Animal Feed segment achieved a sharp recovery of EBIT per metric tonne on a sequential basis from INR 694 per metric ton in quarter 1 to INR 1,381 per metric tonne in quarter 2. For the vegetable oil segment, it was a mixed quarter with strong recovery in volumes of fresh fruit bunches, which was offset by lower prices. The average realizations of crude palm oil and palm kernel oil declined by 16% and 3%, respectively, in quarter 2 fiscal year '23 versus quarter 2 fiscal year '22. On the other hand, SSP volumes grew by 15% year-on-year in quarter 2 more than offsetting lower volumes recorded in the first quarter.
The stand-alone crop protection business recorded a top line growth of 11% year-on-year driven by higher sales of in-house herbicide products, reduced application opportunities for PGR insecticides, coupled with a strict focus on credit hiking, limited sales growth to some extent. The Crop Protection business achieved strong improvement in working capital in quarter 2 driven by concerted efforts in maintaining credit hygiene.
Astec LifeSciences continues to deliver a strong performance, as profit after tax doubled in quarter 2 and grew by 35% in H1 fiscal year '23 over the corresponding previous periods. The robust top line performance was driven by volume growth in export markets, coupled with higher realizations in both export and domestic markets. It should be noted that quarter 2 fiscal year '22 performance was impacted by flooding in our Mahad facility and hence, in the previous year and hence, there was a low base effect as rest.
For our poultry segment, quarter 2 is a seasonally weak quarter, despite that Godrej Tyson recorded 14% top line growth, led by robust volumes in Real Good Chicken and the Yummiez category. The EBITDA margin contracted as there was a sharp decline in Live bird productivity during the quarter. Quarter 2 fiscal year '23 performance of Godrej Tyson was not strictly comparable with quarter 2 fiscal year '22, as the business has benefited from pent-up demand post easing of COVID restrictions. Our dairy segment achieved sustained growth in both value-added products and mid volume in quarter 2 fiscal year '23. And as a result, revenue grew by 27% year-on-year.
Our value-added products portfolio accounted for 34% of the total sales in the first half of fiscal year '23 and has grown by 49% year-on-year. However, profitability remains a drag as continued increase in procurement prices could not be funded faster. GAVL's joint venture in Bangladesh, ACI Godrej recorded a revenue growth of 23% year-on-year in quarter 2. That includes our business and financial performance update for the quarter. With this, I close my opening remarks. We will now be happy to take your questions. Thank you.
Ladies and gentlemen, we will now begin the question-and-answer session.
[Operator Instructions] The first question is from the line of Ankur Periwal from Axis Capital.
Sir, first question on the RM inflation side. Now this quarter specific, we saw decent pressure on the RM side across many of the business segments, animal feed, crop protection. So your thoughts there in terms of pass-throughs. How are we looking to address this RM inflation and whether it is just 1 quarter phenomenon, maybe next quarter onwards, things should be back to normal.
Okay. Let me just first talk about animal feed RMs, Look, I think we have sufficient experience and knowledge on these movements of raw material prices. In case there is no external intervention, which can cause --, which is not natural. So we only faltered once in this year and that too in soya because of which our poultry feed as well as aqua feed contributions took a hit when the prices were -- of soybean were ruling very high, and there was no chance that India will import any more soybean.
And all the poultry people and the aqua people were well covered for off-season. Suddenly, the government of India under the pressure of inflation announced import. And that is the only time we got caught because of adverse raw material situation. However, you can see we have corrected that -- the profit margins for animal feed has come back to about INR 1,300 a tonne from INR 694 to INR 1,381 per metric tonne. And now that raw material prices are falling. So the margins are likely to improve further in Q3 and Q4. So that said, about animal feed. I just want to use a caveat that in Andhra Pradesh, there are price controls in shrimp feed and fish feed.
So entire inflation and raw material cost was not passed through in this stage, particularly, and that is why the margin suffered. But then with the lowering of raw material costs, I'm sure margins will improve in aqua feed also. Now one thing which we are unable to understand and get a grip of is this secular rise quarter-on-quarter on the milk cost. Now that is one thing which is worrying because there is no flush. So the prices continue to go unabated, but we are unable to pass through most of the increase in milk's cost to us because cooperatives are not taking price increases. For example, the cow milk prices have gone up by almost 18%, but we have taken a price increase only of 5% in the first half. So I think that is hitting us very badly. So that, I think, remains a concern. However, in all other parameters of CDPL business, we are doing okay.
Sure, sir. And just your comments on the crop protection side, especially on the stand-alone, is there a recovery? Because I note that you mentioned the receivables, et cetera, we have been pretty strict on that side, which is a good news. But from a growth perspective as well as RM inflation pass-through?
So crop protection, actually this business gone -- went through a lot of hick ups in -- if you remember, COVID 1 and COVID 2, both happened at the peak of our season, which is April to June, July; April to June, July. And '22 -- in year '21, it was followed by a drought at the right time. That is why there was a lot of unsold material. Now this also exposed us to our weakness in terms of our inventory management, agility, et cetera, which at one time used to be our trend.
And we were left with a lot of unsold stocks and all kinds of hygiene issues. As I conveyed to you last time that we took help of external consultant for a long project in trying to overhaul this business. Hygiene is of prime importance for us. So I think that project is still underway. And as and when we get an opportunity to clean up a few things, which are unsold or some toxic debtors, we are doing that on a regular basis. But unfortunately, I think we are a little bit hurt by luck also. We had a lot of hopes in September, October sales in CPB because of rains. I think it got washed out.
You would have heard similar things from other companies. But having said that, I think our moves are almost getting over. Inherently, this business is an extremely profitable business. And my sense is that I think the kind of cleanup and the kind of strategies and processes we have created right now and the action plan, which has been implemented, I'm very sure you will see a return to profitability to the earlier level very shortly. Having said that, I must tell you that more new molecules have come in the pipeline through the -- our own molecules as well as through in-licensing, and you must be knowing that the Gracia has been a great fit, and we are likely to double the volumes next year again. I'm saying that there are a lot of things in the right track, but I think this cleanup was necessary so we would be bullish and cleaned up the whole system this year.
Sure, sir. Just one clarification. If I heard you right, in crop protection, it's more a revenue growth issue because of the erratic monsoon and from an RM inflation, we are pretty much there.
Yes. So we are not selling unless and until the outstandings are reconciled and paid for, et cetera. So we are very cautious. I think we have strict rules for the sales team now to give credit. And I think we have suffered. So we are not very interested in top line, at least for this quarter. I'm very sure that the kind of traction we are seeing now and the collections we are seeing now, which is very evident in our working capital for this business. I think we will be back to normal in 1 or 2 quarters. If not in Q4 this year, 100% sure that Q1 next year we'll be again back to normal.
[Operator Instructions] The next question is from the line of Abhijit Akella from Kotak Securities.
Just a couple on 2 of the segments. First on oil palm, if it's possible to share a few metrics around the volumes, both the fresh fruit bunch as well as the oil volumes themselves as well as the average realizations on the key products and the oil extraction ratio, please.
Let me tell you that in oil palm, the volumes -- okay, let me give you an answer to what is happening in the industry. One of the things which we are noticing in last 2 years, particularly, this is the second year, is that the season is getting shifted by at least a month. And that is why you saw some shifting of volume from Q1 where we grew 5% to volumes in Q2, where we grew more than 15%. And the growth in Q3 will be even higher than 15%, maybe 20% to 25%. So I think this is one change we are seeing. We are studying that. And in case we feel that this is going to be a normal phenomena considering October rains, from next year onwards, our budgeting will reflect this change.
That's point number 1. Point number 2, I think the pricing is something which I don't want to comment on because it is international prices you can easily calculate. Now nothing is following what the experts are saying and what the trends are. When everybody said that CPO prices will not fall, they fell. And a month ago, everybody said that they will not rise. Now, they have started rising again to INR 91, INR 92. But such is the situation in global commodity markets.
On OER, I can definitely say that we are doing well. A lot of our initiatives have proved to be very, very beneficial to us. And quarter-on-quarter, our OER is rising. I can give you some examples also. So if you see in H1, it was 17.75%; H2, it was 18.62%. And I can definitely -- H1 '23 is 18.62%, as compared to H1 in '22, which is 17.75%. I can definitely say that it will be much more than 18.62% for us in H2 in the current year. I think a lot of our initiatives are proving to be very, very good in improvement of OER and definitely yield also. I just want to remind you that more OER is direct addition to our profitability because we pay on weight of fruit.
All right. That's helpful, sir. So just to clarify, now with oil prices having started to rise again, contrary to all expectations. Should we expect that 2Q was probably the low watermark in terms of profitability for the business?
Q3 -- you must always remember that normally, this is the starting of the off-season. So we have had a very good October. The September also promising, just has started tapering. So the tapering will take probably longer than normal. So you can expect it to be better than Q3 of FY '22. But definitely, Q4 will be off season. So that said, I think all in all, the performance of this business will be, I think, in terms of several indices, which is OER, FFB volumes and other efficiencies also will be better than FY '22.
Right. And in animal feed.
Oil prices are your guess, so you can plug that number.
Okay. And in animal feed, can we expect to get back to our targeted level of INR 1,800 to INR 2,000 EBIT per tonne in the second half?
So all signs are pointing that it will be much better than Q2. Will it reach the number you're talking about, depends on how raw material prices shape up, particularly in Q4, when most of the in-season stocks are there and then how much -- what position we take will come into play. But I am very confident that Q3 will be much better than Q2, and Q4 and Q3 will not be too different.
Got it, So one last thing from my end. Just on the.
The other thing I'm saying that I think in animal feed business, we just want to keep on creeping in volumes. We are very glad to say that in the first half, also, we have grown 7% to 8% on the back of almost 20% growth last year. So I think we are -- in case we get to 8%, 10% growth for next 1 or 2 years, we will get into a virtuous cycle where scale will start playing. And I'm very glad to say that there is a big jump in our capacity utilization last year and also this year.
Sure. And finally, on the Tyson business, this correction in live bird prices, how does it look year-on-year, sir? Or was it particularly more pronounced this festive season compared to the previous year?
So let me just tell you the live bird prices story. So I think we can show a simulation where live bird business except for -- except for the COVID years, never lost business because it is a commodity. So when the prices go down, the population goes down and comes up. And last 10-year data, cumulative data with actual numbers, shows that we can make 4%, 5% PBT to about 15%, 16% PBT, which is a standard commodity play. But I must point out where the efforts went and what is the advantage. I think what is noteworthy is that we have been putting a lot of effort in -- so I need to tell you that -- the focus for last several quarters is the branded business.
And I must tell you that we have had 26% top line in our branded business. RGC, 75% growth over last year and Yummiez 39% growth over last year. This is the future. And that is one of the reasons that in spite of a very poor first half as far as live bird prices, we are profitable. And that is where we are building our business. And I can definitely assure you that we have very good clients in our process business. We have also got very good traction in our frozen heat-and-eat business. I'm very sure we will continue to build this branded business.
You asked me about live bird prices. I think live bird prices will remain close to INR 100 to INR 110 in the next coming weeks. I cannot talk about January onwards because we have no clue on what are the placements, but I can definitely give you indication of Q3. Most important part in Q3 is not prices. We believe that cost of production of chicken will fall almost 7%, 8%. It has already fallen about 5% on the back of raw material prices. Soybean has come from INR 51,000 a tonne to INR 40,000 a tonne, corn from INR 25, INR 26 to INR 22, and all this will play out in the next 2, 3 months.
[Operator Instructions] The next question is from the line of Vidit Shah from IIFL Securities.
My first question was around those share profits from associates. That's like dropped sharply from 2Q, 1Q levels this year and even Y-o-Y. So what's happened there? Has the profitability at the CI JV declined sharply? Or is it coming from other associates?
Yes. So I need to give you some flavor of what is happening in our neighboring country, in Bangladesh, where we have a substantial business, we are almost -- I think we are #2 now in the animal feed business there, and we are growing volumes at 7%, 8% last year, again, was a big growth. The big program came last year was from the price controls in poultry feed because I think Bangladesh has brought a lot of price controls in poultry feed, and that has hurt us very badly there.
And unfortunately, poultry feed used to be the most profitable product, but in the first half has become a loss-making product. So that said, that has hurt us a lot in Bangladesh. However, with the drop in cost, profitability has come back in October and is likely to build up in future, but there is very little we can do when the sovereign governments start putting price controls on food and very critical commodities. Near our home, you know that Andhra Pradesh government has put price controls on aqua feed and fish feed, not from point of view of controlling inflation but purely politics.
Yes. Got it. And so just in terms of future growth plans, we understand that Astec has a lot of plans in terms of growth. But if you could just shed some light on plans across the other segments, especially the animal feed and the dairy segments and the poultry segment.
Yes, yes. So in animal feed and aqua feed, we have adequate capacity now. This year, we commissioned one fish feed plant because the situation in the Andhra Pradesh is not likely to improve in terms of profitability, if the government keeps on bringing price controls. So rest of India, both in fish feed and in shrimp feed is the focus. We have commissioned 1 plant about 3, 4 months ago in Barabanki. And I'm very glad to say that the capacity is to produce 55,000 tonnes of feed, and we might just exhaust that capacity next year, but it has a great opportunity to double the capacity and marginal investment. So in animal feed put together, I don't see more than INR 20 crores, INR 25 crores investment opportunity, at least in the next 6 to 8 quarters.
In Astec Lifesciences in that meeting, we have already told you that the plans are already made for big investments in this. For that, we are likely to acquire some industrial land in the state of Gujarat or Maharashtra. I think they're very near closing those deals. In oil palm plantation business, 2 investments are already underway, which will cost us about INR 70 crores, one is a 400 metric tonne refinery. I think once we refine, then we will benefit -- the profit margin can improve from -- by about 1.5% to 2% because of the erratic schedule of lifting by our customers, we get the FFA penalty because more we keep crude palm oil, the FFA rises and there is a penalty for that. And we want to use a lot of byproducts and extract oil from that also. So we are setting up a 200 metric tonne per day solvent extraction plant also.
So I think these 2 investments are already underway. There's nothing much which has been planned in other businesses except for the fact that 1 SIG line in our milk business will be operational. So we will be able to make multiple value-added products there in different sizes and then that line should be functional in January. An effect of that, you will see our [indiscernible] rising in value-added products in Q4.
Got it. Sir, what are the time lines for the 2 investments in solvent extraction, refinery and.
I think refinery, definitely we are going to commission in April and Solvent extraction plant in May, but Solvent extraction plant is needed in June. So we're trying that if we're able to make it operational in May, there will be immediate benefits to us. Good thing about the Solvent extraction plant investment is that we will also experiment in off season, doing -- extracting oil from rice bran. And we will also learn about the oil rice bran economics through the Solvent extraction plant because we are a big user of DORB, both in our cattle feed business and our fish feed business. And I think this plant is very important for us to learn in case we need to learn about backward integration into raw materials in the other 2 businesses.
The next question is from the line of Sumant Kumar from Motilal Oswal.
So my question is regarding the margin volatility for overall company. And we have seen some companies -- some segments like, say, animal feed, sometimes margin is on the peak. And again, we have seen some risks. So overall, all the segments, we see maybe -- the animal feed is complementary for your milk business and animal feed is complementary for your Tyson Food business. But is this complementary and having a backward integration, but sometimes have a severe impact also on the margin front. So we need to understand what are the strategic investments we have taken. And going forward, we are going to take to mitigate the risk of so many variables we have in our company across segments?
So I think one thing I fully agree with you because such a diverse business. And when you are present in all parts of the agri value chain, whether it is pesticide, whether it's technical, oil and all kinds of animal protein, both on the feeding side and the output side. Some or the other volatility will hit because we have never had a year in the last 30 years of my experience when one part of the segment has not been hit. So I think that, I think, is very well understood and that criticism is very well accepted by us.
And I can definitely say that, yes, we are looking at our portfolio very closely, but it is not easy to solve this problem in bad times, particularly -- and if you understand what I'm trying to say. Second thing is that we are a little, I would say, constrained by the structure. Also in some businesses, we own 51%. Some businesses, we own 52%. One of the companies, public also Astec Lifesciences. So I think it will take us some time to solve this puzzle. But I can definitely assure you one thing is that efforts are on in all businesses to pull out cost to make them sustainable and scalable. We sit in a very huge opportunity in each area.
And my sense is that internally, I'm very sure that we are working very, very closely to cover gaps which we have. But externally, I cannot say because this is a very, very volatile sector and something or the other will definitely hit us. But having said that, I think vertically integrated business are less acceptable to these kind of volatility. And I think portfolio strategy is definitely underway. How and when we do it and in what shape it will come is still under discussion.
So do we have any plan -- we are so diversified? And do you think any of your business would demerge and run separately to handle in a very good manner so your earning volatility will be lower or you will give more energy towards that segment to control all the risks?
But I'm saying that these are a matter of strategy also. And I think definitely, there is a need to -- need for a discussion and thinking on that, which is also underway. I'm not saying that it is not underway. But point is that these are very, very strategic discussions. I can definitely say that we are sensitive to that fact. We also understand what is happening in the macro environment, but for me to tell you anything concrete on a call is not likely the right thing to do.
[Operator Instructions] The next question is from the line of Anurag Patil from Roha Asset Managers.
Sir, in the shrimp feed business, have we taken any price hikes in the current quarter, Q3?
Sorry, we had taken a price hike, but the government asked us to roll it back. The price hike was INR 22,050 a tonne. So unfortunately, we had to roll it back because Andhra Pradesh government advise the industry to do that.
Okay. But despite that, raw material price correction should continue to benefit us in the remaining 2 quarters? Is it correct?
So the issue is that even though the raw material price correction is there, but these businesses now require a lot of initial investments, very sophisticated plants and laboratories and we already commissioned the REG center. So the issue is that we need a certain amount of contribution per tonne to cover our fixed costs. And I can definitely say that the contribution in Q3 and Q4 will be definitely better than H1, but still not enough because during the season, which was in H1, most of our volumes were sold at lower contribution. Even if the volume in H2 gets sold at higher contribution, the overall contribution will still not be remunerated.
Okay. Understood.
[Operator Instructions] The next question is from the line of Aejas Lakhani from Unifi Capital.
So my first question is, have there been any inventory losses in any of the segments that have impacted margins in this quarter?
And -- we have taken some hits in some pesticide stocks. Not much, but since you asked me this question, I would disclose that. So we sold a lot of stocks, which were near expiry, et cetera, at discount. So that is the only hit we have taken in Q2. The rest, I think most of hit was in soya in Q1.
So this is traditional crop protection, 2/3 of the portfolio that is your own product basket?
So this was a traded portfolio.
This is in a traded portfolio? Okay. So then, sir, your blended margins in the traditional crop protection business have been higher. What exactly happened this quarter? Could you just explain that again?
So there are many things which have happened. One is that we have taken some stock back returns of unsold stocks because I think the first and the foremost thing we have to do is [indiscernible] because if we did not take them back, we could not recover money from the market and the disputes continue. So I think that we have done, whatever unsold material is there, just at the end of the season, we will take it back. That is the policy, which we have made now.
So I think that is there, plus we will try and dispose of all near expiry stocks. All expired stock, we will take back. And if it is not legally reprocessable it will be destroyed. So that also will be done. Plus there is the other big thing which we did is that to collect outstanding because our recoveries have been extremely good in Q2 in this business, but it has not come free. It has come at a cost of some additional discounts and incentives, which we have given to collect that money. So I think all in all, we are doing everything to clean up our system to be ready for next season with a clean slate. And my sense is that we are almost through in all this in Q3, and there will be very, very little spillover in Q4 this year.
Got it. And sir, the third quarter for the traditional business is the seasonally most weakest quarter, and fourth quarter is a slightly better quarter than third. Is that understanding correct?
Actually, normally, if you ask me, in animal feed third quarter is supposed to be a very good quarter because raw material prices are the lowest. It is the corn season. It is the soya season. It is DORB season in cattle feed. And it is also reflected in milk prices also, which may not because most likely, there will not be any flush. So Q3 is the start of margin enhancement due to low raw material costs in animal protein industry, but unfortunately, not likely to happen. But surprisingly, because of shifting of seasons, in oil palm plantation business, we will see a much better Q3 than expected.
got it. Sir, actually, my question for third quarter was on the traditional crop protection business. So that's a weak quarter for us.
You're absolutely right. It will be a weak quarter, yes.
Okay. Okay. And sir, could you just call out what is the oil extraction ratio and the actual FFB collection.
Okay. Just hold -- So in H1 '23 oil extraction ratio is 18.62% as compared to H1 FY '22 17.75%, which is higher by 87 bps. And FFB processed this year, 3,220,00; last year, 3,050,00 0which is a 5.5% increase. Having said that, I must say that this year, we are seeing a much larger shift in season than we saw last year. So I'm expecting Q3 growth will be much, much better than last year's Q3 growth.
Got it. And sir, from your own end, do you -- given the acreage that you have, when do you see the larger volume shifts really taking place? Is it -- can we expect it in FY '24? Or will it still be -- based on the plantations, you would have already done?
So you will see a segmental growth at least for the next 3, 4 years. So I must also tell you that because of that NMOOP scheme, we have imported almost 3x of seeding what we imported in year '22, in '23, which is a very, very big jump considering our allocations in Assam, Tripura, Manipur and other states plus more allocation in Telangana and Andhra Pradesh also. So definitely, in this year onwards, you will see a quantum increase in our plantation. But it is a long gestation business. It will all show up as a step jump in FY '26, FY '27 also.
Got it. And sir, in the milk business, given that flush is rolled out for '23, at what level -- and given that our WAP portion is already quite significant. At what revenue scale do we start to break even?
So I think you asked a very interesting question. So I think that a few things which would have definitely helped our business this year or the big thing is scale. Considering the contribution in margin remain what they are, so we just did the back of the envelope mathematics that we would have been profitable if we cross INR 2,000 crores in FY '23. However, we are very likely to cross INR 1,500 crores in FY '23, up from about INR 1,200 crores because you must have seen that our growth is almost 27% -- top line growth is 37%. And salience has also gone up from 34 -- from salience has gone up to 34% in H1 from 29%.
And I must tell you that what is heartening is to see growth incurred was 52% in H1 year-on-year and premium value-added products, 34%, 30%, et cetera. So on value-added salience, I'm very sure that we will keep on improving, and we will try and aggressively done for 45%-plus salience next year. The worry remains the cost of milk again and again. So we really do not know when it will start tapering or it will be steady when the prices will catch up with -- what is likely to happen. The only green shoots I can see is that Tamilnadu, which had not taken price increases for [indiscernible]. I think for almost 2 years, they have not taken price increase in the retail market and the gap between us and private players when the government dairy milk was between INR 16 to INR 18 in different parts of Tamil Nadu.
Certainly, I think 2 days ago, they announced a INR 12 price increase. And I'm saying that if same state behavior is exhibited by all cooperatives, we are likely to see some price increase to cover some additional costs, which have incurred in the past few months because of milk costs in the coming quarters. Let us see how it pans out, but from the outside, we get a feeling, even the cooperatives are running out of steam in terms of supporting low prices. So let us see. But I think if we have 45% salience at the same contribution levels and a INR 2,000 crore plus turnover, we would definitely be near breakeven next year.
Got it. So basically, you're saying that the path to profitability will be '25, '24 is when you will break even in dairy.
You never know. I'm saying that this is very much -- in this business, I have seen changes very fast. I think one day people can wake up and take a INR 4 price increase. Now INR 4 price increase translates to something like 5% or 6% price increase, which is big actually. And that is a cascading effect because curd prices go up by even more -- value-added products by even more and where the price elasticity is a little less. So I'm just saying that anything can happen. So we just keep keeping our fingers crossed. But definitely, what you -- as current situation is there a INR 2,000 crores, 45% variance is something which may happen in '24.
Got it. And sir, just a small request the next quarter, if you could consider to give the gross profit per liter for the milk portion, it is just give us to contextually understand where you are, if that's possible. And sir, my last question is, sir, you spoke about live bird prices being INR 100, INR 110. What were they in the corresponding quarter in 1Q? And what do you think of -- you mentioned that 3Q prices are going to be in this range. So are we again expecting a slightly weakish quarter? Or do we expect the path to profitability to come back in third quarter itself for the poultry segment?
So I think you will appreciate the numbers which I'm going to tell you because being in some markets, you are also used to volatility. So January cost of production was 84 -- cost of production was [ INR 87 ] and the price was [ INR 84 ]. In March, cost of production was INR 95, price was INR 126. In May, cost of production was INR 102, price was INR 117. In July, cost of production was INR 90 and price was INR 76. In September -- in August, cost of production was INR 97, price was INR 72. In September, cost of production is INR 97, price was INR 94. In October, cost of production is close to INR 90, and the price is about INR 91 or INR 92. And I'm saying that this is the season for peak consumption.
We also know peak sales and the raw material consumption patterns, which we are hearing from the market that placements are a little low. That is why I am expecting a cost of production because our raw material costs improved efficiency to drop to INR 87, INR 88 and price to remain between INR 100 to INR 110 in different parts of the country.
Got it, sir. That's very helpful. And sir, roughly, what is the component out of the sales, which is coming from James and real good chicken, it's about 35%, 40%.
Okay. So 44% of our sales in life bird in first half. Good thing was that last year first half was 56%. So that's a drop of 12% there. [indiscernible] And Yummiez, last year was 17%. This year is 16%. So there is a drop of 1%. Last year, we had excellent demand in the first quarter because of COVID. So I think that is the base effect we are having. But we are very happy with the progress in Yummiez business. I think the scaling thing, and I think this is where the biggest correction has happened is that last year, Real Good Chicken was 26% salience, and this year, it is 40%.
Got it. And sir, at the EBIT level, the Yummiez and the RGC business is profitable for us, right?
At contribution level, I can tell you that from -- last year, we had a contribution which is margin after variable in live at about 4%; now, it's about 3%. Yummiez, which was 40-plus percent, is now about 35%. Real Good Chicken was 4%; now, it is about 10%. So branded margin still remains the same at about 11%, but we are expecting a big growth in Yummiez and Real Good Chicken in the coming months. So I think we are in the right direction in this business actually.
Got it. And sir, is it possible to divert the live bird sales towards more RGC and Yummiez in the years to come so that you can...
That's what happened more and more LPs going into these things and processing is going up. We are at about 85% utilization in both our plants. Both our plants are going in for de-bottlenecking. so my sense is that next year, we will be able to increase our processing by 10% to 12% only by de-bottlenecking. And we have marquee customers, multinationals, CSRs, et cetera. I think we are producing big quality they want. So I think, hopefully, we'll keep on building on this business.
The next question is from the line of Rajesh [indiscernible], retail investor.
Mr. Yadav, I would appreciate if you can spend a minute talking about j Maxximilk. Every time I see you investing in that, I get excited. So what is your plan over the next 3, 4, 5 years by when it will start contributing to our top line and bottom line, et cetera, et cetera.
I can tell you that generational improvement in large animals, takes a long time. So we harvest, say we produce a embryo, then we impregnate the cow and then 9 months later, the new calf is born. And then it takes another 15, 16 months for that calf to mature sexually and get disseminated again. So normally, it takes about 30 to 33 months for the kind of -- we want to build because we are interested not in the surrogate mother, but in the progeny of the offering, if you understand what I mean. It takes time. It is also biological activity. So plenty of times the embryo transfer fails in the first trial. So there is a success of between 40% to 50% in that.
Now to set up in lab, to set up a farm, to get surrogate mother, then to get very good quality of spring and then to phase out the surrogate mother because mothers were only there to produce the high-quality genetics. So I think it takes between 4 to 5 years, and that's what time we have spent. Now let me tell you what is happening right now. Right now, we have got our herd size is close to about 1,100 of which the 80%, 85% of the animals are the ones, which have been produced and are very high-quality genetics, which are at our farm. These animals, almost 500 of them are lactating now. I would say that in this country, a third average of 20 was supposed to be very good, but we have a herd average of 24, 25 liters. So I think that is one good thing which is happening because several of these animals are producing 60-plus liters per day also if there is peak. I think we have been herd ready. Now we have gotten to a phase where we are replacing 45 to 50 high-quality off --. And this farm is out of -- will be out of capacity for next 3, 4 months. In next 3, 4 months, we get constructing another farm now again in Nasik. Now where is the -- what is the output of this farm. So the [indiscernible] which we are producing are commanding a very good price close to between 2.25 to 2.5 lakh in the market.
So that is one revenue stream we have. The other revenue stream we have is we are selling embryos. And that breed improvement program of NDTV, we have got a sufficiently big order. And in case that order continues to repeat and grow, which is the government policy, we will have to upgrade our labs to have more embryos. And third thing is that the kind of quality of milk we are producing is very high quality. You will not believe that the milk is now being bought by a multinational for their milk powder, et cetera. That is the quality of milk and milk is traveling close to 1,000 kilometers per week yet and still very high quality and at a very remigrate price. Having said that, we have made losses. But this year in case the milk prices remain the way they are and all the embryo orders we are able to get us, we might just come close to EBITDA positive this year.
Okay. What is the turnover this year and expected next couple of years over the next, say, 2, 3 years?
So I don't have Maxximilk numbers right now -- but point is that -- the one thing is that herd is now ready.
Okay. Okay. Okay. And so this activity you want to remain focused only in and around Nasik only.
No. Now I'm saying that the way things happen, I suppose we have 700 animals. So in 390 days cycle, all animals have to produce one more calf. So that is how this business grows beyon the [indiscernilbe] point which is 7 to 8 years, then there is an exponential rise because you have so many -- keep producing. So I think the price bikes have been paid. I think we -- price of learning and growing the herd is paid already.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.
Yes. Before I make my closing comments, I just wanted to comment on some of the questions. There was a question about palm oil prices. And right now, palm oil is tracking gas oil very closely because there's a lot of demand for biodiesel from palm oil to replace diesel. And another comment I wanted to make is that although it will take a long time to expect -- to expand our palm oil production as it least takes 3, 5 years to grow, there will be a very good nursery business in the next 5 years, and that itself will be a significant business. And beyond that, there will be rapid growth in palm oil production.
With those answers to the question, I would like to thank all of you. I hope we have been able to answer all your questions. If you have any further questions, or would like to know more about the company, we would be happy to be of assistance, stay safe and stay healthy, thank you once again for taking the time to join us on this call.
On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.