Milk and milk products company Heritage Foods (India) Ltd (HFIL), which entered the organized or formal retail business with its Fresh@ brand last year, plans to raise $25 million (about Rs100 crore) to part-finance its expansion.

HFIL, which ended 2006-07 with revenues of Rs348 crore, has been promoted by family members of former Andhra Pradesh chief minister Nara Chandrababu Naidu. The company plans to raise the money by placing equity with qualified institutional buyers (QIBs) shortly. The company also plans to offer equity to its promoters through a preferential allotment to raise more than Rs20 crore.

The company is promoted by family members of former Andhra Pradesh chief minister N. Chandrababu Naidu

“We have chalked out an expansion programme involving an investment of Rs120 crore over the next 12 months for the three business verticals," said Muddana Sambasiva Rao, president, HFIL.

Heritage plans to increase its milk processing and packing capacity to 1 million litres a day from the existing 0.8 million litres and introduce value-added products at a cost ofRs40 crore. “The value-added products include ice cream, paneer (cottage cheese), butter, curd (yoghurt), creamand flavoured milk in tetra packs with long shelf life,"Rao added.

HFIL’s current distribution network for its milk products covers Andhra Pradesh, Karnataka and Tamil Nadu. The company plans to expand its footprint to Kerala and Maharashtra in 2007-08. It recently acquired the assets of Vikram Dairy in Maharashtra for a undisclosed sum.

Heritage’s value-added milk products will be introduced first in the Fresh@ stores and eventually rolled out to other stores, said Rao.

The company plans tomore than double the number of its Fresh@ outlets at aninvestment of around Rs60 crore. Heritage currently has 44 such outlets: 25 in Hyderabad, 12 in Bangalore and seven in Chennai.

In an effort to ensure supply of fresh produce for its Fresh@ outlets, Heritage has identified three areas in three states— Kolar in Karnataka, Krishnagiri in Tamil Nadu and Chittoorin Andhra Pradesh—for procurement of perennial vegetables and fruits that can be grown for nearly 300 days in a year. The company has also entered into arrangements with farmers in areas surrounding Hyderabad such as Karimnagar, Medak and Rangareddy for this.

HFIL is setting up cleaning, grading, ripening and packing chambers in Kolar, Krishnagiri, Chittoor and Medak atan investment of aroundRs20 crore. “The average losses in perishables such as vegetables and fruits in our country is around 30%; we want to bring this down to 10% with the help of these chambers," Rao said.

Currently, 95% of Heritage’s revenues come from the dairy business. This would go down to 80% in 2008-09, Rao said.