Forbes India 15th Anniversary Special

N Chandrababu Naidu, the dairy king, emerges as the kingmaker in Indian politics

Pushed into political wilderness five years ago, the Telugu Desam Party chief now holds the reins to Narendra Modi's future as prime minister. All this augurs well for Heritage Foods—a company he founded in 1992—as was evident from the rally in its stocks in the past few days

Manu Balachandran
Published: Jun 5, 2024 05:24:08 PM IST
Updated: Jun 6, 2024 10:18:52 AM IST

N Chandrababu Naidu, the dairy king, emerges as the kingmaker in Indian politicsN Chandrababu Naidu has now emerged as a kingmaker, holding the reins to Narendra Modi’s future as prime minister. Image: Reuters/Rupak De Chowdhuri
It’s almost impossible to write off Chandrababu Naidu in Indian politics.
Just five years ago, Naidu had been pushed into political wilderness after he left a coalition led by Narendra Modi before facing a rout in his home turf of Andhra Pradesh by his bitter rival, YS Jagan Mohan Reddy. Back then, it seemed as though Naidu’s political career had fizzled out, and more so, since his rival, the much-younger, YS Jagan Mohan Reddy, seemed invincible.
But politics is a strange place as Naidu found out on June 4, when votes for the 2024 general elections were being counted. Naidu has now emerged as a kingmaker, holding the reins to Narendra Modi’s future as prime minister. Modi’s BJP needs Naidu’s support at the Centre to rule comfortably for another five years, propelling him to play a similar role that he had played a few decades ago in India’s coalition-era politics.
The expectations from Naidu are now huge. There are talks that Naidu might seek a special status for Andhra Pradesh, a long-pending demand of the state since it was bifurcated into erstwhile Andhra Pradesh and Telangana, apart from plum positions in the new Modi cabinet. Special status provides preferential treatment in getting central funds in addition to concessions and tax exemptions.
All that means investors are expected to flock to his home state, where he will take over as chief minister on June 09, having already built a stellar reputation for developing Hyderabad as India’s tech hub in the early part of the millennium.  
But, more importantly, another set of investors has already begun throwing its weight behind Naidu’s lone entrepreneurial venture, skyrocketing the company valuation on the Indian bourses in the last few days. Heritage Foods, a company founded by Naidu, and of which his wife serves as the vice chairperson and managing director, has seen its stock prices rise by as much as 65 percent in a 30-day period between May 7 and June 5. On June 5, the day after the votes were counted, Heritage Foods shares hit the upper circuit on the bourses, rising by as much as 20 percent.
The company has a market capitalisation of a little over Rs5,000 crore, with annual revenues of Rs3,208 crore. Naidu founded the company in 1992, with what he called was an objective of "bringing prosperity into rural families through cooperative efforts”. The company was set up soon after the introduction of the new Industrial Policy of 1991 when he was already a lawmaker, and his father-in-law, the leader of the opposition in Andhra Pradesh.
Today, Heritage Foods has a market presence in Andhra Pradesh, Telangana, Karnataka, Kerala, Tamil Nadu, Maharashtra, Odisha, NCR Delhi, Haryana, Rajasthan, Punjab and Uttarakhand. As of March 2023, the company claims to serve 1.5 million households daily and operates 18 milk processing facilities in the country. Of course, a significant chunk of its revenues come from Andhra Pradesh and Telangana.
The company retails through some 1.3 lakh outlets, with milk being procured from nine states in India and being sold in 11. “A strong brand in the dairy business, over the years, HFL (Heritage Foods) has created a well-diversified product portfolio by entering into various adjacent product categories to achieve its aim of providing high-quality dairy products to its consumer,” brokerage firm, HDFC Securities had said in a report in January. “The company’s product range includes different types of milk, curd, buttermilk, butter, ghee, paneer, and a variety of other value-added products (VAP). HFL has strategically invested into a technologically advanced R&D infrastructure that focuses on not only stringent quality control measures but also product innovation.”
Last year, the company expanded its portfolio, foraying into newer areas such as drinks and ice creams, in addition to a joint venture with France-based Novandie for yogurts, as demand for dairy products grows in the world’s most populous country. “A well-diversified product portfolio has also helped HFL mitigate the demand-side fluctuations in the milk segment, resulting from sustained inflationary pressure on milk prices,” the HDFC report says.

Going to Strength

Heritage started out in 1992 with Naidu’s plan to eliminate middlemen and procure milk directly from farmers. India had undergone a transformation in milk procurement in the 1970s and various regional cooperatives were being set up that were selling milk under their own brands, including the likes of Nandini in Karnataka, Milma in Kerala and Mother Dairy in New Delhi.
In 1994, Heritage Foods, which started with a seed capital of Rs80 lakh went public, its shares being oversubscribed 54 times. The company had a turnover of Rs4.38 crore by then. By 1995, Naidu became the chief minister of Andhra Pradesh for the first time, after a coup against his father-in-law, the legendary film star NT Rama Rao, for the leadership position at the Telugu Desam Party (TDP) which had come to power.
His detractors, particularly YS Jagan Mohan Reddy, have claimed that it was during his time as chief minister between 1995 and 2004, that Vijaya Dairy, then the largest dairy in Andhra Pradesh was shut down to propel the future of Heritage Foods in Andhra Pradesh. Today, the promoters including Naidu’s wife and son, hold a little over 41 percent stake in Heritage Foods, which has also diversified into renewable energy.

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The company collects milk from more than 300,000 farmers, spread across 10,500 villages in nine states in the country. In addition to its renewable arm, the company also has a livestock feed and supplements company, Heritage Nutrivet Limited. The company’s current portfolio of milk includes three types of milk. Fresh milk, the largest consumed product in India, A2 milk, commonly known as buffalo milk with full cream, and ultra-high temperature (UHT) milk, often used in tetra packs.  
India’s dairy market was pegged at Rs14.8 lakh crore and is expected to grow by 13.2 percent during the next five years, to be worth Rs31.18 lakh crore in 2028, according to market research firm IMARC. “India is the largest milk producer in the world, contributing 24 percent of global milk production,” according to the HDFC report. “Milk production in the country is estimated as 230.58 million tonnes during 2022-23, registering a growth of 5.7 percent CAGR over the last 10 years.”
That has meant that Heritage has now set a target of growing to Rs6,000 crore in the next few years from Rs3,208 crore currently. Last year, as much as 64 percent of its revenue came from the milk segment, followed by 29 percent from value-added products, curd, flavoured milk, sweets, and cheese, while 4.68 percent of the revenues came from fat products such as butter and ghee. The remaining came from segments such as ice creams and animal nutrition.
“While HFL is a prominent player in the southern Indian markets of Andhra Pradesh, Telangana, Karnataka and Tamil Nadu, it has expanded its sales presence across 11 states in India,” the HDFC Securities report says. “The company plans to penetrate deeper into metropolitan cities by expanding into several towns and semi-urban areas. HFL intends to leverage its strong distribution network to enter new geographies and strengthen the existing ones through brand-building activities.”

N Chandrababu Naidu, the dairy king, emerges as the kingmaker in Indian politicsChandrababu Naidu's son Nara Lokesh is a shareholder of Heritage Foods; his daughter-in-law N Brahmani is an executive director, while his wife N Bhuvaneswari is the vice chairperson and managing director. Photo: Noah Seelam/AFP

Can the kingmaker change fortunes?

Today, with Naidu’s political future on stronger grounds, Heritage Foods is only expected to benefit significantly.
While Naidu doesn’t play any active role in the company, and is no longer listed as a shareholder, with wife N Bhuvaneswari and daughter-in-law N Brahmani playing executive roles, his return as chief minister in Andhra Pradesh could derail some initiatives taken by YS Jagan Mohan Reddy to thwart Heritage’s stronghold in the state.
Last year, YS Jagan Mohan Reddy’s government had tied up with Amul to revive the long-defunct Chittoor Cooperative Dairy and handed over the management of the dairy to Amul group, a move that drew flak from Naidu and his party, TDP. Amul’s entry would cement its position in the region, even though Heritage also faces tighter competition from rivals such as publicly traded Hatsun Agro, founded by billionaire businessman RG Chandramogan and Hyderabad-based Dodla Dairy.
“Heritage Foods has the lowest margins among its peers as Hatsun is more urban-centric and has a large proportion of ice cream sales,” HDFC Securities said. “Dodla has a higher percent of procurement from Karnataka, where the state government gives subsidy on milk procured and Dodla has profitable overseas operations in Africa.”
Still, Naidu as a kingmaker in Indian politics means well for Heritage Foods, as was evident from the rally in the company’s stocks in the past few days. All eyes will now be on Naidu’s meeting with Modi in New Delhi, when he is expected to press forward his demands in return for supporting the third Modi government. Already rumour mills suggest that the wily Naidu has asked for the Lok Sabha speaker’s post for his party, in addition to some key ministries, including finance and rural development.
Naidu has been witness to numerous political slugfests, and one has to wait and see what he can extract as a kingmaker. Either way, Heritage Foods seems set for a long run, with Naidu, the dairy king, as kingmaker in Indian politics.