The way I see it is, ignoring the Price for a minute, Basmati is still seen as a luxury food item. So, it is not recession proof. Should there be a shock in the economy or some kind of local money crisis, the first thing people will drop is buying luxury. My investments are more aligned towards basic human needs in a specific industry. So as far as products in the rice industry goes, I might be more interested in tractors, seeds or basic farm equipment. In the rice exporting space, I might be more inclined towards basic rice variants and not Basmati.
The only exception is if the product is primarily targeted towards wealthy people. An example would be Eicher Motors. The affluent do not care about percentage point changes in inflation. They are buying the product for its aesthetic appeal or bragging rights. This makes the product partially recession proof.
I have not done market research or anything to see if customers of Basmati rice have started looking at it as a necessity rather than a luxury. If that is the case, that makes KRBL a better investment. Of course, these are ultra-safe checks to ensure you stay out of cyclical stocks. It may or may not apply to market leaders like KRBL. But I’d still be cautious if I ever were to invest in it.
Coming to the question of Price, you can download my DCF template from here and tell your own story:
The most important thing in Valuation is to tell your own story and then try to match the numbers to fit that story. If you want to tell a wonderful story with KRBL taking over the Basmati Exports market, go ahead and tell it with appropriate numbers. This will get reflected in the Value, but then you will have to live with your story.
Nobody can say when the Price will revert to Value. MP himself suggests holding a stock for 3 years to see if it reverts to Value or sell it. So, you may want to follow that. Warren Buffet on the other hand, has held on to under-performers for as much as 7 years (IBM). Of course, if it does revert to Value, then selling the stock will depend on availability of better investment opportunities. If a company, even after reverting to Value, produces extraordinary CROIC, it makes sense to hold on to it. Again, of course, provided you don’t find another company with a higher CROIC and which is also a better investment opportunity.