KRBL- The King of Basmati rice

(Bheeshma Sanghani, PhD) #204

My experience has been that the true test of a brand is whether a loyal customer can identify the brand in a blind test.

I have carried out many such blind tests over the last decade or so and have found that a significant number of brands fail that test. I have no clue about krbl products though but the base rate i can say for sure is not too high. One interesting thing that never fails to occur is that the more enthusiastic the customer is about the brand the more prone he or she is to fail the blind tests. Just sharing as i thought it may be relevant here.


(Praveen Gramle) #205

cash bal of 4Cr i got rest of 200Cr i couldnt make out.
2. 3283.87/(23.54+1883.78+68.54-19)=3283.87/1956.86=1.67
Pls clarify what i am missing in my calculation?

(Dr. TarunDS) #206

One of our close relatives own a restaurant that is over 30years old in South delhi.
They vouch for India gate rice over others any day. It suggests i guess that it must be having some recall value but a random person in store may just go for a cheaper option ie if hes getting a dawat packet 20bucks cheaper he may go for it if hes not a loyalist.
how to ustd more about the loyalties a brand commands?
just sharing.

(Mahendra243) #207

The famous paradise Hyderabad dum biryani uses dawaat rice and they have holding of it in every outlet…wonder it is sponsered by dawaat…but biryani is too fabulous…but patanaji is ok kinda of it’s cheap for 75 bucks…so in coming days will biryani rice becomes cheap? Time will only tell

(jajushobhit) #208

It’s a deja vu moment for me today. I have switched back from LT Foods to KRBL, which I exited in November after holding for over 3 years, due to valuations turning egregious. The following are the reasons for me doing so today:

  1. The rationale of exiting KRBL and buying LT Foods has almost subsided. The valuation spread has been reduced, thanks to the recent correction.
  2. KRBL has a premium product offering for which as a customer I am ready to pay a premium. This separates KRBL from the rest. It reflects in them earning almost 2x operating margins compared to LT Foods.
  3. Well, I am an admirer of Pabrai and him a substantial stake in the company, buying at ~25% premium, gives me additional comfort.
  4. The main reason, and this concerned me even while buying LT Foods was high debt and working capital requirements. This has been highlighted by @phreakv6 too. The reason for having a higher working capital requirements for LT Foods is because they cater to a the segment of consumers which are price sensitive and not really brand and quality obsessed, but want to buy a decent quality branded rice. The competition in this segment is immense, the likes of Kohinoors and others compete in this category with LT Foods and if you notice the prices for all except KRBL is almost same. In such a scenario for you to sell more of your products you give aggressive credit limits to your dealers to sell more. This in my opinion has a drag on working capital and operating margins (which have remained at ~ 9% for a decade). If Kohinoor decides to cut prices to increase volume, you will stress the margins or WC to retain the existing volumes.

My sense is the margins for LT Foods from rice segment may not increase, though their snack business may help in margins, but that’s too premature. You make higher margins than your peers only if your product offers more or better quality to the customer for them to pay higher and I don’t see LT Foods being able to do that and I believe the spread in margins between LT Foods and KRBL is going to stay, if not widen.


(Sandeep Patel) #209

Zero mutual fund holding. Quite puzzling considering it is a well known business. What are they seeing that we are not?

Note: I don’t believe MF participation is a high quality yardstick to measure business quality; we know how many MFs participated in Avanti since last 4-5 years.

Disc: First chunk invested on March 09, 2018

(atulgupta80) #210

One reason which I can think is there is not much available in market to buy 100 entities hold 91%. And probably this is the reason that Pabrai paid top price as you can buy material quantity only in one to one transaction.

(bullbuffet) #211

The key to higher OPM is the strength in sourcing, availability of cash and capital management for inventory, deep relationships in the sourcing ecosystem and early input framework on market disruptions.
Invested in KRBL for many years and will see it grow for many more. Having a known a lot about KRBL and Basmati sector, i must say that there was a lot i could learn more from some of the inputs shared here

(1.5cr) #212

The MF part is interesting. Athough as you say it is difficult for them to buy in the open market or even find a block/one to one deal. But it is still puzzling that no MF has bought into this type of a business.

(bullbuffet) #213

Logic tells me that the clinical numbers especially on revenue-topline in the past few quarters is a indicator of inventory build up for higher realizations as well as holding to the premiums when markets were over competitive.
As the effects of demonetization, GST and now operational/banking challenges in Imports/exports stacking up and contributing to sustainable higher prices which will work against the unorganized segment the macro tailwinds for KRBL are gathering speed.

(shreys) #214

I was reading KRBL’s annual report. They claim to be the largest rice millers in the world. However, there’s an American cooperative called Riceland that also stakes a claim to that honour. A quick search reveals that Riceland is a major food company in the US. Could anyone guide what the correct position is?

(1.5cr) #215

So much talk of the moat etc. Can the earnings of krbl really double from current levels in 3 years and then continue to grow at a decent rate post that? what are the growth prospects for krbl from a sales and bottom line perspective. Top line has remained flattish. The quinoa product can do well of course…

(shreys) #216

I’m sharing my experience pertaining to rice consumption. If it isn’t value additive, please guide me.
I belong to a West Indian family. My entire life, until recently we’ve eaten Surti Kolam variety of rice. Consumption of Basmati rice was restricted to restaurant visits. I must say I enjoyed eating Basmati. My meals were dominated by Rotis instead of Rice. But, one fine day, I switched to just rice, Basmati rice to be precise.I eat approximately 400 grams of Basmati rice everyday. The rice is from Dmart. And, i must say i have a high opinion of it.The sole motivation behind my rice brand choice was price. There were multiple brands but my decision was based solely on the price. I belong to a typical Indian middle class family. Hence, the Basmati rice consumption may increase. But, even today, despite the tremendous growth in our economy and elevation of millions from poverty to the middle class most people decide on the basis of price rather than brand. The possible reason could be that the significant price differential may not be worth the increment in happiness, joy derived from the food.

(nil_71) #217

Fully agree. People from West Bengal love to take another form of Aroma Rice, we called it ‘Gobindo Bhog’. Little expensive that normal rice. We use it for Pulao and Biriyani etc. So I am little doubtful of mass migration theory of Unorganized to Organized.

You have to understand, farmers will continue to sow these local high quality rice. No GST can prevent them from sowing it.

(azardeen) #218

Going through above discussions, I understand that basmati can be grown only in some regions. In that case there can’t be much growth in supply. So long term growth for KRBL should come mainly due to price increases. But I don’t think prices will increase beyond some extend due to substitution effect. If the relative price of basmati is so high compared to other varieties, many people would shift to other varieties. So in my opinion, we should not expect very high growth rates. I would expect a growth rate of 10% CAGR max. for next 10 years.

(cathene) #219

And what do you mean by blind test. Iam dumb and stupid please be free to elaborate

(cathene) #220

So this gives the rationale for the entry of pabrai and reason for the huge valuation he paid.

(jeet1990) #221

A test in which the person sampling is not aware of what they are sampling.
For eg. in the case of basmati rice, they do not know which brand of basmati rice they are eating. This way you can check if the person can identify the brand by taste alone rather than by seeing the packet.
This is my understanding of a blind test, please correct me if I’m wrong.

(Dinesh Sairam) #223

For the Cash Amount, I honestly don’t remember now. I made a quick valuation because someone asked me to. Look at their Current Assets and make a judgement call on what looks like it could be converted into Cash immediately. That’s the figure you should use.

Again, the denominator in the Capital Turnover figure contains Cash. So that might have caused the difference. In the excel, if you input the amounts, Capital Turnover will be automatically calculated for the Base Year (Under Assumptions). You can then make a judgment call on whether you think that Capital Turnover looks reasonable. I calculate the Capital Turnover across 7-8 years and see if the Base Year figure makes sense. If not, I take an average (3 or 5 years), excluding extraordinary figures (Like I mentioned, extraordinary figures can come because of a sudden jump in cash holdings).

(bullbuffet) #224

ITC enters Rice segment - Gives me more CONFIDENCE on KRBL - ITC entering the market means

  1. Overall market set to grow rapidly and chnage in cinsumption patterns towards premium rice.
  2. Higher prices and Higher margins are sustainable.
  3. ITC would have conducted a detailed long term market study and hence this Industry is now just about in the beginning of becoming a mature corporate Industry segment
  4. Its moving from unorganized to organized rapidly triggered by demonetization, GST, brand awareness, Super market formats…etc…
  5. ITC will spend money to create new segments as well as exoand existing markets…a big benefit for all participants.