@shreys spent 5 minutes on Riceland’s website but didn’t see any capacity specification…also seems like its privately owned…may be KRBL is world’s largest “basmati” rice miller and Riceland is world’s largest for non-basmati rice…that’s my guess
Many thanks for trying to help me discover the truth.
I’m inclined to agree with your hypothesis that Riceland is the largest non Basmati rice player while KRBL is the leader in Basmati rice.
Riceland is a farmer association owned company. I think the Indian equivalent is AMUL.
Thank you for your reply. I appreciate it . I have one more query even though it is discussed earlier. Discount rate taken by you in your calculation takes valuation to higher side. Why not we take 10% or 12% which can be opportunity cost or minimum expected return from investment. If we consider 10% then the stock becomes expensive.
Are we not very optimistic about the stock considering the fact that we are taking 5% as terminal growth rate, low discounting rate and 0% Margin of safety.
My queries may sound idiotic. I am learning from such discussions.
Can you kindly post in this thread? I’ll be more than happy to respond there.
I feel like we’re hijacking this thread with general Valuation discussions. Thank you.
Thank you for taking me to right thread for my queries.
Many members have posted some questions to which i have definite answers so posting.
GST is applicable on KRBL products @ 5%. This was clearly clarified during q2 conf call. Unorganized Rice sellers have 0%.
The share of market figures given by KRBL are more accurate and i have experienced their overall accuracy on market size and nos over a period of years as compared to its peers and other Analysts.
If I may, I’d like to ask you why you think the management is above average?
In the public domain there’s usually very little information available to be able to establish an impression regarding the leadership.
From the discussion on the brands, we can probably derive that, the old advantage of brand is still very much present but not as strong as earlier in pre-amazon times. So, we need to make sure that KRBL is not milking its moat of better quality by charging too much premium like Gillette did. If customers feel the premium is too high for the difference in quality between KRBL (ex: India gate Classic vs Daawat’s premium product) & its next best competitor, then there is always danger of customer moving to competitor’s brand based on Amazon reviews. Since Basmati is cultivated only in India & Pakistan, I guess, it will not be very difficult to track amazon ratings of the KRBL’s and competitor’s products.
Although, it is bit far away in future to affect KRBL, but certainly of relevance.
The new generation does not care much about finer points of quality & taste too much.
Out of the four non plain Basmati rice products KRBL has, I believe, sprouted Brown Basmati rice could be one product to look out for. There is lot of talk of growing number of health conscious people looking for variety of healthy food alternatives. The regular brown rice is not palatable. The brown basmati rice is certainly better than regular brown rice. With sprouted brown rice, it becomes easier too cooking too and should be easier to eat (brown rice is harder even after cooking).
The three other products Quinoa, chia seeds & flax seeds, KRBL will not have any competitive advantage over HULs or ITCs or private labels of other Super Market chains as far as my novice understanding.
Yesterday, at a family gathering, for the first time, I had a preparation made from rice by India Gate. The product is called India gate Super rice. It costs around 160 rupees a kilogram. It was indeed, a fine product. Throughly enjoyed it. However, there was also rice from DMart, which, if not better was as good as Super.
Dmart Basmati is available for around 70 rupees a kilogram. For a middle class person like me, I sure enjoy India Gate rice but I don’t possess the wherewithal to pay more than twice the price of Dmart’s rice. So, basically, the premium was not worth the experienced utility, for me. Just my thoughts.
The export volume trends indicate increasing consumption over the years with some fluctuations. 2012-2013 - 345cr kgs, 2014 - 375 cr kgs, 2015 - 370 cr kgs, 2016- 404 kgs , 2017 - 398 cr kgs , 2018(est) - 414 cr kgs.
Source : Apeda website
Can krbl maintain their 20% opm? If we value the company on 15% opm the company looks expensive… any insights?
What if the growth rate is greater than the risk-free rate? Like in this case the actual recent sales growth is 10.62%. How can we work the valuation then?
Kindly reply in this thread:
As mentioned earlier, I don’t want to hijack the discussion with general comments on Valuation.
Cash and Cash Equivalents as on 31st March 2017 consist of Rs 50 lacs as Cash with Income Tax Department. Any idea about nature of this item.
@dineshssairam, I was listening to Mr. Mohnis Pabrai’s recent speech to Chinese students. Mohnis Sir emphasized that he invest in the idea only if he foresees minimum value worth 100% return. Going by this, his investment @Rs. 589 must have been initiated when he would have assessed the value at the minimum of Rs.1178(2*Rs.589). This number is significantly higher than value as calculated @Rs. 525. in spreadsheet. Can there be certain factors envisaged by Mr. Pabrai in his assessment which would have provided his such a huge conviction.
I completely agree with the fact that even ace investors can make mistakes in their investment thesis and investment in KRBL might prove to be one of it.
You can play around with the assumptions to see what Monish Pabrai might have assumed in his Valuation. In any case, I’d say KRBL is definitely not a ‘deep in the Value’ buy for him.
I did some simple number crunching for last 5 years for KRBL. It looks like that all the growth will come solely from India biz. Last 5 years export revenue has been
FY13 FY14 FY15 FY16 FY17
939.44 1274.44 1287.13 1749.97 1084.35
I am expecting FY 18 to end with closer to 1300cr revenues as management expects 20% growth in export revs. This is visible in 9M results.
FY16 was an aberration as they got some tendering order. We can clearly see that in the last 5 years, there has hardly been any growth on the export front. Saudi is their major market but there is a little to no inflation there hence I don’t expect much price growth there apart from changes in Basmati rice in international market.
On the other hand, management has clearly said that they can’t entirely pass on increase in paddy prices because there already sell their rice at premium.
Only future growth market I see is China where we haven’t made any inroads yet.
On the other hand, domestic rice biz is growing at a decent pace.
FY13 FY14 FY15 FY16 FY17
1016.64 1497.9 1696.5 1389.97 1821.85
FY16 revenue was less because they had to serve the iran tendering order. FY18 is expected to be on the lines of FY17 because of GST disruption as per management. So they have basically grown their revenues by 30 odd percent from FY14-FY18 which is decent I think.
The third aspect is their power biz. You would be surprised to see the PBT growth of power biz
FY13 FY14 FY15 FY16 FY17
6.7 6.09 38.77 46.12 55.18
I am expecting FY18 to end with 80 odd crores by looking at 9M trend. It has added in big amount in showing higher profits of the company
One more thing adding to their profits is falling interest cost. They paid 77 crore of interest in FY12 and I am expecting that they will end this year with 30 odd crores of interest cost.
The company can become a debt free easily by FY20 end if they want to, which gives me a comfort that in case of any bad cycle, it won’t go bust.
From all the number crunching that I did, I think Mohnish Pabrai paid a huge premium to own a India consumption story. 20-21 kind of PE is good enough for KRBL as their India growth is not that fast and export growth is almost stagnant from past 5 years and it is likely to remain like that.
Disc.I added some at 450 levels after looking at the sharp fall. Did my number crunching in last 7 days and realised that I am not buying a cheap biz.
Lot of FMCG companies with brand are trading at 40+ PE. They don’t have growth too. What they have brand and visibitly. Hnece, high PE. Why can KRBL trade at 40 PE? Just a question to ponder. Have seen their quinoa packing. One can see serious effort to establish a brand with value proposition and establish a connect with customers on health grounds.