KRBL- The King of Basmati rice

(Dinesh Sairam) #320

South Indian Bank and J&K Bank are the ones that I know.

IIRC, I know some pieces of information about Pabrai correctly.

  1. Monish started investing in India pretty late (Maybe around 2014-15). Initially, the weight was low, but now it’s around 20% of the entire AUM of Pabrai Funds. So, it’s hard to judge his performance in this short term.
  2. 80%+ of his money is only in 3 companies: Alphabet, Chrysler and Aercap Holdings. Almost 60% is in Chrysler. So, even a complete loss in his Indian investments wouldn’t affect his portfolio’s performance.
  3. This article gives us the portfolio’s performance since inception (Inclusive of all stocks, abroad and in India). At the time (2013), his fund had returned a cumulative 1100% since inception.
  4. The AUM has dropped considerably since 2013 (The date of the article), according to this website. So let’s assume that the total returns are currently 900% (Instead of the 1100% mentioned in the article).
  5. This gives us a CAGR of close to 13% for those 18 years, which is impressive, but nothing to write home about.
  6. Hedge funds regularly return around 11% in the US post fee, so you could say he’s marginally better than the average Hedge fund.
  7. S&P 500 has returned a 9% CAGR in the same period. You can calculate it here.
  8. I’m not sure if the returns generated by Pabrai is pre or post fee. If it is pre-free, then the returns would be closer to 12% more likely.

I also like Monish Pabrai’s simplifying speeches. I love him especially for introducing me to the book ‘The Checklist Manifesto’, which has become a regular part of my investment code. However, he is too inconsistent with his own philosophies or words and does a lot of ‘going by the gut’ buys like Horsehead Zinc, J&K Bank or KRBL. I have no qualms with the investors choosing to follow him, but Monish Pabrai is not my cup of tea as an icon for investment decision-making.

(Sandeep) #321

M Oswal initiates coverage on LT Foods. Covers points related to the industry.

636585152050757232.pdf (754.1 KB)

(hanktaggart1) #322

In addition to fundamentals aspects mentioned by learned members which provides some downside margin, core point is the potential re-rating in coming 2-3yrs (Premium Branded Commodity Play - Premium Branded Healthy Food Play with wider penetration along price points) making it 3x play conservatively. Further based on recent initiatives and aggression its entry into organic food category adds to option value.

(Dana) #323

Looks like Trademark has been acquired. Can’t confirm the news though.

(harjotsingh87) #324

Prices in Toronto, as expected India gate is more expensive(approx 15%) but Daawat seemed to be selling more (given shelf space for Daawat)

(parthibansubramanian) #325

I live in Germany… and Daawat is cheaper and has the better shelve space…


Saw this at Star Bazaar, Korum Mall, Thane.
I was happy to see this.

But at Star Bazaar and at DMart, Daawat had better shelve space and larger visibility. Not sure about the margins available from both to Star Bazaar and DMart. I went there to try branded basmati rice and searched for India Gate as I recently invested in KRBL. But if did not knew about India Gate (KRBL) I would have purchased Daawat, seeing that it had a special counter at the centre and larger no. of options to choose from and available at a cheaper price. Not sure if the current generation would also have similar behaviour.

(GSrikan) #327

I have listened to last few quarters’ conference calls. Following are my observations.

  1. The GST seems have had big disruption in Company’s momentum of gaining market share from unorganized sector, which has gained significantly post demonetisation, The transition is not smooth as lot of retailers do not want to come under GST. Another disadvantage seems to 5% GST compared to 0% GST on private labels. Management feels 5% difference in price may not sway the customer much.
  2. Iran imports were supposed to start mid Nov post lift of import ban. There was a big disruption in Iran due to one super sized import for private label, which caused lot chaos. The exporters seem to have taken 30% haircut when the payments happened (dont remember exactly which quarter this happened). Exporter is not KRBL. KRBL now does not sell any unbranded Basmati except for Govt tenders which are backed by proper security.
  3. Company is trying hard to gain market share in US & Canada (where I believe LT foods is No 1). This market is growing at 12% and KRBL is growing more than 12% indicating they are gaining market share.
  4. Company is trying to expand exports to countries like Africa, Brazil, Europe.
  5. Basmati Seeds market share is 32-35% (since last 3 yrs). Govt is also supplying Basmati seeds at cheaper price. Though management claims KRBL’s seeds are superior with 99.98% germination rate.
  6. KRBL is first company to have got clearance for imports from China. Management expected it to be big market around Dec 2016 quarter. In recent times, they are not optimistic about China market. They say this is due to political reasons.
  7. Abt 2 years back there was unprecedented fall in basmati paddy prices to upto 21/Kg. KRBL bought huge amount of rice as it was in comfortable financial position & KRBL is the only company which ages rice in more than 2 yrs aging category. This low cost inventory is still helping KRBL in big EBITDA margins.
  8. This year Paddy prices are very high 31-32/Kg & may reach or exceed 35-36/kg. This will help in better realizations in export as well as doemestic sales. As prices are high, KRBL will procure less rice as it still has good amount of inventory. Every year price rises, the following year there will be too much supply and prices would fall eventually. This cycle is repeating since 45 years with one very recent exception of two year high prices.
  9. No more investments in Power sector. No specific plans for sale of the power assets though they do not reject the idea of selling.
  10. SAP fully implemented to track demand & supply from retailers (?) & distributors. They are using big data analytics to improve the sales.
  11. The advertising budget is same as LT foods which is close to 40 crores.

Please correct me if there are inaccuracies in my statements. These are “not” meticulously noted down facts.

Disl: Invested (4% of PF)

(Sandeep Patel) #328

KRBL is one of the companies featured in “India’s Emerging Global Companies” report by Ambit. As always, the report illustrates a good framework/checklist (deserves a dedicated thread for discussion). The following is excerpt of an interview (related to India’s EGC report) by Outlook Business with Nitin Bhasin, head of research at Ambit.

What innovation are we seeing in a commodity such as basmati rice?

Innovation doesn’t necessarily have to revolve around R&D, it could mean doing things differently. The kind of people the company hires, the kind of machinery the company uses, the branding strategy that it adopts and also what unique processes does it follow. In the case of KRBL, innovation can also be seen in its farmer engagement programme. KRBL maintains its own farms to identify the kind of seeds it should be developing for better yields even if there is not enough water. Although it has not entered into contract farming, working with farmers has helped create a strong ecosystem. On the distribution side, it has entered modern trade. It is building a portfolio of multiple brands of rice with different positioning. The KRBL story is not widely known with hardly any institutional investor presence. The whole sector was stereotyped as most rice players ran their businesses in a shoddy manner. KRBL changed the perception. Look at its return on capital employed versus the industry, it clearly stands out. Look at its branding practices versus the industry, it’s different. This is in spite of the fact that KRBL’s product may not be the most expensive compared with peers, but it is more profitable among its peers. KRBL has complete control on its production process — right from power, raw materials to the farmer. At the same time, it is focusing on making the balance-sheet better. The story for KRBL began when it developed a seed with better productivity — the rice that came out from the seed was of a superior quality and found wider acceptance. But the company did not just engage merely in product innovation, but innovated its processes as well.


(amit.hardwired) #329

Dear Dinesh,

Hi, this is amit agarwal again.

If you have read MPs book,the dhando investor…he is very much using DCF for ratifying his investment rationale. Also,he has a very strict time frame also…say about 18 months to get the most out of his investment.Since KRBL has fallen from 600 to 440 odd levels…do you think it will be able to get to 800 IN 18-24 months to get MP his desired result. YOU may be thinking I am too focused about the price,but all the hard work ultimately is for the price.

Aslo,one more thing which I don’t know is ok. In india in rice/.wheat or any sort of agricultural market there is a large amount of unorganized debt(hundi) as they call it…I think they use this thing a lot. NOt verified but heard from small people in the rice trade.This will no way reflect in the balance sheet but only pump up the value of the inventory having a positive impact on the share price.
i think MP will not be able to figure this thing out…unless he has gone to khari baoli in Delhi.

Please provide your valuable input for these.

Thanks in advance.

(Dinesh Sairam) #330

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.

(phreak) #331

Looks like a base is forming due to accumulation (Hourly chart). Could perhaps go on for another couple of weeks.

(Marathondreams) #332

News report below suggests that Iran has become largest importer of Basmati rice in FY 18 taking over from Saudi Arabia.

Hence US missile attack in Syria followed by rhetoric from Trump about Russia and Iran is bringing back possibility of US sanctions on Iran. In that case, India’s Basmati export can come under pressure. I believe this is the reason for softness of stock prices of all rice exporters like KRBL (although LT foods and Chamanlal Setia are up today)

(atulgupta80) #333

I understand KRBL is domestic consumption driven story. Share of export to total sales is falling.

(ramdhawad) #334

(ramdhawad) #335

Found this product on Costco shelf in the U.S. Please notice how it says ‘Grown in the U.S’ on top right corner. Isn’t that non compliance to the GI tagging that Basmati enjoys ? How / which body ensure the Basmati tag is not used by any other regional grown rice ? Next to this was Royal Basmati, royally claiming itself as the nos one Basmati rice in USA.

(Marathondreams) #336

It’s good to look back what management said and what they have done. The videos attached below from 2015

Discl - taken tracking position in last one week

(SD007) #337

Shareholding statement for March 2018

Cannot see the 2.7% stake by Pabrai funds here. Did he exit ?

(phreak) #338

If you see the shareholding, the only major change is the Balsharaf’s have reduced stake to about 3% (from 6.38%). This is about 73 lakh shares sold. Pabrai Funds have bought about 64 lakh shares. Although, Pabrai Funds is not listed in Shareholding, you can see that there is Clearing house (INDIAN CLEARING CORPORATION LIMITED) which is holding about 65 lakh shares. I think this could be shares of Pabrai Funds which were yet to be transferred as of 31st March, There is hardly any change in retail holding and Anil Kumar Goel’s holding is completely intact.

But then this brings the question of who did the selling in March. Did one of the Goels sell and then buyback before end of quarter because of LTCG? Or did Pabrai have buyer’s remorse and so dumped the shares after a month of buying? I don’t how clearing houses work and if they can hold a client’s shares for nearly 2 months. Can someone shed some light? It could also be the other 9 lakh shares (73 - 64) of the Balsharafs ended up in the open market in March.

(shreys) #339

Clearing houses are intermediaries between buyers and sellers. They become the buyer to every seller and the seller to every buyer. This reduces risk for the concerned parties and enhances confidence.

It increases the faith of the concerned parties by assuring every buyer that shares will be delivered and assuring every seller that money will be credited to their account.

If either party(buyer or seller) doesn’t keep their end of the bargain the clearing house will intervene and facilitate the deal.
For example-
a) If a buyer refuses refuses to pay cash the clearing house will pay the seller.
b) If a seller refuses to deliver shares the clearing house will deliver shares.

The clearing house reduces risk by demanding margin.
In most cases deals are concluded in 3-4 working days.

In this case I’m speculating so please excuse me if I err-
Is it possible that Mr. Pabrai’s fund didn’t buy the shares and lost the margin deposited. The clearing house stepped in and acquired shares of the seller and they’ve held on to it.

Second possiblity: Mr. Pabrai sold shares a few days before 31st March and in the meanwhile the clearing house was in possession of shares.

Third possibility: There’s a dispute and in the process of resolution shares are in the custody of the clearing house.