KRBL- The King of Basmati rice


(phreak) #361

This is my understanding. There could be gaps. Inventory in the balance sheet could be raw material purchased and finished goods. This could be unmilled rice as well as rice left for ageing for KRBL (major part of inventory as ageing is part of the business model).

Inventory in the balance sheet is expensed in the P/L as ‘Cost of Materials consumed’ and as ‘Change in Inventory of Finished goods’ in the quarter where sale happens. Cost of materials could also be off-balance sheet as well for KRBL - For eg. Power, fuel, packaging etc. Change in inventory is negative when goods produced during the quarter didn’t contribute to the topline but went towards inventory and positive if finished goods from the inventory were sold in the quarter. For KRBL, finished goods seem to be hardly stored in inventory - so its mostly rice stored for ageing. Most of the inventory expensing happens via ‘Cost of materials consumed’.

You can see the same in this.

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See how the inventory moves every 6 months. Please note that half-yearly numbers are for half-year (Mar-Sep) while March numbers are for whole year. Procurement season is in the second half of the year and the borrowings (mostly short-term, for WC) as well moves in a cycle in sync with the inventory. Inventory is definitely expensed via Cost of materials as the other expense line-items are too small in comparison to the topline.

Value of inventory I think is at cost for KRBL since value is usually either cost or realisable value - whichever is lower. So the 1289 Cr inventory KRBL holds in Sep-17 could have been built in FY17 procurement season and a relatively small part of it even earlier in FY16. Another thing to note is that not all product lines of KRBL are aged for 2 years - if I am not mistaken only India Gate Classic is, so that will also dictate what % of the inventory is held for what lengths.


(gangtom) #362

(harish_balani) #363

Dear forum members,

I have gathered my thoughts on KRBL on my blog:

I have tried to touch upon all the aspects of analysis. Would be glad to hear your views.

Disclosure: Tracking, have invested an insignificant amount.


(jajushobhit) #364

Great work Harish. It’s a well articulated piece. Specifically liked your analysis on the energy business.

Regards
SJ


(ramdhawad) #365

Great insights and article on the company. On your concerns of capital allocation to energy, haven’t the management clarified that this won’t be the focus for any future capital allocation? Instead any future capex will happen around either developing new products or scale existing operations? Please correct me if I am wrong.


(Growth_without Debt) #366

Good work harish bhai …Can you share comarision between LT Foods and KRBL. Is LT Foods better in capital allocation than KRBL?


(phreak) #367

Looks like that big bad breakout I was waiting for has come. The volume is a bit misleading though as a bulk of it is not part of the price/action.


(GSrikan) #368

This could be reason for the spike. Should be trading activity. Even HCG up by 5%.


(Kumar Saurabh) #369

20 DMA kissed 50 DMA and flied and now with huge volumes which seems confirmation and we have fundamental export data to support. Cant get better than this. Hope this converts into good results :slight_smile:. Great, thanks for initiating the chart pattern discussion


(Dakshina) #370

Harish

The analysis is practical and connected the dots specifically around capital allocation. Thanks for the good work and sharing


(ramdhawad) #371

Changing macro, rupee weakening, oil rising ( gulf economy doing well ) could be a positive for this counter since majority of their revenues are realized from exports.


(Gothamcapital) #372

Any idea what the management guidance is for the revenue growth??


(harish_balani) #373

Thanks SJ. Appreciate the encouraging words.


(harish_balani) #374

Thanks. Yes, the management has indicated in an interview that they don’t find the energy business attractive anymore. We will have to observe the capital allocation trend in future.


(harish_balani) #375

Thanks. I haven’t analysed LT Foods in detail, and therefore cannot comment upon it. Will certainly share my work if and when I analyse it.


(Dakshina) #376

I noticed there is a considerable fluctuation in the tax % and not able to understand. Can some one please elaborate on this. Thanks

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(ad9) #377

Wondering if US likely sanctions on Iran would affect basmati export volumes


(Parag) #378

Management clarification on impact of Iran deal

Essentially, there is no impact of Iran deal on KRBL as of now as Rice is an essential commodity and it is kept out of sanctions in the past.


(kv) #379

Just as a comment, the energy business was undertaken to save taxes by utilising the 80% accelerated depreciation benefit. While I have not done the calculation, management seems rational since this benefit was reduced they have said they will not further invest.


(Gothamcapital) #381

Same issue here too.I cannot see how this can be a multibagger.There is no revenue guidance either.