Has Pabrai really bought into KRBL? As per the latest SHP, his name does not figure there. Though similar quantity of Shares seem to be stuck with CCI, but why would that be so…I guess more questions than answers.
This post above gives a possible explanation to your question, my guess is if Pabrai had bought those shares it would be reflected by now, he may have reneged in light of some new information.
This is all purely speculation of course.
Results out. Numbers are pretty flat.
It seems Year on year, finance cost (30 cr) and increased direct tax (16 cr) ate up all the higher profitability (of 36 cr; 181 cr vs 145 cr) from agri segment. The growth in agri segment profitability is about 25%, which is good. The low inventory cost would still give some cushion for 1 or 2 quarters more (not sure though). I believe, Q4 FY 2017 finance cost was artificially low because of some forex gains (If I remember right).
Please let me know, if my assessment is wrong.
Reason for higher margin may be due to better export sales (up by 25% YOY). But lower domestic sales (15% down YOY) should be cause for worry. Year end borrowing went up by 200Cr but quarterly interest cost went up by 30 Cr… It seems they may have taken bigger loan during the quarter but some of it may have paid back by 31st March.
Despite the big rise in exports in Q4 - Rs.8071 Cr by value vs Rs.6136 Cr in Q4, FY17, KRBL has managed to shrink its topline from 912 Cr to 876 Cr in the same period.
The basmati rice export realisation is at a 2-year high (Rs.70 in Q4)
I think KRBL has conceded a lot of domestic market share - Otherwise I don’t see how they could have shrunk their topline when exports have grown by 32% to their target markets. My thesis was on domestic market share maintenance/growth but it looks like that this is not happening. They have still maintained good margins likely because of the export growth but lack of topline growth negates my thesis.
Disc: Exited a bulk of the position today.
Apparent slow increase in topline in domestic sales could be misleading in many companies since ,unlike past, now GST etc are not a part of topline. Key, to my mind, will always remain growth of bottom line.
I have gone through previous 4 quarters results (apart from current one). There is an interesting thing which can be observed.
Q4 FY17 was the first quarter after demonetization. The demonetization caused such a short squeeze that the organized players have taken large share from unorganized players during that quarter. The revenue from domestic agri sales jumped from 429 cr to 630 cr. If we observe the following quarters, there was no such jump. The figures are either flat or decreased by few crores. Due to high base effect, this quarter showed a huge decrease of about 100 cr. If we consider from 2 yrs perspective, there is a revenue growth of 110 cr from a base of 429 cr, which is like 10% growth per year.
Since the cash is back into economy with full force (thus unorganised gaining back market share) and GST having temporary negative effect on organised players, these results can’t be considered bad (though can’t say good either). My guess is small retailers still not willing to come under GST ambit causing problems to KRBL’s domestic growth. Probably, we will get a better clarity post concall.
Good work @harish_balani! Just a comment on your concern of inappropriate capital allocation by the management (@kv1 has in a way shared it above but I am sharing some more specifics). Mr. Anil Mittal’s rationale is available in below mentioned link (last question in the article):
DEEPANSHU: You also have a presence in energy sector. How much does it contribute to your books? What’s the outlook and update on the energy business?
Mr. Anil Mittal: As far as the energy business is concerned, the main reason for foraying into that segment was to take advantage of MAT. For the last 7-8 years we were falling under MAT and the internal rate of return (IRR) was 22-23 per cent. Now because of the current power pricing and the output, the IRR is falling below 22-23 per cent and so we are no more interested in power sector.
I believe if the IRR is below reasonable target rate, and management still continues to allocate funds to unsatisfactory IRR projects then management should be blamed for inappropriate capital allocation. I agree with you that investors need to keep a close eye on how management acts towards the energy business in the future.
Looking forward to more business analysis for other business from you. Good luck!
@GSrikan You are right. If one goes through
Q3 2017 concall when they were asked about impact of demonetisation, they had said actually they got benefitted by it because many sellers dealing in cash had a hard time and that quarter returns during demonetisation were over and above normal. That could be one reason why domestic yoy performance is subdued but let’s hear from them during concall. Was listening to their concalls last week ,so, remember this clearly
I too remember hearing it in the concall. But, I assumed that they retained the market share they gained due to demonetization. It seems it lasted only one quarter. If you observe Q1FY18 onwards the YoY domestic sales growth is either flat or marginally negative. This might be the first quarter they had shown positive revenue growth if there was no demon. We need correlate the volumes and realisations for last few quarters for coming to proper conclusion though. But I am fine with current results. Need to study LT foods and chaman Lal (if they disclose) to see if their revenue is behaving similar or not. If not it means KRBL has been losing domestic market share since some quarters (Is it Amitabh effect? )
Dom Rev has been down for last few qtrs due to Gst as per Mgmt. Good to see qoq uptick. It’s very unlikely that India Gate will lose mkt share now which they hv been gaining for last many yrs. Nothing has changed on the ground. Mgmt will likely reiterate this tmrw in concall.
And don’t compare Chaman Lal as they don’t compete with KRBL in India or abroad. And they look intelligent so they never will.
If you see these two section from FY17 AR, they did gain significant domestic market share in Q3 and Q4 FY17 due to demonetisation. Domestic:Exports ratio in revenue contribution changed to 65:35 from 47:53.
They had over 25% in domestic growth in FY17
My gut feel after going through all numbers remains that they have lost a significant portion of the market share they gained during demonetisation. They have posted a flat topline only because exports must have compensated for the loss in domestic market share back to unorganised.
CLSE actually lost domestic market share during demonetisation. FY16 domestic revenues were 94 Cr and in FY17 it dropped to 89 Cr.
CLSE’s export contribution in FY16 was 81% and in FY17 it was 82%. I guess the “Exports” in their name makes sense. Now another way to look at this whole thing is through CLSE’s revenues in FY18 (so far).
By quarters - Revenue has grown QoQ and YoY every quarter.
Q1 revenue growth - 33%
Q2 revenue growth - 56%
Q3 revenue growth - 69%
Overall 9 month growth is 53%. Overall Indian Basmati rice exports have grown 22% in the period which means CLSE has performed really well and provided they don’t lose their 20% domestic contribution drastically, they may do well in Q4 and grow their topline because of their 80% export contribution. It looks to me like if domestic market doesn’t play nice to organised basmati players, it might be better to look at almost pure export players.
This is all based on numbers am seeing. I might be interpreting things wrong so its better to hear things coming out in the concall tomorrow at 3pm.
UPDATE: After posting this, I noticed that they have uploaded a Investor Presentation for Q4. It does confirm that they have lost domestic market share.
Now since I am editing this, might as well add about LT Foods.
This is how their domestic:international revenues look
In short, their export contribution was 39% in FY17 and used to be 44% in FY16 - So they did capture unorganised market during demonetisation (since topline grew 10% during the period). I suspect they may befall the same fate as KRBL in Q4 i.e loss of domestic market share back to unorganised.
If you look at the table above, exports have started grow by value and also realisations in FY18 after a 3 year lull with Q4 showing the strongest growth, I believe whoever has favourable export contribution in the overall revenue mix is bound to do well. It may not be KRBL or LT Foods but I suspect CLSE could do really well with their over 80% export contribution and since they are a small player and growing off a small base.
Disc: No holdings in CLSE (yet)
CLSE is primarily export but from last 2 quarters despite of high double digit revenue growth , p&l is flat due to change in inventory of finished goods adjustment . They do not age their rice too n not much disclosures . So, kind of beyond my understanding . Only thing could b owner being at top of rice association may be good at playing cycles n might ve tried to build huge inventory at lower price , m not sure .
Q4 & FY 18 Investor Presentation
Some notes from the concall so far. Unfortunately couldn’t stay on till the end.
- Deep cut on non-branded business lead to low topline growth of 4% because they want to maintain margins.
- 100000 tons reduction in non-branded rice this year vs last
- Holding 330,000 tons Rs.42/kg inventory
- Export % up 12-13% by volume
- Focusing on branded export and branded domestic
- 10-12% is sale to institutional players
- Inventory is 2500 Cr which is why debt has gone up despite good cash generation - 1164 Cr WC debt -
- Interest for debt is lower now though debt is higher
Here are my notes.
Management is very calculative (in their own words) and seriously thinking about buyback as suggested by one of the callers on the call.
Main focus on improving volume. Currently, domestic basmati market is 2,00,000 MT, out of that 80,000 MT is branded basmati. And KRBL holds 35% market share. Going forward they are expecting domestic volume to go up to 1,20,000 MT in next 3/4 years with more market share gains (aiming for 50% market share).
Due to GST, branded basmati rice business is shifting to the organized player and KRBL expect this to continue. KRBL expects the branded basmati PIE to increase as well as increase their market share.
Full stop on Power investment going forward.
They are venturing to rice which is aromatic and requires ageing like Jeera rice.
Not worried about competition. Over the years, leading domestic and global companies tried to enter the market, but could not succeed. They are not concerned too much about new competition. They are focusing their attention on how to increase the volume to 900,000 MT from 450,000 MT today.
Expects domestic and export revenue to grow by 10% in next few years (CAGR).
Overall, I am very impressed with humbles of the management and their thought process.
The market has already priced in for the management excellence and their execution capabilities. Any further rerating will depend on how much higher margin they can command for India Gate brand as further increase in profit should be from margin expansion as the 10% volume CAGR looks pretty ordinary.
For the people who attended the concall: did anyone ask regarding Pabrai funds buying a 2.7% stake in KRBL in Feb 2018? And if they did buy, then why is it not reflecting in the share holders report for quarter ending 31st March 2018?
Sorry but what is non branded business for krbl…does it mean selling stock to other companies,…is non branded sale domestic or even in exports…thanks