KRBL- The King of Basmati rice

(kauban) #403

The non branded sales essentially includes the small bits of basmati rice grains that end up getting broken during sorting/processing (in North India I have heard the term “Basmati Tukda” being used so I am guessing thats what this is). KRBL sells this in gunny bags without putting their brand name on it. Usually a low margin product, so they tend to sell this mostly in the domestic market.

The Non Basmati segment being recently pushed by the company is sold under the India Gate brand and the management has said they are only focussing on the premium end of non Basmati varieties of regional rice (like Kolum, Sonam, Jeera rice, maybe Gobinda Bhog also someday). These products usually have a selling price of more than Rs 100 a Kg in the domestic market. In addition they have also launched, as many know, Chia seeds and Quinoa under the non Basmati segment.

(phreak) #404

I think “Not concentrating on non-branded business” is another way of saying they lost the low margin domestic market that they gained during demonetisation. I remember reading in last year’s AR that they had separate brands for low-margin segments to cater to different market segments. These brands are in no way related to their premium “India Gate” brand and I see no reason why they shouldn’t continue to sell these as well. Selling 25% less volume and still maintaining top, bottom and margin is commendable, no doubt but if those 100000 MT could have yielded a low 10% EBITDA margins, could have improved the bottomline easily by another 10%.

They moved 436376MT domestic last year vs 312570MT domestic this year - Last year’s topline contribution was 65% (of 3150 Cr) while this year’s topline contribution is 60% (of 3250 Cr) which means that they sold to domestic market at an average of Rs.62/kg while last year it was Rs.47/kg. Some of the difference in realisation is due to basmati rice commodity prices going up but the rest is because they lost or decided to not do the low-margin business. The low-margin business will have higher capital turns and should improve RoCE, so I see nothing wrong in doing this business under their differentiated brand approach without diluting the premium India Gate brand. Saying they won’t do it because they want to maintain their EBITDA margin is like Hatsun agro saying they will only sell Hatsun curd and not Arogya milk because milk is low margin.

(GSrikan) #405

I remember the management mentioning in one of the concalls that they stopped exporting non branded basmati rice and they participate in govt auctions which are secured. If I am right they were talking about stopping supplies to these big retailers who buy from basmati selling companies and sell them under their own private label. They don’t pay upfront and also not secure.

I believe the same might have happened in domestic business now. They might have stopped supplying to big retailers for private labelling??? Doesn’t that fit into “non branded business” properly?

I didn’t listen to concall so my understanding is pure theory. Please correct if I am wrong.

(Marathondreams) #406

I think company is doing OK in most of the business areas except the area of capital allocation. I think it would be interesting to watch how KRBL utilize OCF they generate every year. In the past, they have (wrongly, in my opinion) invested in wind/solar energy assets for lower tax rates (to claim accelerated depreciation). Now the management reiterated that they are not going to invest in those assets (due to lower tariff and no more accelerated depr benefits). Buying renewable assets all over India for tax benefits and lower energy cost was hugely distracting for the core business.

I hope management either tries to become debt free or takes some investor friendly steps like buybacks or dividends. On con call, management mentioned about possibility of making acquisitions. I am not sure they need acquisitions in the area of Basmati. Hope any move management makes would be EPS accretive. The past does not give much confidence so :crossed_fingers:

Disclosure : sold 2/3rd of my position just before the quarterly result

(GSrikan) #407

Q4FY18 concall uploaded by “Stock Adda”.

Very informative.

  1. As expected the GST caused significant domestic marketshare (from 45 to 38%) being lost by all the Branded/Organized players to Unorganized. Management is confident Organized will gain back in next 2-3 years and reach 50% share.

  2. Volumes declined by 20% (100, 000 ton FY18) still KRBL was able to post 3% revenue growth as almost all of volumes lost was unbranded.

  3. This year/quarter they had MTM losses of 13 cr (which become part of finance costs) compared to 16 cr gain in last year/quarter.

  4. Its true that management is looking at aquiring some NPA assets. My opinion: If it is big number like whole of REI agro (1000-2000cr??), then market may take it negatively .

  5. Management realized that they priced the quinoa too high and they are bringing it down to realistic price. Next year they are targeting 100 cr from this health food segement (including chia + flax + Brown rice).

  6. KRBL started selling & also going to enter new premium rice variety segment. Expects it to become significant in next 4-5 yrs. Management mentioned that the response is good for Jeera rice (produced in Bengal) when introduced in Kerala. They are going to sell 1 yr aged Kollam rice in/from Maharashtra.

  7. The paddy procurement prices have gone all the way upto 39 rs/kg and now down at 35 rs/kg. KRBL avg procurement price is 31.5rs/kg. For KRBL, the war with other players is usually won at this stage (and also 2 yrs ageing allows it to have large inventory). This year too, it seems, management has succeeded at procurement level with their experience.

  8. Within domestic branded basmati rice, KRBL has now 35% market share (increased by 3% this year). They are trying to take it to 50% level in next five years.

  9. Overall, except sanctions on Iran (which too is not very major issue as it is staple food there and it is exempted from sanctions last time) and few major conflicts in small countries like Yemen etc, there does not seem to be much for us investors to be concerned about.

  10. Got to watch keenly about how domestic volumes will come out of GST effect. The retailers still seems to have not want to come under GST ambit. The unorganized have stopped labeling and moved into lose selling to avoid GST.

  11. For some reason board decided to re-discuss buy back after 120 days. No particular reason given though. Does the board expecting the price would come down due to patchy market conditions or they simply giving more preference to look at NPA asset acquisition.

  12. The management closed the discussion mentioning that they are focusing on Africa by setting up proper office there.

(Amit Mehta) #408

Why would be your rationale for assuming that the market will take it negatively?

(GSrikan) #409

Success rate of acquisitions turning out to be good is quiet low. The decision making has to be done very carefully taking into lot of things into consideration. If the acquisition is very small scale (spending of fraction of yearly profit), then market won’t mind with the experimentation. If the buy price involves multi year profit, then it becomes a serious risk for the company. It not only has to buy the company, but also has to invest some money for revival which will further put stress on balacesheet. Hope the buying involves only assets of distressed company, which involves less risk and also decision would be easy too.

This is my opinion with very limited knowledge of business and investing world.

We can have better discussion once decision is made. Now all we know is management is looking at NPAs for aquisitions. Too abstract to deduce anything.

(smehta) #410

Highlights of Q4 FY18 and FY18 Performance
Financial Performance

  • Q4 FY18
    o Revenue de-grew by -3 % to 881 Cr over 914 Cr last year same quarter
    o EBITDA margin stood at 23.78 % over 19.40 % last year same quarter
    o EBITDA grew by 18 % to 209.59 Cr over 177 Cr last year same quarter
    o PBT margin stands at 18.33% over 17.3 % last year same quarter
    o PBT stood at 161.54 Cr over 158.56 Cr last year same quarter
    o PAT stood at 95.28 Cr over 109.25 Cr last year same quarter because of high provisioning on tax
  • FY18
    o Revenue grew by 3 % to 3264.06 Cr over 3157.93 Cr last year
    o EBITDA margin stand at 24.27 % over 20.7 % increase by 366 Bps last year
    o EBITDA stood at 792.03 Cr over 653.85 Cr last year
    o PBT stood at 655.01 Cr over 537.56 Cr last year
    o PBT margin stood at 20.07 % over 17.03 %
    o PAT grew by 9 % to 434 Cr over 399.40 Cr last year
    o EPS stood at 18.46 rs per share over 16.91 rs per share last year
  • Key Highlights
    o Paddy prices remain high during the year but company get advantage of high inventory of last year at very low price of 30,000 to 31,000 paddy price and the prices went high to 39,000-40,000 per ton and current it is 35,000 rs per ton
    o Exports were good . Challenge is because various countries like challenge in Yamen , Iran , Lebanon . Despite of all this company had a good year


  • Is there any plan of company to work on non-basmati segment in India ?
    o Yes plan is there . Company had started India Gate Jira Rice and consumption is very good in south-east region , launch in Kerala and get very good response . Company stock level is quiet high and going forward it will increase
    o India Gate Son am Rice
    o India Gate Kollam Rice getting very good response in Maharashtra
  • What portion of expense is done on Non-Basmati segment compare to Basmati ?
    o Non-Basmati segment consumption level in India is 95 % and only 5 % consumption of Basmati is there . There is no big brand in Non-Basmati Segment so it is a big opportunity for KRBL to tap the market. Company expect 100 thousand ton sale in next 2-3 year from this segment.
  • Is there any export opportunity in Non-Basmati rice segment ?
    o Yes there is but company is not much concern about it because margin at bottom line is very low and high risk . So company will only do it to countries who will give company a margin of 6-7%
  • One of major distributer had sold off its stake in the company so will be there any impact of it ?
    o No that distributor was just in need of fund else business relations are same
  • What will be the sustainable EBITDA margin ?
    o 23-34 % , because of concentrating on Branded products now
  • Is there a substantial increase in branded business ?
    o Company had cut down the business from non-branded product . So EBITDA has come up and it will continue
  • Does company see any pricing pressure with inventory of 2400 Cr ?
    o Company is holding at very low price . Average price of paddy is 31,500 per ton against 35,500 in current month price . Total share is 331 thousand at the rate of around 42.7 per Kg compare ot market price it is very low and this benefit will be continue
  • What is the outlook on prices ?
    o No correction , Except KRBL all other stock are quite low because company sell aged Rice at good premium . In next half of FY19 prices may go down by 3-4 % but cost price will also go down by 5-7 % so EBITDA will not get disturb
  • What was the number for previous year fiscal volume ?
    o 589 thousand tons so there is loss of 100 tons . It was totally Non-branded segment . The prices for branded product had increased very well . Good quantum in revenue and volume both in exports to 169 thousand tons from 153 thousand tons . Quantum went up by 10 % and volume went up by 20 %
    o According to new accounting standard company had around 75 Cr of realisation This year it is about 165 Cr about 18,000 ton because Ramadan is going on and shipment were too much in February and March it will come in April and May. Total exports were up by 12-13 % in quantum terms . So more focus on branded segment both in export and domestics
  • Is there any GST impact ?
    o No dip in consumption is there. Company market share had increase 3 % to totalling 35 % market share . 7-8 % sale was done to institutions .
  • How much total domestic sales to Institutional sales ?
    o 10-12 %
  • Why company is reliance on external debt in spite of good profit and cash flow generation ?
    o It had increased in march only. Finance cost is 69 Cr and it include 18 Cr of M-M loss in forex . Interest cost has come down from 55 Cr to 51 Cr . Debt is there because of high inventory level of 2500 Cr against which 1164 Cr Debt is there. Total debt has increase by 163 Cr . Shareholder fund increase by 407 Cr . But base rate has come down by 153 points . Cash and bank balance were 165 Cr . So debt not come down significantly . Cost of borrowing was low
  • Kindly provide volume data of domestic and exports in Q4 FY18 ?
    o Domestic
     Q4FY18
    • Volume was 87 thousand Metric ton compare to 82 thousand metric town last year same quarter
    • Value stood at 498.13 Cr over 127 Cr last year same quarter

 FY18
• Volume was 436.37 metric ton over 312.570 Metric ton last year
• Value was 1821 Cr over 1667 Cr last year
• Average realisation price was 53 rs per kg compare to 41 Rs Kg last year
o Exports
 FY18
• Basmati value was 1,25,937 metric ton over 1,49,595 metric ton last year
• Value was 1006 Cr over 1207 Cr last year
• By quantum Basmati was 19 % up and by volume it was 20 % up
o Export of Non-basmati
 FY18
• Volume was 19,245 metric ton over 27,106 metric ton up by 30 %
• Value was 92 Cr over 75 Cr last year
o Overall export
 FY18
• Volume was 168840 metric ton over 1,53,460 metric ton
• Value was 1299.91 Cr over 1081 Cr

  • What will be the company guidance on middle east current situation ?
    o 44-45 % major import are done by Saudi-Arab and Iran from India
     In Iran
    • Sanction is coming time to time but there are no essential commodity such as Rice , Medicine etc. Rice is a stable food and they have to import it . 90-95 % of rice consumed at Iran is basmati rice so there will be no effect.
    • Effect will come from banking channel it will become more tight.
    • There are three way to export in Iran
    o Direct to Iran – 750-800 thousand tons
    o Via Dubai – 150-200 thousand tons without levy of import duty
    o From Baghdad & Iraq– 100 thousand tons
    • So total market size is around 1.05 Million
     In Saudi-Arab
    • Good quantity of rice were exported in FY18 and it will continue
    • There is a shift there , they import for 3-4 month and keep it for ageing for 1-1.5 year because they don’t have any dividend in terms of interest and they also put their money into rice .
    • Next year the volume may be little high or low depend upon how the new crop is going to come.
    o Company own a 36 % market share in UAE against 7 % of it peers.
    o In Qatar company brand is No-1 in the country and No-2 is also company own brand name Noorjaha
    o In Berny , Lebanon , Oman , Kuwait company share is at least 20 % and its peer have less then 50 % of what company have
    o Middle east is about 75 % of total market of company Basmati Market including Iran . Now it all depend on pricing and economic situation . Looking at current price of crude of 77-78 $ their economic condition seems to be better .
    o 8-10 % increase would be every year as per basmati rice is concern. Company focus is on branded segment which may give a little kick
  • What was the M-M loss in Q4 FY18 ?
    o 13.29 Cr and for the full year it was 18 Cr
  • What was the share of the Non-Branded in terms of volume and value ?
    o 50,000 ton in volume , 150 Cr in volume
  • What percentage of sales comes from Non-branded ?
    o In Domestic -3-4 % , Export – 5 %
    o Company is entering in premium segment of Non-Basmati where MRP is more then 100 Rs per Kg which are speciality of certain region
  • Is there will be a boost in sales after GST as people are shifting toward branded ?
    o Yes , most of small players has started not to pay GST and remove all their brands from bag . They are just marketing loose bags. So temporarily the ratio is 45:55 in branded and non-branded it has convert to 62 : 28 . Further it will be 50 : 50 .
    o In time when Non-branded will come to branded the biggest benefit will be for company Brand India Gate
  • What is company planning on CAPEX ?
    o Normal CAPEX of 10-20 Cr will be there
    o As they are many NPA in the Rice Industry company will be looking for Acquisition
  • How will be volume going forward in Domestic market going forward ?
    o From 2000-2017 company now hold 37 % market share . it is because of quality , Brand name, Customer trust , marketing. Company is looking at 50 % of market share going forward in next 3-4 years. Also shift from Non-Branded to Branded Basmati will be bigger .
  • How was the response for Kinnova brand ?
    o It was priced quite high. Expecting a sale of 120-130 tons in India and export of 100 Cr in next 2-3 year
  • Why does company don’t look to fund working capital with Debt and use Cash flow for something innovative on other area ?
    o Company Board is looking for it
  • It there will be any impact if ITC Ltd come in field of Rice ?
    o Many company had come and gone because it is a business of speciality and it take 50 years for company to understand it . So company is not worried about completion
    o Company is worried on how to grow volume from 450 thousand ton to 900 thousand ton in next 8-10 years
  • What is the outlook on Paddy cycle and basmati rice cycle in next 12 months ? How big is the branded basmati business today ?
    o Currently Basmati market is about 2 Million tons out of whish 800 thousand ton is for branded and 1.2 Million is of Non-branded . Out of 800 thousand ton – 35 % is company share . Company expect this 800 ton to grow to 1.2 million tons in next 3-4 years
    o Paddy cycle start from November to January . 85-90 % comes in January every year . Expecting 10 % drop in price in next year . Average realisation will go down by 5 % and company will manage it
  • What was the exports for company in Q4 ?
    o Branded
     Volume was 34000 Metric ton over 26000 Metric ton up by 33 %
     Value was 297.17 Cr over 204.03 Cr up by 45 %
    o Non- Branded
     Volume was 32056 Metric ton over 17797 Metric ton
     Value was 17.40 Cr over 27 Cr
     Realisation was 53 Rs compare to 26 Rs
  • Does company SKU prices shift on variable rates ?
    o No it is fixed
  • Does the company forex loss is on net receivable ?
    o No , company order book if very strong for next two quarters and company don’t take risk of keeping the dollar open . So this is the reason , big amount come in march because company order book was depreciated by 3-4 % that is the reason of loss.
    o Next quarter company top line will increase due to dollar depreciation so M-M is a notional loss. If the company had not book the dollar then it was company risk .
    o In April and may company had further book 35 Million dollar
  • Does company will again show the increase in volume compare to last year ?
    o In real term domestic sales had shown a decline of 7-8 % in quantity term but in value term it has increased . Company market share had increased 3 %
  • What will be the volume growth going forward ?
    o 10-15 % growth in domestic and export market . Company is concentrating on market share to increase by 1-2 %
  • What is the rise in price of basmati market in last 5 month ?
    o Paddy price increase from 33 Rs to 38 Rs today average was 34-35 Rs. So there was a volatility but overall market was on higher side
  • What was the corresponding paddy price last year for company paddy inventory last year ?
    o On opening stock it was 22 Rs last year and closing stock price was 25 Rs Per Kg
    o Rice , Opening stock was 31 Rs Kg last year and Closing stock price was 37 Rs per Kg
  • Why does company is not going for a buyback ?
    o Company board is thinking on it
  • What will be effective tax rate for the company ?
    o Company had invested in wind power and there was a accelerating depreciation , It was the major reason to invest in it to take the benefit of depreciation but now government has withdrawn accelerating depreciation . Return on wind power is also not good . So company revenue in ATI stands at 125 Cr this will be tax free for next 5-6 years . So company will be in tax bracket of 27-28 % only if company don’t do any investing in depreciating asset going forward
  • What is the company current capacity as Todi plant ?
    o 45 %
  • What further scope is there in EBITDA for the company ?
    o It will be in range of 24-25 %
    Management Note
  • Board will discuss on Buy Back in next Board Meeting .
  • KRBL is the only company in African countries to have 100 % own Brand . So company will concentrate on Brands

(Mahendra243) #411

can u share the link from where we can see all script?

(Gothamcapital) #412

Thanks for the great article.Can you also find out if mohnish pabrai has an investment in krbl as of now.The shareholding for 31 march 2018 says the supposed shares that mohnish bought are with the clearing member.

(Dinesh Sairam) #413

My latest Valuation on KRBL, based on Q4/Full Year results, in case anyone is still interested (Complete post here):

(GSrikan) #414

Just sharing few of my thoughts to get counter views:
Short term +ves:

  1. Oil prices going high increasing revenues to arab nations, which are the primary sources of revenues for KRBL.
  2. KRBL deciding to not invest further in energy assets. My estimate is they would looking to sell the power assets which are independent (I mean excluding the power generated from Agri waste). Even if they don’t get an attractive deal, it would still be very good for investors, as power division would not be generating as much return ratio’s as compared to agri division. With the money it gets from the sale and with no more investment to be done on power assets, the free cash flow would be very good for future business expansion (ex: for aquiring Rice NPA assets, to invest in inventory based aged kollam rice business etc.)
    (Can anybody caclulate, what will be ROCE & ROE of agri business i.e. excluding power division?)
  3. The GST & easing of demonetization induced cash sqeeze, made domestic business suffer. So, the current domestic earnings being reflected in the stock price are depressed earnings. There is good chance, they will grow at decent pace due to low base, indian economic recovery in urban and rural etc.
  4. The competition having low inventory is forced to buy at current high prices of procurement increasing their inventory costs like debt. The increased realizations would offset those costs but not as much as in low inventory cost environment. The high procurement cost scenario is the scenario which favors the financially strong companies to gain market share over not financially strong competition.
  5. I am not sure how much inventory from last season are still left with KRBL but the old low priced inventory may provide some more support to ebidta margins for couple of more quarters.

Short term -ves:

  1. Not much of visibility over how Iran sanctions effect would turn out to be for Basmati players (even if sanctions wont apply on food items like Basmati, the banks being sanctions would affect the money flow causing disruptions).
  2. The current valuations of 24 PE for inventory heavy business like KRBL would still not leave too much of margin of safety for investor.
  3. Need to watch out how the new businesses (quinoa, chia, flax etc) would work.
  4. Need to watch out the effects of newly procured high priced paddy on this year’s and next year’s profit margins and return rations.

Discl: I don’t have much expertise in investing or in Basmati rice industry. Please consider these points only for further research. I Invested at 450 rs (5% of PF). Views are heavily biased.

(shreys) #415

Frankly, I’m skeptical that increased oil prices would benefit KRBL. Just like reduced oil prices didn’t have any substantial change in the lives of common Indians I can’t imagine why elevated oil prices would change the consumption patterns of the populace of oil producing nations. The government probably benefits but common persons, I doubt it.

(Chandragupta) #416

Agree with the previous comment. I don’t think high oil prices will make the Arabs eat more basmati. Also, I am not sure if the management would be looking to sell power assets. All they have said is they would not invest more. I was surprised at the buyback talk in the concall as there is very little cash on the balance sheet, with a thousand crore working capital debt.

On the positive side, rupee depreciation would help the company.

(GSrikan) #417

Agree that its staple food and the consumption amount may not vary much in economically bad and good years.

When it comes to consumption, an economically good year gives more assurance than and economically bad year. Also, India gate classic is most expensive and aspirational brand. When people have more money in pockets, they would tend to celebrate more and also their purchasing power of expensive things becomes more.

When oil price increases, Govt gets more money to spend on infra etc which would put more money in the pockets of people (indirectly). The gulf countries are well known for their generous bonuses when they are earning well.

The selling of power asset theory is my guestimate. It might or might not happen. I am guessing, it can happen. Management is finding the further power investments unattractive. So, I am thinking, they could get rid of the already present assets too, as it would help them have sufficient cash on books to buy rice NPA assets (they have disclosed this intention).

(VP_amit) #418

@phreakv6 @shreys

I checked with KRBL investor relations and have received the below reply after about 13 days (received the below reply on 25th May):

"Dear Sir,

This is with reference to your trail mail regarding shareholding details. In this connection we would like to bring to your kind notice that company get the beneficiary position from respective depositories through its Registrar and Share Transfer Agent (RT) Alankit Assignments Limited. Accordingly, the name of Pabrai Fund is not reflecting on beneficiary position received by us from depositories. However, name of Indian Clearing Corporation Limited with holding of 6494891 Equity Shares is reflecting on the beneficiary position. Company’s concern is limited upto the beneficiary position received from the depositories and not security market operations/media reports as mentioned in your mail.

Kind Regards,

  • Does not clarify much to me, do you understand something new? Surprising thing is all media outlets reported this on 12th Feb, BSE bulk deal report for 12th Feb supports this (it lists Pabrai funds as the buyer of these 64 lac shares), so how can these shares still reflect under clearing corporation 6 weeks after the transaction (i.e in KRBL’s 31st March share holder report)?

(Dinesh Sairam) #419

This might help:



So, looks like there could be some kind of regulatory or technical difficulty in transferring the shares to Pabrai Funds. We have no way of knowing the truth unless Pabrai himself answers this or someone from CCIL officially confirms what is happening here.

(Growth_without Debt) #420

Does the company earnings profile change once big /known investors buy shares of the company? Finally long term return of retail investors depend on company earning growth and ROCE. We should identify companies and invest before known investors invest in it. They should follow us instead we follow them…this is the best rule for highest return but not easy to implement!
Second point- big investors has accumulated wealth and they have capabilities to lose and remain invested even price correct 50% but small retailers lose capital by exiting on correction aa they don’t have financial capabilities and patience

(s) #421

Conviction on limited funds is always the most difficult thing. Markets reward conviction and realization…There is always a gap which is where fear rules. Following success is the easiest path

(bullbuffet) #422

What are the factors that Pabrai would have seen to commit almost 400 cr to KRBL. Would be interesting to think along these lines.