KRBL- The King of Basmati rice

(rajput.delhi) #394

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.


(phreak) #395

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)

(Kumar Saurabh) #396

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 .

(Roy) #397

Q4 & FY 18 Investor Presentation

(phreak) #398

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

(Parag) #399

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.

(Susindar) #400

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.

(VP_amit) #401

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?

(ad9) #402

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

(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):