KRBL- The King of Basmati rice


(senthil kamaraj) #562

(Harshit Goel) #563

KRBL Ltd FY18 Annual Report Notes
Company performed poorly in the domestic market but showed good growth in the export markets. Company launched several products in organised branded market, specially in the lower price range segment to give competition to the unorganised basmati segment. Following are the highlights from AR2018.

  • Consolidated revenues grew by 3% to `3264 cr. on account of better price realization of rice both in domestic & international market and higher income from Power, Furfural oil & Glucose Business.
  • Highest ever EBITDA of `792 cr. , an increase of 21% over 2016-17. EBITDA Margin stands at 24% as against 21% in 2016-17. Gross margins were the main driver for good operational performance.
  • Highest ever Profit before Tax of `655 cr. , an increase of 22% over 2016-17.
  • Highest ever Profit after Tax of `434 cr. , an increase of 9% over 2016-17. PAT Margin stands at 13%.
  • KRBL has four rice processing/grading plants which are based in Delhi, Punjab, Haryana and Uttar Pradesh. The Company also has a modern packaging and foodgrain warehousing facility at Alipur and Barota units.
  • Company’s energy portfolio of 146.94 MW consist of 114.35 MW in Wind Power Projects, 15.00 MW in the Solar Power Projects and 17.55 MW in the Bio Mass Projects.
  • The total sales for the financial year 2017-18 from agri division was 3,122.81 Crores, as against 3049.65 Crores in the previous fiscal. Rice sales accounted to 91.39% of total revenue from operations. Export sales grew by 19.14% in comparison to the previous year. Middle East region accounted for 25.77% of the Company’s total revenues.
  • The Company reported export sales of Rice for 1,299.90 Crores in the 2017-18, an increase of 20.16% from 1,081.80 Crores in the corresponding period of previous fiscal year. It derived around 40% revenue from the international market with strong presence in Gulf Cooperation Council (GCC) countries apart from other countries like Australia, USA, UK, Singapore, South Korea, Germany etc. Ventured into new markets like Europe, especially Netherlands, Belgium, Sweden, Guadeloupe, Germany.
  • KRBL’s sales from domestic rice business was to the tune of 1667 Crores in 2017-18, compared to1822 Crores in the previous fiscal.
  • The average selling price for branded Basmati rice was up by about 30% in 2017-18, compared to the previous year. Imposition of GST was one of the reasons for the price increase, besides other market factors.
  • The sales in bulk packaging segment in FY2017-18 grew by 6 % in value terms as compared to last financial year. Some of the Company’s prominent institutional buyers in this segment include Taj Group of Hotels, The Leela and ITC Hotels.
  • At 195 MT/hour, KRBL has the largest rice milling capacity in the world.
  • Its flagship Basmati Rice brand India Gate commanded a 35% market share (in branded Basmati rice segment in value terms), the highest market share for any company in the sector in the combined urban and rural areas in 2017-18, an increase of 3% from the previous fiscal.
  • While the overall industry growth in this segment stood at 16.5% in volume terms and 21.3% in value terms, KRBL has achieved a 27.6% growth in volume terms and 36.9% growth in value terms in the consumer pack segment in the fiscal.
  • The Company has launched India Gate Jeera Rice brand in the southern region market in 2017-18, which has been well received by consumers in that market, going by the sales figures in the first year of its launch.
  • Launched India Gate Sprouted Brown Rice. filed for patent on the manufacturing process of the product.
  • Due to high inventory company had very little CFO of Rs. 41.66 cr.
  • rice being a highly price sensitive item, absence of GST on loose rice being sold could be a dampener in the acceleration of growth rate in branded rice segment.
  • India’s rice exports surged 18% from a year ago to a record of 12.7 million tonnes in 2017-18 and accounted for more than 25% of the global rice exports.
  • The surge in the country’s rice exports was mainly on good demand for non Basmati rice from Bangladesh, Benin and Sri Lanka.
  • The surge in exports came riding on the back of an increase in domestic rice production, which was expected to touch a record 111.01 million tonnes in 2017-18, up by 1.2% from the previous year’s level.
  • To give impetus to rural economy, the Union Cabinet, in its meeting held on 4th July 2018, has increased the Minimum Support Prices (MSPs) of all “Kharif Crops” including that of Non Basmati Paddy from 1,550/- per quintal to 1,750/- per quintal. This may lead to higher area under irrigation for Non Basmati Paddy, and may result in the increase in prices of Basmati Paddy also.
  • Rice production in 2018-19 is forecasted at 493 million tonnes, up from 486 million tonnes in 2017-18. Rice consumption also is forecasted higher, at 493 million tonnes, as against 487 million tonnes in 2017-18.
  • The major export markets for Indian rice are the Middle East, Africa, the EU and the US.
  • Basmati rice, cultivated in some selected areas spread over from UP to Kashmir, with Uttarakhand and Himachal Pradesh including, constitutes only a small portion of India’s total rice production, around 6% by volume. However, in terms of value, Basmati rice exports account for about 60% of the country’s total rice exports.
  • The introduction of higher yielding PUSA Basmati 1121 variety in 2003 and shorter duration semi-dwarf PUSA Basmati 1509 variety in 2013 has supported strong growth in Basmati rice production in the last two decades. The new variety is being increasingly adopted by farmers due to shorter growth cycle, lower irrigation requirements, and higher yields compared to other traditional varieties.

Regards
Harshit


(abhishekshete) #564

Harshit -

Thank you for your through review on the annual report. Did you find any guidance on why the company sales were only 3% up even with the strong export growth? Does management discussion speak of reasons for not showing expected 10-15% growth in revenue in domestic market? Also - I was wondering if you came across any guidance for future revenue growth.

Thank you in advance
Abhishek


(Harshit Goel) #565

Hi.

Management did not gave any guidance for future. Focus was more on launching more products in the organised segment, going forward that will remain the focus area for domestic market.
Sales growth was tepid due to degrowth in domestic segment, GST on organised segment and cheaper products from unorganised players was given the reason for degrowth.

Regards
Harshit


(cool_gaurav) #566


(cool_gaurav) #567

Is the reason given by management is true or reason is default from Iran? As per an article, export has hit in June qtr due to default


(GSrikan) #568

I might be wrong but my assessment goes like this. It seems the revenue hit is more due to Ramzan shifted by one month (The management mentioned it in the concall too about this). The importers in gulf countries buy more a month or two before Ramzan. So, the preponement of Ramzan by month (it seems every year Ramzan gets preponed by a month) shifted some revenue to previous quarter. The current quarter was bit tepid as exports don’t buy much during Ramzan month.

The 200 cr worth goods getting stuck at port might be routine thing and management might have used it as excuse. It might be partially true up to may be 50 cr or so [this is purely my guess].

Management is still closely monitoring Iran situation, so no specific guidance on that. They clearly stated that they have no amount involved in the Iran default. They also said they do very less business with Iran (about 5% of revenues).

The management was not very forthcoming in their answers to either augusta westland (they deny it in a single line) or about not owning the India Gare brand for non basmati stuff.

Clearly it is headwinds time for KRBL (augusta, auditor, pesticide issues (this might blow big), raw material prices (increase in rice MSP causing paddy procurement price never going below 25 rs), GST, iran sanctions etc

Discl: Invested


(cool_gaurav) #569

I liked your candid reply. I agree with you that Management is not transparent, the answers they were giving on concall was not convincing.


(kkarimyusuf) #570

Islamic year is 11 days shorter than the solar year. So approximately 1 month advancement every 3 years.


(venkat457) #571

The LT Foods results are out and looks better. When someone (in this thread itself) comparing LT and KRBL the point highlighted is about Debt. In the presentation the DE ratio is brought down to a reasonable level of 1.25. Can we consider this company to get better valuations in next few qtrs ?

Daawat Results.pdf (803.4 KB)


(Susindar) #572

I looked at both Daawat and KRBL and decided on this one as the PE valuation is half of KRBL. Both are excellent brands, but my understanding is that Daawat is spending much more on branding than India Gate. On top, KRBL does not own India Gate brand exclusively for all products and the recent issues regarding corporate governance is a big distraction for KRBL. More often than not it has been seen that there is no smoke without fire.

Valuations should definitely close between these two companies (whether it is LT Foods going up or KRBL going down remains to be seen). Last 10 years growth and ROE gives comfort at these levels to hold.


(Harshit Goel) #573

Latest Credit Rating report of KRBL.
https://www.icra.in/Rationale/ShowRationaleReport/?Id=72414

Key Points

  • The profitability has improved significantly in FY2018 and in the current fiscal on the back of high premium on stock of aged Basmati rice, increased contribution from branded sales,and firming up of average realisations–both in the domestic and export markets.
  • The integrated nature of operations of the company’s agri-business segment and contribution from the renewable energy segment inherently boost profit margins.
  • The resultant healthy internal accrual generation and limited capex requirements have decreased reliance on external debt to meet funding requirements of the business. This is demonstrated by the steady decline in the percentage of inventory funded through external debt from around 66% as on March 31, 2014 to 47% as on March 31, 2018.
  • The inventory, valued at cost, also carries a pricing premium in light of the increase in Basmati rice prices, both in the domestic and international markets.
  • Iran, one of the leading importers of Basmati rice from India, intermittently imposes import ban which affects the demand and pricing dynamics. In this fiscal, there is the added risk of trade sanctions onIran by the US, which can impact supply to that country.
  • Another growing risk for the industry is the tightening of pesticide residual norms by importing countries. The European Union has already imposed stringent norms with effect from January 1, 2018. Saudi Arabia (another leading Basmati rice importer from India) is also considering the same. These norms can severely impact the demand for Basmati rice from India.
  • Paddy prices have firmed up considerably over the past two procurement seasons, resulting in an increase in the cost of inventory.

Regards
Harshit