KRBL looks like a very progressive company with ears to ground. Over the last few years it delivered decent returns to its shareholders.
KRBL is a Basmati Rice miller with nearly 2/3rds of sales from India and balance from outside India. For Fy2016-17, company’s domestic sales grew by 31% and overall net profit (including that of exports) grew by 36%. It also has a small windmill business that contributes about Rs.100 Crores in a turnover of ~ Rs.3159 Crores.
Its annual report of 2016-17 makes some interesting observations and is giving insight into the shape of things to come for the company and partly for the agri sector.
“…. creating a new business segment of super-premium foods by re-launching brown rice new packaging and launching ‘Quinoa’ a new health-oriented product.” (page 3)
My comment: It will be interesting to see how Quinoa takes off. How much will it add to revenue and bottomline in due course will be worthwhile watching because a 500gm pack retails at Rs.450/- in Bigbasket.
Market share: (sourced from page 30)
In value terms, Indian Gate brand enjoys market share of 32% in metropolitan areas, 35% in Town Class I cities and 43% in rural areas. However, overall for India, it is said that it enjoys 32% market share.
My comment: Somewhere, the maths does not seem to be matching because of the 3 segments two segments have market share greater than the average and the third has market share equivalent to that of the average.
In 2016-17, Vertically, company’s sales increased by 28.66% in volume terms and by 25.55% in value terms in Consumer pack segment. In the bulk packaging segment, company’s sales grew by 26.9% in volume terms and by 43% in value terms. In super premium segment sales volume grew by 19.36% while in value terms it grew by 10.48%. Export sales remained constant excluding a tender sale in which the company participated in 2015-16.(pages 27, 32, 34 & 35).
“The company also created a series of 11 cooking videos with star Chef Kunal Kapur.” (page 29)
“KRBL has identified social strategy as core growth strategy for the future to engage with consumers.” (page 29)
Added nearly 21,000 retailers in 2016-17 (page 34).
“India Gate brand performance has been steered by improving sales in the consumer pack categories of 1 kg and 5kg. “ (page 27)
“In its modern trade distribution channel, the company has enhanced its presence to 6500 stores, while growing market share from 27.4% to 36.9%. Initiatives undertaken by the company towards retail activation and dominating shelf-space, has resulted in improved same-store sales and category share.” (page 31)
“Viewing the huge scope of opportunity from the online distribution network, the company has focussed on strengthening its e-commerce channel. The company tied up with major players like Bigbasket, Grofers, Amazon, Shopfilo, JBL and Flipkart among others” (page 31)
“In India, metro and class I towns account for nearly 78% of the overall packaged Basmati rice demand. However, with these markets nearing saturation, the growth momentum has slowed down. Majority of the growth is now coming from Rest of Urban and rural markets, where the company has devised strategic plans and undertaken initiatives for improving quality of distribution and improving reach. To tap these markets, the company has also launched non-premium basmati rice brands to grab market share from the unbranded players dominant here.”
“In India, the rural category of the basmati rice industry segment witnessed a 70% growth and this is where the majority of the growth will come from in the coming years.” (page 30)
“The premium segment was created with the rationale of capturing market share from the hue unbranded basmati rice market , which by estimates account for nearly 40-45% of the overall basmati rice market in India, and subsequently upgrade them to India Gate.” (page 27)
“The thrust is on continuous upgradation of seed quality, for which the company works in close coordination with the Indian Agriculture Research Institute.” (page 39)
What has driven the domestic growth in 2016-17:
“Consumer pack segment
…….Growth was stronger during the third and fourth quarter of the year driven by implementation of demonetisation which impacted the business of unorganised players who were unable to operate in cash crunch scenario. KRBL with its brand goodwill, robust distribution network and trade investments was able to capitalise on this opportunity and capture a significant share of market during this phase” (page 27)
“In India, the rural category of the basmati rice industry segment witnessed a 70% growth” (page 30)
“The average selling price for branded rice increased by 12.5% to Rs.45/ per kg in 2016-17 as compared to Rs.40/- per kg in 2015-16. As a result, the sales growth in value terms was higher compared to the volume terms.” (page 27)
“Company’s rice milling capacity of 195 MT/hour, the largest in the world, lends it a distinctive edge making operations extremely productive and cost effective. Besides, the company’s state of the art storage and warehousing capacities, innovative marketing approach, expanding distribution network, deep-rooted relations with farmers through structured contract farming……These strengths along with rising brand popularity positions the company favourably to capitalise on the growing demand for basmati rice within and outside India.” (page 25)
“ 250,000 acres — Contact rice farming network coverage” (page 25)
Macro level developments that can impact the company:
As per the table on page 19, India’s cereal exports declined in the last two years relative to 2016-17 both in terms of volume and value. This is really worrisome both for the farmer and the company, though no reasons were given by the company in the annual report.
Basmati rice realisation per ton in the international market for 2016-17 came in at Rs.54,016.58 vs Rs.78,026.17 in 2013-14 — a 30% drop. While optimistically, we can expect prices going back to those levels sometime in the next 2-3 years (this will benefit the company immensely because ~30% of revenue is exports and if that goes up 30% by value terms, it is a straight addition of 9% of revenue to the PBT, other things being equal), company’s current annual report is silent on the prices in international markets though fleetingly it says “ the average realisations are likely to increase which in turn shall boost revenues” (page 20)
“For enhancing the farmers’ income the government focusses on developing a model of contract farming and delisting perishables from APMCs such that farmers can directly sell produce to consumers for earning better margins.” (page 13)
Government of India is seriously thinking about contract farming. Here is the latest news item:
Analysis: (all data sourced from Ace Equity software)
How did this company perform in the last 11 years ie., commencing Mar 2006 till Mar 2017:
Total Income CAGR ~ 14%,
PBIT CAGR ~ 20%
PAT CAGR ~ 25.7%
Net worth CAGR (after giving dividend every year without a miss during this period) ~ 20%
Total Debt CAGR ~ 8.33%
Gross Block (now called, Property, plant and equipment) CAGR ~ 22%
Net Block (now called, Property, plant and equipment) CAGR ~ 21%
Average tax rate ~ 23% (last year tax rate 22.96%) (last five years average ~ 24%)
Average RoCE ~ 15.93% (last five years average ~18.37%)
Average RoE ~19.73% (last five years average: ~ 23%)
Average PATM ~ 7.25% (last five years average ~ 9.29%)
Dividend CAGR ~ 25%
Share price CAGR ~ 33.7% (adjusted to splits, if any)
PE CAGR ~ 7.3%
Current PE ~ 24.28x
Surprisingly, in spite of such a track record of dividends and earnings, no mutual fund was holding these shares as of June 2017.
Disclosure: I own this stock