I have done my first ever analysis of a company. Below is myanalysis on KRBL. Seniors kindly review and help me on the areas where I can improve. Also kindly let me know if I have missed anything important. I have purposefully excluded the basic numbers like 3 year sales growth, profit growth, ROE etc since it is readily available in screener. Appreciate your help.
About the Company:
The company is in the business of selling rice in domestic as wells as in foreign markets. The company is also in the power business. KRBL is known for its flagship brand “India Gate”.
The company is managed by good people and the management walks the talk. For e.g., In 2011 the company said that it will Ramp up its contact farming programme to cover over 2,50,000 acres by the end of FY12. Also it guided double digit growth in export business in the next year. Both of this was executed as planned. In 2012 the company said that it will expand its installed capacity by 4-5 MW every year for the next three to four years. It did expand in the power business and the revenue from power business is growing at 30% CAGR though it contributes only 3% to the total revenue. In 2013 the company said it is planning to launch brown rice variety and it did launch India Gate brown rice as planned. The company is expecting the volume growth to be at CAGR of 12%.
The company is mainly involved in selling of Basmati rice. Though rice is a commodity, the company says that India gate is enjoying a premium of 20% over its competitors owing to the superior quality. The company sells non-basmati, normal rice as well but India gate contributes to the most of its revenue stream. The company is also diving in to new markets and launches new varieties. The company has tie ups with research institutes to develop new & better variants of seeds which requires less water and resistant to disease. In 2011, R&D expense was 220 lacs and in 2016 it has increased to 369 lacs. Management also bought back its shares during 2013&2014 and the current promoter holding stands at a healthy rate 0f 58%. The debt to equity is also being reduced. The company also reduced the inventory days due to better inventory management.
The company is also involved in selling green power. It started when the company used its rice bran to generate green power. The company sold its excess power and now the power business it is contributing to its cash flow. The power business now includes Solar, Biomass and Wind power. The revenue from power business has grown at 30% CAGR and it contributes around 3% of the total revenue.
Basmati rice can be grown only in certain parts of India and Pakistan.
Company’s flag ship brand India gate is widely recognized as one of the best brand in India as well as in foreign markets.
- Middle East is one of the major importers and any political turmoil will significantly affect the earnings.
- Iran accounted for nearly 38% of India’s Basmati Rice exports in FY 2013-14. Any ban in Iran will impact the earnings considerably.
- The company is heavily dependent of Monsoon, Price of paddy, crop diseases.
- Import ban on genetically modified varieties.
- Risk from big companies like HUL, ITC though the company says it has close relation with the farmers along with contract farming.
- High working capital
- Government intervention in fixing price (though basmati price would not get affected).
Basmati currently accounts for only 1% of the total global consumption of rice. With increasing disposable income in India and new malls, going forward the company should be able to achieve 12 – 15% growth. The company also has few tailwinds such as Good monsoon prediction, more spending on agriculture by the Indian Government, increasing population in India, rising middle class, moving towards branded products. With this the company can provide stable returns over long term with moderate growth of 12%.