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.
Rgds
RR
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)
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 .
Q4 & FY 18 Investor Presentation
Some notes from the concall so far. Unfortunately couldn’t stay on till the end.
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.
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.
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?
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
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.
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.
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.
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 
Disclosure : sold 2/3rd of my position just before the quarterly result
Q4FY18 concall uploaded by “Stock Adda”.
Very informative.
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.
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.
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.
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 .
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).
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.
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.
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.
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.
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.
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.
The management closed the discussion mentioning that they are focusing on Africa by setting up proper office there.
Why would be your rationale for assuming that the market will take it negatively?
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.
KRBL LTD
Highlights of Q4 FY18 and FY18 Performance
Financial Performance
Q&A
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
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.
My latest Valuation on KRBL, based on Q4/Full Year results, in case anyone is still interested (Complete post here):
Just sharing few of my thoughts to get counter views:
Short term +ves:
Short term -ves:
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.
