Detailed article and easy to understand. Thanks!
Wait and watch is my call now. However price may drop in near term whenever there is any update in this case.
Those thinking fake profits should remember this is a product at top shelf’s and at all pricing points visible at all major retail stores in India and abroad. Leadership in India as well as Middle East region(largest basmati rice importer).
Leadership could also be checked in Nielsen reports.
Disc - No holding, had held before.
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P. jeweller is also a brand however doomed due to corporate governance issues. Kwality was also a brand, several brands have vanished including Yes Bank due to cheating by promotor. No analogy in your logic.
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@remi , @priyankar_13 , @bhavin.mehta2810 and others - Good to knw ur views on the issue.
While the moat\brand\competitive advantage of KRBL has been discussed on this thread in detail, my intent is to develop an understanding that this isn’t a case of value getting locked up. I’ll try to describe the concern in more detail now : -
The returns from an investment come thru business growth as well as multiple re-rating. Sometimes, cos. giving out large cash dividends consistently become part of the returns but we’ll ignore that part for this case. The co uses its FCF to invest in building up inventory and hence doesn’t have a great dividend payout or yield.
So, the returns come down to 2 factors -
- Business volume\profitability growth - Let’s say KRBL executes and gets this
- Multiple re-rating - This is whr it has taken the hit and might continue to take if the ED cases go on. Already, some multiple de-rating has happened over last 2 years. So, the business growth gets nullified by the multiple de-rating and thus investment returns suffer.
The problem is that poor narratives take over and thus the valuations suffer for a long time. This is something which is described in detail by Rohit Chauhan in his blog : -
It is kind of theory of reflexivity\ Halo effect - Low price multiple for some time will start driving the narrative the other way - that it’s the mgmt fault for not getting out of these issues.
An extreme example is Berkshire Hathaway - thr consistent focus on maintaining a pristine REPUTATION has contributed to returns in a way that BRK has always sold at a premium to Book value multiple range. And, if sometimes, the multiple plunges, they do buy back shares and enhance value.
Yes, KRBL mgmt too have done share buying from open mkt time-to-time but its impact has not been quite significant.
My comparison with BRK might be an extreme but I am using it only as a benchmark to assess this mgmt’s actions vis-a-vis the troubles they’re in.
Disclosure : - Invested. My investment was made as a purely quantitative undervalued pick. Using the recent events to sharpen my understanding of softer aspects and understand how mgmt’s actions and response to external events drives the valuation.
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Buffett invested 40% of his partnership’s networth into American Express when it was stuck in the salad oil scandal. Shares had crashed 50% (reasons can be read online, its well documented).
Buffett went out on the street to understand if Amex’s core business of travellers cheques was affected in anyway whatsoever and found that the business was running smoothly. The markets had over reacted. The earning power of the business was unimpaired and so he bought and bought and bought, putting 40% of his and his partners networth into it.
Buffett later regretted that he sold too soon.
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KRBL has received revision in credit ratings from ICRA and CARE
Documents here,
https://www.icra.in/Rationale/ShowRationaleReport/?Id=101103
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Results are out for Q3:
Sales 1120cr vs 2019 Q3 1329cr
Profit 145cr vs 2019 Q3 159cr
Ur profit figures are reversed. Its 145 crs. for this qtr vs. 159 for last one.
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Anoop kumar gupta’s custody got extended till 12th Feb. I just wondering if they hold him for 12 days of custody without naming him or KRBL in Augstawestland case’s charge sheet(not sure if it is filed yet) . What would they do in Embraer deal where Mr. Gupta and KRBL have been included in chargesheet.
@rupaniamit I can see you have done very good analysis on KRBL… What’s your thoughts on this situation?
Thanks in advance!
Thank you @ValueV for reaching out. I will be candid with my response but don’t want you or others to be influenced by my decision.
It’s a personal choice. One needs to do the due-diligence and evaluate business risk:reward situation and see how it gels at portfolio level and with one’s investing goals.
Even today I like KRBL’s business part very much. But its the issues which have been an overhang on the stock price. I was invested in it for 3+ years before pulling the plug. Patience becomes even harder in such raging bull market. Opportunity cost is something that is very critical for me. Since I have other better investable opportunities - I decided to pull the plug after they announced Mr. Gupta being taken away for custody and moved to other opportunities. I just hold a small position now which I intend to hold for tracking purpose.
This doesn’t mean I am not going to look at KRBL again. I will continue to track the progress with the ongoing issues. In future if it is available below Inventory levels - I may initiate a net-net statistical bargain position even with unsolved issues. End of the day its all about risk : reward proposition.
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Thanks for your reply! Assuming if everything will go bad which could go wrong what would be business or brand future… Next generation will come into picture and manage business day to day operations? Or takeover by other business? This are question which need to be answered before I make it large positions…
Views are invited.
Disc. Invested for tracking purpose
Problem isn’t mch on business front or new mgmt or brand strength. This is more an issue of a narrative going on negative side and bringing a baggage of uncertainty with it. In mathematical terms, this is one more variable added to the problem and the more the variables, more the probability of either one of them hitting on the investment thesis.
As I see it, thr are 2 scenarios which might be helpful in mgmt analysis of those who put mgmt quality as a factor of thr investment : -
a) The mgmt is not involved as they’ve communicated regularly. In this case, they still played close to the line and didn’t went out to proactively clear things out. If they have an eye on stock price, smthng mentioned in Q3 presentation, thn wat is\was thr plan to tackle it.
b) The mgmt is involved and fresh evidence points to thr involvement. In that case, the covering up of last few yrs is going to catch up eventually sooner or later. Then this becomes a case of catching a falling knife.
@rupaniamit : - Thanks for ur disclosure. Some follow-up questions :
-
Though u mentioned others not to be influenced by your decision, weren’t u at any point in your holding period of last 3 yrs anchored on your own analysis and missed out on selling early?
-
I assume that in your initial thesis u had factored that these ongoing cases were thr agaist the company. Didn’t you factored that such an event - taking MD into custody could materialize? And a knee-jerk reaction to such an event resulting in sell-off and price drop was given. Did/Did not a comparatively rising bull mkt and ur holding period with comparatively lesser returns made u biased towards selling the position?
Happy to hear ur and others’ views 
Disclosure :- Invested. No change in position in last 30 days.
As I said it before - It’s a personal decision. My decision may not be the right decision for anyone else.
I have my own “time-stop-loss” rule. It got triggered. Simple. I feel such issues are not resolved overnight and it may take few years. I see issues being an overhang for possibly some more time in future too. It has already been a dead position for me for last 3 years. I cannot afford it to be dead for 3 more years. I have other investment opportunities which are more worthy of my time - imho. If I didn’t have those options, I would have stuck with KRBL.
I have no issues with moving-on and this is not the first time that has happened with me. I reserve the right to be wrong by selling KRBL now. And I also reserve the right to change my mind and re-enter tomorrow if facts change.
If I was having a multi-crore rupees portfolio, I wouldn’t have sold a single share of KRBL and I would not have “time-stop-loss” rule as part of my portfolio management. My investment decisions are driven by my investment goals. Decision to sell KRBL was largely in direction of being able to meet my short-term and long-term investment goals and staying true to my portfolio management rules.
I don’t want to take up any more space here to justify my actions or prove anything out. Let’s shift the focus back to the business, facts, and specifics of KRBL.
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@rupaniamit Do you have any idea of what could be the consequence of worst case which you mentioned as scenario b ? Will it impact KRBL or only Anoop Gupta?
Hi,
I have not invested in KRBL but following it as the business seems to be doing quite well. The brand is well recognized and they can easily expand to other categories. Issue with promoter is key to take a long term call.
I am not able to understand the overall low TTM P/E ratio given to KRBL& its peers (LT Foods, Chaman Lal Setia). KRBL does not seem to be an exception.
Is there any fundamental issue with the sector itself?
It would be best to think on our own on such subjective points since the consequences would be borne by us individually.
Amit has contributed quite a bit, and provided enough points for all of us to do some study ourselves
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Looks much deeper than thought initially… 
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I was going through company’s filling regarding AW case but they did not attach any copy of order passed by court. They should attach copy of order as appendix. Anyway, After struggling for while, I have downloaded all the copies but I am not able to attach here as it is not allowing to upload files as I am new to this forum. Just to update all of you Mr Anup Gupta has suffered Covid
Pneumonia in November, 2020 - you can read this in order dated 30th Jan 2021. I could not find any filling from company regarding this in exchanges. Isn’t it material news from investors point of view?
I have written to CS but they do not reply… Not sure if anybody is able to reach their CS department.
Will update in case they reply.
Thanks! Views are invited.
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Hi amit ,thanks to you for presenting such detailed information about this company .Just shows how much a person can learn on this forum.
i will sum it up why i would buy this stock tommorow
1)Business moat of high barriers of entry ,capital to age inventory ,200 acres of godown (big players tried and already burned hands)
2)Reduced external debt to fund inventory going forward ,will increase cash flows,good divdends going forward.leading to buybacks or dividend
3)Going forward i feel india might see china level growths if that happens increased income more consumption of basmati rice as it is premium product(3%market share)
4)low pe valuation for what seems like the number 1 brand (great purchaseing power over debtors end users),(premium over competitors)(pe re rating has to happen ,what i can see is people chances of people might not as easily substitute from basmati rice to some other food option but they might from an apple to some other mobile tech AHEM AHEM nokia and blackberry)
Now few more question for you would be great if you can answer them
1)Are the inventories valued at the cost which is it procured or at sales value?
2) Since you have been following con calls and management how good is the management in walking the talk ,talking striclty from business perspective? predicted growth sales number etc since last 5 to 10 years
3)Any info,insider knowledge how capable are the new second gen leaders?
4)what is your opinion about investment in power business?
Thanking you again i binged through the entire thread after mohnish pabrai selling and have decided will be buying shares at dip(will take 25% allocated amount on monday) , it still baffles me such a brand is available at such valuations when nifty is sky high. mohnish pabrai after successful investing in maotai would have considered this business with so i think accounting and a strong moat is present that to at 600 levels i will be buying it at almost quarter of that price.
disc:i have done my own research and i might be catching a falling knife so i request you to do your own due diligence and invest in the stock .
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6e40f909-f7f3-4099-a17c-333466fd3a24.pdf (131.1 KB)
Company reply…
Krbl as well as Mr Gupta has nothing to do with Augusta Westland Case.
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