KRBL- The King of Basmati rice

Stock Opportunities Untested - but worth a good look
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A lot of jazz and FMCG talks in the entire call.

Interpret what you can. This was the most important bit in the transcript was this below:

" Chetan Doshi: My question is, is any sale carry forward due to this non-availability of labor and second wave of COVID from March ending to the current quarter? And second question is what are your plans to increase shareholder’s value? Because see, from I think last 10 years if you see our profit has gone up from say Rs. 100 crore to Rs. 560 crore. But if you see in last three years, the shareholders’ value has depreciated. So, when we say in terms of leadership, it is not getting reflected on the shareholders’ value. So please your comments on this.

Anoop Kumar Gupta: As far as carry forward of sales is concerned there is not much which is carry forward. We are normally…what has been carry forward it is normal in the business. As far as your question of creating value for the shareholder, you know what is happening from last three years on the legal structure which I would not like to comment, but market has really discounted that thing. You also know three years back we were at Rs. 670 and today we are at Rs. 240-250 whatever. So, market has discounted that not because of the business because of some legal issues. And I think the worst has happened. Everything now is going to be on the positive side only. The worst has happened, and market has discounted with a full flow…my share price. Now I think everything has been done well, and we are very positive in the future. "

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989

Discl. Invested In KRBL

Felt the same about the con-call. The new leadership seems to be more emphatic with their words with very less content. They spoke about some overhaul Project Disha but lacked completed substance. I am surprised they didn’t talk about capital expenditure for this overhaul.

Having said that, I think the company continues to have a strong moat (large basmati rice player; very high operating margins, clean balance sheet & procurement through contract farming). And basmati rice in itself has a strong moat (GI tag etc.) Granted that this management is lacking but the underlying business is still strong to hold. Will revisit this hypothesis every year.

990

Could you please tell which website hosts audio of conference calls?

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992

CARE gives KRBL same rating but with negative implication removed:

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993

Hi , In concall they explained that volume only increased by 1% but this was not premium rice but borken rice export to China. Volume of premium rice went down hence margin went down.

Strategy :
I felt happy to hear details of how they are looking at growth to 8000 Cr.
a) sticking to what they do best - premium food products … not diversifying to everything else. So Rice, expand to sonamasuri , Devbhog premium Varity… Expanded to quinoa & rice bran oil. .
b) will consider further expansion to health food segment
c) marketing /branding is a clear strategy for them.
d) continue to expand in the UAE + gather Canada and other markets.
e) India market is driven primarily from other rice entries . Sona Massoori is 18M Tons per year opportunity.
Disc: Invested recently.

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994

@Adarsha : -

Taking a single con-call on face value is not ideal. I suggest go over at least last 5-6 qtr concalls to see frm whr the business is comng to whr its going or was supposed to go.

Aprt frm the moat (basis which I assume u invested in this stock), a correct assessment of whether the MOAT is widening or narrowing is required.

Disclosure :- not invested as of now. Had invested 20% of my portfolio earlier & exited.

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996

10-15% shortage of Basmati rice.
Price of first crop of one of the rice varieties is up from 19rs last year to 28-30rs
Other varieties prices also expected to be up 10-15%
KRBL has a stock of 300,000 tons, highest in industry
Realizations expected to go up in Q3 and full effect in Q4

Acquisition of a food company can be announced by Dec21. Cash on books 850cr

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997

Rating revision- upgrade( negative watch removed)

Per rating press release cash amount seems different-

The company had free cash and bank balance of Rs.159 crore as on March 31, 2021 (PY: Rs.13.45 cr as on March 31, 2020) and current investments (equity shares) of Rs. 18.89 crore as on same date (PY: Rs. 5.84 crore).

Some additional triggers per above release -

  • Demerger of renewable biz ( 3% top line and 8% profit share)
  • Income tax issue settled and 100 cr refund expected

Big risk of legal overhang will keep some pressure against fair valuation, else available at 40% discount to long term 5 yr PE averages ( 16) , balance sheet is much stronger but growth has been subdued as well barring Q1 22. Things may/likely to improve per @pikrohit post above

Small position , thanks to @pikrohit on tech charts thread posting

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998

HI, thanks your suggestions.
my investment rationale is simple.
a. company has 38% of Basmati Market. Undoubtedly has held and expanded this in last 2 years as well
b. Basmati price has increased comapred to last 2 years. biz model of company is to buy and hold rice for 2 years. Bought heavy when prices were down last 2 years , sitting on inventory of 2800 cr which can be sold at +25% at current market price. So near term profitability is going to increase.
c. company generated good free cash. gets stuck for 3 years due to this biz model nevertheless its also the strength of balance sheet that allows company to do so.,
d. I like their young leaders - professional , spirited and want to grow this company.
e. I see 2 opportunities. GI tag is getting resolved positively , new rice variety might help them produce without pesticide - so EU can open back again… hence market opportunity in 2-3 years
f. They are only entering new markets in their Circle of competence . - Healthy foods or other strong rice varieties where premeierization is highly possible. Imagine all of super rich of South who only like Sona Massori don’t have a premium brand… All of the higher middle class doesn’t have a good option today. So for me this is a good market creation possibility which can easily add 1M Tones to its volumes .
g. Company is undervalued. for its brand strength , distribution strength as well as cash it generates. Discount its biz model related charges - thats a Moat which they can manage due to high Gross margin compared to anyone in the industry.

thanks

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1001

Hi, this is a great thread, and really interesting to see how things have played out since almost 10 years back.
Having read all of your concerns about KRBL’s litigation related issues, I believe the market has already discounted these issues in the share price - any exacerbation of the issues won’t drop the prices drastically anymore, is my assumption.

Plus on the financial end of the analysis, I would like to state the close competitor L T Foods, has not produced consistent Free Cash Flow in the last 4 years, for 2018, and 19 the free cash flow generation was negative. KRBL has had constant FCFF generation for over 10 years, that’s crazy!
Plus one look at D/E ratio of KRBL and L T Foods is enough to state which has a much more attractive capital structure. L T Foods has a D/E of 0.9, and KRBl has 0.1.

Over the last 10 years, KRBL has had 20% ROCE, whereas L T has been ranging at 14 and 15%.

And from my personal experience living in the gulf for a long time, India Gate is there everywhere!

Disc. Invested in KRBL

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1002

For learning purposes, how do calculate the acquisition cost of the inventory?

And what do you mean by getting stuck in this business model as it generated good FCF?

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1003

KRBL Q2FY22 Results.
Rev decreased from Rs 1135.9Crs to Rs 1035.2 Crs Y-o-Y
Profit before Tax has gone down from Rs 202 Crs to Rs 183 Crs.

e0386df2-cc81-44a2-bf62-3c16a1ee2bab.pdf (bseindia.com)

Investor presentation

371508b1-ac78-4237-9a16-40eb85ab0c10.pdf (bseindia.com)

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1004

Cash on the books is around 900cr. Anyone know what this is about? Not seen it in previous quarters.

image
image1725×595 72 KB

Source: KRBL Ltd financial results and price chart - Screener

1005

During the quarter the inventories have got reduced by app. 900 crores which have been converted into cash balances.

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1006

Ok. Given that it is a cyclical business (harvesting only in certain months), why would inventory be converted into cash only for this quarter as compared to the same quarter (of previous years)? I was curious about that.

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1007

Krbl concall notes :

Container shortage weighing on exports

One vessel carrying 28k ton of rice broke down during the quarter
It reached destination at October end and payment received by November 10
So 140 cr revenue was taken off the quarter

Basmati prices currently up from 28k per ton to 36k per ton
Krbl has 2000cr inventory bought at lower price

New pest resistant basmati variety (required for Europe) was successfully grown at PUSA. Commercial production expected by fy23

Talks going on for 5 months with a company for acquisition in food segment (announcement will be made once agreement is signed) (acquisition is made for the brand of the company which is to be acquired)

Also in process to set up plants in Maharashtra, karnataka, West Bengal and kandla for producing local variety the rice to drive further domestic growth

Domestic business : volume growth 102% and sales growth 77.9% yoy
Branded rice grew 56% in volume and 51% in sales

Highest ever quarterly sale of consumer pack
Horeca sales growth in double digits over pre covid levels

Saudi Arabia new distributor (problems with previous distributor balsharaf) could not be finalized because of travel restrictions
With the expected ease of travel restrictions by November end / December start, this problem will be solved (Saudi is a big market for them. Previously they used to export 1lakh tonnes. Currently at 20k tonnes ) the numbers from Saudi Arabia will show up in q4
Already they are in advanced talks with 3-4 people and only need to finalize the deal

:- In Krbl now, visible growth drivers are starting to appear now…

New plants of regional varieties
Acquisitions
Overseas markets opening up ((new (Europe) and old (Iran and saudi))

So even if re-rating doesn’t happen on the pe / multiple front due to legal issues , growth will drive the share price

And if legal issues are resolved, then only boomm​:boom::boom:

So we have margin of safety of the business getting better and stronger along with the big upside of multiple re-rating

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1008

Do you think the legal issues are going to be resolved anytime soon?
KRBL prices are historically low and promotors haven’t increased their holdings though they have already promised this in the previous concalls and TV interviews. If worst is already over, then promotors could have increased their holdings and thus giving confidence to the shareholders. This didn’t happen yet.

Infact their previous buy price was higher than the current market price.

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Release Date - 8/11/2021
https://www.icra.in/Rationale/ShowRationaleReport?Id=107903

"ICRA has reaffirmed the ratings assigned to the bank limits and commercial paper of KRBL Limited (KRBL). While reaffirming, the ratings have been removed from Watch with Negative Implications, and Stable outlook has been assigned to the long-term rating. The ratings were earlier placed under Watch with Negative Implications after the company announced, vide its stock exchange notification dated January 31, 2021, that its Joint Managing Director, Mr. Anoop Kumar Gupta, has been detained by the Enforcement Directorate (ED) in connection with the ongoing investigations of the AgustaWestland case. Further to this development, in April 2021, Mr. Gupta was released on bail as per the company’s announcement, vide its stock exchange notification dated April 5, 2021. ICRA notes that the ongoing litigations/investigations did not have any material adverse impact on the company’s operational and financial profiles, as reflected in the company’s healthy financial profile and strong liquidity position in the recent times. Nonetheless, ICRA will continue to monitor the developments in this matter and any adverse
impact of the same on the credit profile of the company "

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1010

Saw that Augusta Westland ban on bidding for Indian defence contracts has been lifted. Case is still ongoing though. What does this mean for KRBL?

Source - Govt removes defence procurement ban on AgustaWestland, parent company Leonardo | Latest News India - Hindustan Times

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