One thing to keep in mind is cash requirements for holding inventory reduces significantly in Q2 of a fiscal year, and then goes up in March quarter. This has been the trend over years. Below is net cash data on half yearly basis for KRBL.
This being said, KRBL has indeed scaled up very well and funded most of their inventory through internal accruals, which is a rarity in this industry.
Disclosure: Not invested (no transactions in last-30 days)
One observation : net debt minus cash has remained near zero in both Q2 last Fin Year and in this year.
Q2FY23 CONCALL NOTES
• ADVANTAGE OF GST: KRBL is going to have enormous advantage with the imposition of GST on unbranded prepackaged rice. This has brought parity between private label and established brands. With the imposition of 5% GST, the demand for KRBL brands have improved significantly which would be witnessed in the third quarter.
Growth has been equally contributed by the general trade and modern trade e-com channels. It is notable that within the general trade channels, bulk pack segment has led the growth. The decision to charge 5% GST on pre-packaged food nullifies the advantage local players had over established brands. We have been looking forward to this for the last 5 years. This decision will formalize the sector and lead to healthy competition.
We got a big benefit in HoReCa due to the abolition of 5% GST on a pack above 25 kg. Now our every pack which is of HoReCa is 30 kilos which is out of GST ambit. Number two, we are doing all our 30 kg sales in India Gate or Unity or our registered brands. Previous year, we used to pay 5% GST and our competitors were not paying any tax because they were not branding under their registered brand. So that was a big benefit, and we are getting this benefit in third quarter. You will see in quarter 3 our HoReCa sales, especially in the domestic market, will take a jump. And I should not say, but it will take a jump of nearly 50% more in quarter 3, what I am expecting.
• SAUDI BUSINESS: We have still to finalize the HoReCa segment for which our efforts are ongoing, and we expect that during Quarter 4 we will be able to finalize it. As regards the INR 1100 crore business of Saudi, I am quite positive that we will be able to do at least INR 550 – 600 crore this year, and another INR 500 crore in HORECA business once the distributor is finalized.
• LONG RUNWAY FOR COMPOUNDINIG GROWTH: While the basmati penetration in India is at 42%, the packaged penetration hovers around 20%. We are constantly reminded of the immense headroom for growth in the segment of this business.
We consume around 95 million tonnes of non-basmati rice annually, whereas basmati rice consumption is just 2.5 million tonnes. So, as you can well imagine, there is a very big scope of growth for basmati trade as far as domestic market is concerned
• PADDY BUYING TO INCREASE SUBSTANTIALLY BECAUSE OF ROBUST DEMAND: And number two, I’ll be buying more quantity by not even 25%, it can go up to 30%, 35% more buying, because our demand in Saudi Arabia has gone up, our demand in domestic market and requirement of the branded rice has gone up. So, because whatever paddy we buy today, we have to take it in mind for the next 2 years. So looking at our demand, we will be buying 30% to 35% extra. That means 15% prices more, 30%, paddy is more. So, we’ll be taking around INR1,000 crore, INR1,500 crore from the bank this year. And naturally, our ROCE will become better.
• On the distribution front, we are diligently expanding our direct distributor network to town Class 1, town Class 2 and rural markets of India. We have effectively appointed 167 new distributors in this financial year so far, and we are on track with our target to expand our distribution reach to 250 new towns by the end of this financial year. Our numeric distribution percentages had already increased by 370 basis points in quarter 2, but we’ll be seeing the true results of this in the subsequent quarters.
• I’m happy to share that Unity brand has grown by over 40% in this financial year and is on track to reach the INR1,000 crore mark by the end of financial year 2025.
• We have developed a strong pipeline of new product introductions which span across the value-added rice segment as well as the health segment. We will see us launching few of these products in the next 2 quarters.
• We cannot say, but our expectation is looking at the crop and the demand. And the carry forward stock in the industry was practically zero this year. So, everyone is taking rice, and we expect the prices to be higher.
• So, we are comfortable as far as pricing is concerned because of our brand. It is fully shielded by our brand.
• Yes, whenever we go to the ministry, we always compare basmati rice with whiskey and wines. Basmati is the only grain in the world where the older it is, the better. And, we have been working on this basis only, whether it is GI or it is pricing. But we found out that it is not commercially viable to age the rice for more than 2 years, because cost, interest and so many things are involved. That is why we have kept it at 2 years. Last year we fell short by just few hundred tonnes of 2-year-old stocks. We went to the market and were willing to pay even Rs.50 / kg extra for a 2-year-old Basmati rice. Much to our astonishment, not a single kilo was available. I can confidently say, that in the whole of India nobody other than KRBL is having 2-year-old Basmati stocks as of today. This is where our advantage comes into play. We stand a cut above others clearly in terms of pricing & quality.
• And I would like to add one thing in the last 30 years of KRBL history, KRBL has never done inventory devaluation. It is always lower than the market price, and that is the reason why we carry aged rice
• There are 3, 4 advantages with KRBL. Our carrying cost is lower compared to the industry. We always make cash payment to the farmer and others, and thus we get 3% to 4% cheaper paddy from the market compared to many. I will not say we are the only ones who work like this, but our payment to the farmer is so excellent that we always get a cheaper paddy. Thirdly is the brand, the premium on the brands. Given these 3 points, we cannot afford at any cost to remain without the raw material. We cannot go to the market after 6 or 7 months in search of the right quality of paddy or rice. As I said earlier, we fell short by a very small quantity last year and we couldn’t get any quantities even when we were ready to pay extra. So, this year, we have decided to buy more quantities, looking to the price levels, inflation and all other costs. I was thinking of 25%, but Anoop said that we are going to buy 35% higher volumes over last year.
• ON PRIVATE LABELS: But in future, that can be a big risk to our brands because e-commerce is taking more and more share, more business-like of the whole market.
Ayush Gupta: We see e-commerce to be a very consumer-focused channel. So, consumer demand and brand strength continue to be the prominent drivers to sale. So private label player does not stand to gain a lot of penetration or market share from an e-commerce perspective because the consumers are more brand-conscious and less price conscious, I would say.
Questions:
Q1F23 was good. Q2 F23 was good. The stock price run up since Q1F23 results - Looks like people have forgotten the above concerns with a couple of good quarters
The think the key thesis for positional traders in this stock is higher export volumes of Basmati this year to Gulf states and at the same time reduced competition from Pakistani companies as their total basmati rice production is expected to have taken a hit due to the devastating floods.
At least i do not see any secular story here.
Hello Rupesh,
Great work your excel sheets are really informative
and they are as per VP format nice work
KRBL CNBC Interview:
https://pib.gov.in/PressReleseDetailm.aspx?PRID=1890710
I think its a big positive for the Long term… Driving the unorganized to organized trend… And as market and quality leader, krbl stands to benefit the most
https://twitter.com/cnbctv18news/status/1613015460093792256?s=24&t=sst1OU4X33VAunhzYD1UBw
Also this interview states that current market share is 35% and would go up close to 40% end of this F.Y.
I’m not sure if others have the same opinion, I have noticed that inflation has increased the cost of many things - medicines, infant milk powder but the price of rice (daily consumption not basmati) hasn’t increased a bit for me in the last 3 years. I’m from TN and rice is our staple diet. The daily rice which we are particular about costs only 58/kg from the last 3 years. I remember the same rice was costing 40/kg some 15 years ago. The price appreciation of this rice is pretty low in CAGR terms. This off late irks me to think if krbl or any rice selling companies have any pricing power? Their expenses may be going up due to inflation but are their realisation per quantity really increased or is it just the volumes increased due to more people becoming middle class from lower income class.
Disc:
Invested in krbl.
You may want to put little more effort and read the thread + concalls + mgmt interviews, and then look for relevant data points in order to jump to conclusions…
Krbl is a basmati seller primarily and hence it is not apples to apples to compare the prices with your local non-basmati rice
You can always look at margins to understand if realizations have gone up vis-a-vis inflation, and OPMs have indeed gone up this fy…
If you go through concalls and mgmt interviews, they hv clearly stated multiple times that realizations have gone up across both basmati and non-basmati space. I am not sure how you are getting rice for same price for last 3 years
Krbl commands a 5%+ premium pricing over its peers
Hi guys can someone tell me should we compare margins QoQ or YoY? I am seeing trend where margins drop in dec(Last year it was due to higher container cost )This year i see the domestic consumption increasing from 700 to 1000cr but exports only fell by 50 or 60cr and despite almost 30 % jump in domestic consumption the ebita is still lower then last quarter, are the domestic margins so low or is it how they value there inventory being sold or purchased?
Link to the Q3 results here
Link to investor presentation here
The sale growth is good as expected. However gross margins have eroded QoQ. Investor presentation points to below mentioned reasons for margin reduction
That being said, company seem have added around 200 distributors in India since the previous quarter. The below number was 500+ in last quarter’s presentation.
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Another interesting slide is about the inventory comparison between current and previous quarter. Company have used ~1,600 Cr. cash & about ~500 Cr borrowings to increase the inventory position by about ~ 2,400 Cr. compared to last quarter. @hitesh2710 sir, Is there a way to infer further margin expansion from these set of numbers or otherwise? Any other views that you would have on KRBL please.
Tailwinds for the business -
KRBL Q3FY23 NOTES:
• Higher total inventory (Rs 4,436 as on 31st Dec’22 vs Rs 3,168 Cr as on 31st Dec’21) to meet expected demand. We procured 47% higher quantity because we have good orders in hand, both for domestic and exports.
• DOMESTIC MARKET SHARE: Traditional trade: 32.4%, Modern trade: 39.8% (up 90bps, 810bps respectively qoq)
• QOQ REDUCTION IN EXPORT SALES: There is a reduction in export revenue in the current quarter due to ban on 100% broken nonbasmati rice. In previous two quarters, we had exported good quantity of 100% broken and nonbasmati rice to China.
• Our Saudi business is going as per expectation, and our new distributor is performing well, but we are still unable to finalize a new distributor for the HoReCa segment.
See, as far as the current distributor is concerned, it took us almost nine months to one year to look at this distributor. The biggest problem in Saudi is that everybody wants credit. There is no culture in KRBL to provide credit. So, till the time we get a distributor that agree to our terms and condition, it might take another 3-4 months, that is not important, but terms are more important, and I hope it will take another 2-3 months. After Ramadan, I’m quite sure that we will be able to finalize. We have already shortlisted 2-3 and we are going to finalize one of them in a very short period.
• DOMESTIC BUSINESS: Q3 FY23 Domestic HORECA sales augmented by GST rationalization on bulk packs, besides continuing strong retail demand.
The Consumer Pack segment grew by roughly 9% in volume terms year-over-year, with both the traditional trade and modern trade channels growing well.
Increasing distribution & penetration: KRBL has expanded outlet penetration by 15% year-over-year to reach a numeric distribution of 39.2%. In the current financial year, we have expanded our distributor count by 40% to take the number to an upward of 700-plus dealers and distributors. Annual household penetration of India Gate brand as of September 2022 stood at around 10 million households, including 1.4 million new households in this past year.
Unity today, stands as an INR 600 crores brand in the KRBL portfolio.
HORECA Segment: This segment has grown by 20% year-over-year and 88% sequentially in volume terms. It contributes roughly 40% of the domestic business revenue. KRBL plays very strategically in the segment, focusing only on top of the pyramid, which means customers who value quality and are willing to pay the price for it. With the revision in GST norms, which puts all sellers on a level playing field, the opportunity size for KRBL has significantly expanded. We are now targeting 20%-25% of this segment as against around 10% earlier and are looking at doubling our revenues in this segment in the next two years.
Regional rice: Here, all three regional rice - Sona Masoori, Gobindobhog and Kolam rice - are now launched in the market
• NEW PESTICIDE FREE VARIETIES: Those all the three, four varieties are super excellent. It has been accepted by the trade. We had made trial shipments also, trial milling also, everything went very well. And this year, so I can’t say because FY23 crop will also have a very limited quantity, but FY24 crops will have sufficient of those varieties, which is known as pesticide-free resistance-free commodity. That will help us to capture the European market and American market, where the pesticide issue has been come in a big way. And normally, in every speech, we say, that it is nothing but a nontariff barrier for which we accepted the challenges, and we are ready for that, but it will be in FY24.
• We are into branded sales, we don’t make a single export in a private label
• Now any order, which is to be shipped in the month of October or November, It cannot be from the new crops. It is all to be from the old crop and all that – that is why the reflection of the prices, quantity, everything because of Ramadan, you will see in the fourth quarter. Soumen Choudhury: So, realization should be better in this quarter than what we have seen in the third quarter? Anil Kumar Mittal: Definitely
The company’s biggest advantage is its share of Mind of its brand IndiaGate brand is a strong brand, whenever I hear IndiaGate, My mind suddenly Completes it with Basmati Rice. Just want to confirm if is it the same with everyone else or if I my mind just has some bias. 
Wrote something on it a month ago, sharing it here.
KRBL, the largest producer of basmati rice in the world, is a company with more than 100 years of legacy. The company is headquartered in Noida, India. With a comprehensive product chain for integrated rice products.
India is one of the fastest-growing economies in the world and is expected to stay that way for the next 5 years if not for a decade, there are many tailwinds that are currently helping this growth one of them is India’s large young working population which is fueling demand for almost all the product one can imagine available under the sky, from biscuit, Chocolates, luxury clothes, Expensive vacations, Gold, Silver, Homes, Cars etc etc. Rice is one such commodity, though traditionally the Indian basmati rice market is dominated by Small and unorganized players there are a few well-known brands that have a strong market presence such as Daawat By LT Foods, Kohinoor, and Fortune Rice by Adani Wilmar and some other, but by far the dominating player in India is KRBL’s India Gate Basmati Rice brand. The company has a strong presence not just in India but outside India as well, they are well poised to take advantage of the evergrowing branded basmati rice market.
KRBL has more than 700 distributors across India, with 3 lacs+ retail outlets operating in more the 750 cities. Indian Gate Brand does not just have a share of the market but the share of mind in the Indian consumer mind, and they maintain this with regular advertising of their products strategically across regional markets. The company also has Introduced a new basmati rice brand ‘Unity’ In India which has grown to a 600+ Crore brand in the year 2023. In total, the company generated revenue of 4253 Cr INR, and already has done 4083 Cr INR in 9 months of FY23, FY23 is already on track to be the best year revenue-wise for the country.
The company not only has a strong presence in India but a strong presence around the globe. The company has ~40% of its revenue attributed to exporting rice. The company has a leadership position in GCC(Gulf Cooperation Council) region, India Gate is the #1 Indian Basmati rice brand in Qatar, UAE, and Bahrain India Gate is the only premium Indian Rice brand in GCC, Nur Jahan is the 2nd most popular brand in the region and preferred brand among price-conscious consumers. India Gate is the #1 Indian Basmati rice brand in Canada both in Ethnic and Modern Trade. Nur Jahan is the #1 Indian Basmati rice brand in South Africa with a 53% import share.
Back In India Company has ~34% market share in basmati rice with a dominant presence in ethnic trade and a strong presence in the Modern business of rice.
Links
Looks like sectoral tailwinds coming due to global rice shortage.
D: Not Invested, tracking atm.
