KRBL Ltd

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About the Company

KRBL is engaged in the world’s leading basmati rice producer and has fully integrated operations in every aspect of the basmati value chain, right from seed development, contract farming, procurement of paddy, storage, processing, packaging, branding, and marketing.

Q3 FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a bad quarter with a 6% rise in consolidated revenues and a 49.7% fall in PAT at a consolidated level.
2. Gross profit was down 25% YoY while EBITDA in Q3 declined 44% YoY.
3. Gross margin declined 770 bps to 21.6% while EBITDA margin declined to 10.6% from 19.3% last year. The gross margin decline was due to changing product mix and rising input costs.
4. The EBITDA margin decline was mainly due to rise in logistics costs and marketing spending.
5. Net debt to equity is now at 0.06 from 0.11 a year ago. The interest Coverage ratio improved to 50 times from 36 a year ago.
6. Inventory position is at Rs 1660 Cr of rice and Rs 1359 Cr or paddy in Q3.
7. The company maintained a cash balance of Rs 270 Cr.
8. Net borrowing was at Rs 174 Cr vs Rs 314 Cr last year.
9. The overall market share of KRBL was at 35%.
10. India business saw revenue growth of 26% YoY.
11. Export business was down 25% YoY due to unavailability of Iran. A new distributor has been appointed for the Saudi region.
12. Market share in various exports markets was:
    1. Kuwait: 86%
    2. Qatar: 82%
    3. UAE: 74%
    4. Kenya & South Africa: 86%

Analyst Views:

KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has had a bad quarter with a 3.6% YoY fall in sales while PAT fell by 49.7% YoY mainly on the back of a big decline in export sales and wide margin compression. Margins have suffered due to the rise in input and logistics costs and enhanced marketing spending. Export segment is expected to recover with KRBL already appointing a new distributor for the Saudi region. There hasn’t been any definitive resolution of the Enforcement Directorate charge sheet issue against Anoop Kumar Gupta who is the Joint MD of KRBL. But the company continues to show good brand and volume performance while developing in new segments like Unity and health foods. It remains to be seen how the company will navigate the ED charge sheet issue and what roadblocks it will face in its quest to reach Rs 8000 Cr sales in 3-4 years and the recapture of big export markets of Saudi Arabia and Iran. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure, and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.

Q2 FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a bad quarter with a 6.7% fall in consolidated revenues and a 8.7% fall in PAT at a consolidated level.
2. Gross profit was down 8.8% YoY while EBITDA in Q2 declined 8.9% YoY.
3. Net debt to equity is now at -0.21 in Q2 from -0.07 a year ago. The interest Coverage ratio improved to 109.61 times from 65.42 a year ago.
4. Book value per share has risen to Rs 165 per share.
5. Inventory position is at Rs 2016 Cr in Q2.
6. The overall market share of KRBL was at 38%.
7. General Trade channel and modern trade channel has grown.
8. Consumer pack sales remained high.
9. Market share in modern trade across offline & online categories was at 35% and 41% respectively. Health foods saw market share rise of 1300 bps to 58% in modern trade channel.
10. Unity brand saw volume growth of 123% YoY and it is now a Rs 400+ Cr brand for KRBL.

Conference Call Highlights:

1. KRBL saw big problems arising in the availability of containers and rising freight costs which hurt foreign sales, especially US and Europe.
2. The entire industry saw a 15% reduction in exports because of heavy container costs which went up by 4x for North America and 2x for the Gulf region.
3. The non-availability of containers was a recent problem which delayed exports of KRBL by more than a month.
4. The management recognizes the freight problems and believes that these issues are temporary which would resolve in the next six months.
5. Export sales have come down 44% QoQ and 54% YoY.
6. A vessel breakdown had occurred which was carrying 28,000 tonnes of basmati rice worth INR 140 crore which reached its destination at end of October resulting in the payment being received recently.
7. The company was unable to locate a new distributor in Saudi Arabia which used to be its premium market.
8. Iran, which is a market for 1.4 million tonnes of basmati rice, did not have many imports due to US sanctions. Talks are still on at a government level for barter deals. But the embargo on the import of basmati rice has been removed which should yield good exports for the industry.
9. The company is not focusing much on the non-basmati rice segment because of low margins of less than 8-10% according to the management.
10. Crop size this year has gone down 25% vs the projected 10%.
11. Basmati paddy prices also increased in single digits because of delayed rains and low crop plantations.
12. The paddy prices for 1121, 1509, and 1401 have risen a lot as compared to last year.
13. Commercial production is expected to begin in 2023 for new varieties like Pusa 1885, 1882, and 1886 which are substitutes for 1121, 1509, and 1401. The new ones are pest-resistant.
14. KRBL achieved domestic sales of Rs 687 Cr vs Rs 386 Cr the previous year which is a 77% growth YoY.
15. KRBL is planning to acquire new companies in the food segment.
16. New capex plans are being finalized for putting up new plants to process regional rice in places like Kandla, Karnataka, Maharashtra, and West Bengal.
17. The plant in Kandla is already finalized and it is expected to be ready by next year. This plant will handle both domestic sales and exports.
18. Branded rice in India grew by 56% in volume and 51% in value on a YoY basis.
19. 30% of general trade business comes from active retailing.
20. The south zone which is the largest contributor to the HoReCa segment grew by 100%.
21. Lower realizations in domestic business this quarter were due to lower realizations on unbranded sales, while branded sales remained stable.
22. Cash, bank balance, and investments were at Rs 915 Cr vs 343 Cr the previous year.
23. The management plans to achieve Rs 8,000 crore revenue in the next 4-5 years through organic and inorganic expansion.
24. The restructuring plan for the company’s energy business has been suspended.
25. Saudi Arabia used to be a 1lac tonne market for the company worth 600-700 crore revenue which is having 20k tonne exports currently due to distributor problems.
26. Inventory at end of this quarter is at Rs 2,015 Cr consisting of 62k tonne paddy and 365k tonne rice.
27. The company will pass on the higher costs of purchase to customers to protect margins and thus is not worried about the increase in paddy prices due to its brand strength, according to the management.
28. The margins are equally good in both domestic and exports, but realizations in domestic are lower due to low price broken rice being sold.
29. In regional rice, KRBL is going for premium types only like Bobindbhog, Kolam, and Sona Masoori which have bigger markets than basmati rice and can be sold at a 20-30% premium to normal rice.
30. The company is expecting a minimum of 20% gains on its inventory in 1 year.
31. The Punjab milling unit is working at 60-65% utilization and the processing plant is working at 80-85% utilization.
32. The management maintains that the company has spare storage to increase handling for an additional 2 Lac tons.
33. The difference in realization between domestic and exports is 5% with export being higher.
34. The company has many different SKUs for different varieties of products including Mogra, Mini Mogra, Dubar, Tibar, and others. It is also not allowed to export broken rice which is sold in the domestic sector thus bringing down the domestic realization vs exports.
35. The gross margin for exports is 2-3% higher than exports.
36. The company is looking to expand to Iraq which is currently a 6 lac tonne market.
37. The company’s paddy procurement has come down to 80% of last year’s level due to an increase in paddy prices. It will be increasing procurement to 130% of the current year level to balance the shortfall.
38. Although there is a rice shortage in China, it is being met by imports from Thailand and Vietnam and from India, it is importing only broken rice.
39. The rise in paddy prices is said to be from the GI tag according to the management.
40. The management is expecting a better EBITDA margin in Q3.

Analyst Views:

KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has had a bad quarter with a 6.7% YoY fall in sales while PAT fell by 8.7% YoY mainly on the back of a big decline in export sales due to container unavailability. Margins have also suffered due to the rise in paddy procurement prices. Consumer pack sales continued to maintain their strong momentum while bulk sales were slowly inching up. The Unity brand has seen 123% YoY volume growth and is a Rs 400+ Cr brand. There hasn’t been any definitive resolution of the Enforcement Directorate charge sheet issue against Anoop Kumar Gupta who is the Joint MD of KRBL. But the company continues to show good brand and volume performance while developing in new segments like Unity and health foods. The management remains optimistic about the company’s export ambitions to Iran, Saudi Arabia, and Iraq, and is also on the lookout for possible acquisition opportunities in the foods industry. It remains to be seen how the company will navigate the ED charge sheet issue and what roadblocks it will face in its quest to reach Rs 8000 Cr sales in 3-4 years and the recapture of big export markets of Saudi Arabia and Iran. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure, and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.

Q1 FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a decent quarter with a 33% rise in consolidated revenues and a 12% rise in PAT at a consolidated level.
2. Gross profit was up 21.4% YoY while EBITDA in Q1 rose 8.13% YoY.
3. Both domestic and export market sales grew 34% YoY.
4. Net debt to equity is now at -0.52 in Q1 from 1.48 a year ago. The interest Coverage ratio improved to 52.64 times from 20.85 a year ago.
5. Sales volumes in Q1 have risen 81% YoY with India sales rising 39% YoY and export volumes rising 153% YoY.
6. Book value per share has risen to Rs 163 per share.
7. Inventory position is at Rs 2533 Cr in Q1.
8. The overall market share of KRBL was at 38%.
9. General Trade channel have risen 30% YoY while modern trade channel has grown 31% YoY.
10. Consumer pack sales remained high.
11. Market share in modern trade across basmati & popular categories was at 45% and 31% respectively registering a YoY rise of 700 bps. Health foods saw market share fall of 400 bps to 35% in modern trade channel.
12. The market share in online space has risen 100 bps to 41% in Q1.
13. The market share in modern trade in India has grown to 45% and in metros, it has grown to 41%.
14. Unity brand saw volume growth of 62% YoY and it is now a Rs 400+ Cr brand for KRBL.

Analyst Views:

KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has had a decent quarter with an 33% YoY rise in sales while PAT grew only 12% YoY. Consumer pack sales continued to maintain their string momentum while bulk sales were slowly inching up which is probably driving margin dilution. The Unity brand has seen 62% YoY volume growth and is a Rs 400+ Cr brand. There hasn’t been any definitive resolution of the Enforcement Directorate chargesheet issue against Anoop Kumar Gupta who is the Joint MD of KRBL. But the company continues to show good brand and volume performance while developing in new segments like Unity and health foods. It remains to be seen how the company will navigate the ED chargesheet issue and what roadblocks it will face in its quest to reach Rs 8000 Cr sales in 3-4 years. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure, and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.

Q4 FY21 Updates

Financial Results & Highlights

Detailed Results

1. The company had a dismal quarter with a 8.9% fall in consolidated revenues and an 7% fall in PAT at a consolidated level.
2. PAT fell 8% YoY.
3. EBITDA in Q4 fell 10.7% YoY.
4. EBITDA margin rose 133 bps YoY to 21.2% in FY21 while gross margin rose 256 bps to 31.45%.
5. FY21 performance was mixed with a 11% YoY revenue decline and flat PAT growth. This was mainly due to bad performance in Q1. KRBL also had its best EPS of Rs 23.8 in FY21.
6. Net debt to equity is now at 0.04 in Q4 from 0.14 a year ago. The interest Coverage ratio improved by to 25.88 times from 11.9 a year ago.
7. Sales volumes in Q4 have risen 15% YoY with India sales rising 19% YoY and export volumes rising 11% YoY. Total sales volumes in Fy21 have risen 1% YoY and export volumes have risen 8% YoY in the year.
8. Book value per share has risen to Rs 157 per share. The company also announced a final dividend of Rs 3.5 per share for FY21.
9. The overall market share of KRBL was at 38%.
10. Bulk pack sales have stabilized and are better than Pre-Covid Levels by the year end.
11. Consumer pack sales were at their highest ever levels in Q4.
12. GT channel grew 13% YoY in FY21 while modern trade channel grew 9% YoY.
13. Market share in modern trade across basmati & popular categories was at 44% and 41% respectively registering a YoY rise of 400 bps. Health foods also saw market share rise of 200bps to 44% in modern trade channel.

Investor Conference Call Highlights

1. KRBL’s net bank debt as of 31st March 2021, stood at Rs 53 Cr.
2. The announced increase in MSP for non-basmati rice and industry dynamics should help enhance the value of the current inventory for KRBK according to the management.
3. Around 5-% of sales came from consumer packs, which are all pack sizes of 5 kg and below.
4. The company launched 2 new health foods in FY21 which were India Gate Chia Seeds and India Gate Flax Seeds.
5. During FY21, KRBL added 1.5 million households to the consumption basket of India Gate.
6. The industry still has only a 40% share of branded products with 60% coming from the unorganized sector.
7. KRBL is going to undertake the end-to-end digitization of its channel partners. It is already seeing 30% of business flowing through the Salesforce automation software.
8. KRBL is planning to double its sales team.
9. Ecommerce now accounts for 4% of sales in FY21 from 0.3% of sales in FY20 showing a 13x YoY growth.
10. The dominant market for basmati export remains the Middle East with 70% of India basmati exports going to the region.
11. The management has stated that KRBL has lost almost 50% of its market share in brown rice in the EU due to the pesticide residue problem and it will take at least a year to comply and resolve the issue and regain the lost market share.
12. KRBL holds an inventory of 2.34 million tons of paddy valued at Rs 27374 per ton and 445,000 tons of rice valued at Rs 42920 per ton. The total inventory value comes to Rs 2841 Cr.
13. KRBL is also able to command 60% higher realization from exports as compared to the rest of the industry due to its strong brand image.
14. KRBL is looking to open regional distribution centers where it can reach directly to retailers or e-com players and bring in cost savings and operational efficiency.
15. The company has 45% capacity utilization at the Dhuri plant and 90%+ utilization at the Ghazia plant.
16. The management has stated that KRBL doesn’t need any capex towards capacity expansion and only needs some capex of Rs 100-150 Cr to be done to expand warehousing capacity.
17. COGS was down 17% YoY in FY21 while realization was down 12% YoY. The management states that the realizations were lower due to cheap inventory.
18. In the Unity brand, the company made sales of Rs 400 Cr in FY21 where Rs 325 Cr was from HoReCa. The management expects to reach sales of Rs 1000 Cr from this brand in the next 2-3 years.
19. The company is targeting an increase in revenues to Rs 8000 Cr in the next 3-4 years after adding on the growth from both the rice and non-rice segments.
20. The management has stated that it is keeping a lot of liquidity due to inventory requirements and KRBL is also open to any possible acquisition opportunities.
21. The market price of basmati has remained subdued by almost rs 10-15 due to the issue of exporting to Iran. If these issues get resolved, then the entire industry would benefit from the rise in demand.
22. Any price inflation in basmati will be beneficial for KRBL as it already holds a lot of inventory procured at cheap prices.
23. KRBL has gotten 16 new samples from Pusa institute of which it has cleared 6 samples for commercial production. These new variants will see commercial production from next year.
24. KRBL has a production share of 9-9.5% of basmati in India, and it is aiming to reach 12.5% of production in the next 4-5 years.
25. Basmati consumption in India is at 2.2-2.4 million tons while the consumption of specialty rice like gobindbhog, sona masoori and others is at 15-18 million tons. Thus, the specialty rice segment should help KRBL expand its addressable market by a lot.

Analyst’s View

KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has had a down quarter with an 8-9% YoY decline in sales & profits while all margins have risen YoY. Consumer pack sales were at their highest ever with around 50% of the top line coming from this segment. The health portfolio has seen the launch of India Gate Chia Seeds and India Gate Flax Seeds. The company has been marred by controversy due to the detention of Mr. Anoop Kumar Gupta, Joint Managing Director of the Company, by the Enforcement Directorate while cooperating with the investigation in the Augusta Westland case. But the company continues to show good performance and a resilient balance sheet that has enabled it to almost eliminate net debt from the company. It remains to be seen how the company will navigate this PR crisis and what roadblocks it will face in its quest to reach Rs 8000 Cr sales in 3-4 years. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure, and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.

Q3 FY21 Updates

Financial Results & Highlights

Detailed Results

1. The company had a bad quarter with a 15% fall in consolidated revenues and an 8% fall in PBT at a consolidated level.
2. PAT fell 9% YoY.
3. EBITDA in Q3 fell 11% YoY. EBITDA margin rose 108 bps YoY to 19.4% while gross margin rose 299 bps to 30.14%.
4. 9M performance was mixed with a 12% YoY revenue decline and 3% PAT growth. This was mainly due to bad performance in Q1.
5. Net debt is now at Rs 406 Cr. Cash & Cash equivalent is at Rs 121 Cr. The interest Coverage ratio improved by 2.6 times YoY at 36 times.
6. The market share of KRBL was at 38.6%.
7. Bulk pack sales are now back at pre-Covid levels.
8. Consumer pack sales were at their highest ever levels in Q3.
9. The company saw a 61% QoQ growth in modern trade + e-commerce channels. KRBL now has a 37% market share in the modern trade sales channels. Modern trade & e-commerce contributed to 28% of overall sales for the company.
10. Health Portfolio saw a 20% YoY growth in 9M.
11. Inventory is at Rs 3113 Cr.
12. Book value per share was at Rs 151 as of 31st Dec 2020.
13. Net debt to equity was at 0.11 times vs 0.27 times a year ago.

Analyst’s View

KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficient as possible. The company has had a mixed quarter with a decline in sales while all margins have risen YoY. Consumer pack sales were at their highest ever and the health portfolio has seen decent growth of 20% YoY in 9M period. The company has been marred by controversy due to the detention of Mr. Anoop Kumar Gupta, Joint Managing Director of the Company, by the Enforcement Directorate while cooperating with the investigation in the Augusta Westland case. This has seen the share price nosedive more than 25% in Feb and has resulted in the company being put under “Watch with Negative Implications” by credit rating agencies. It remains to be seen how the company will navigate this PR crisis and restore its image in the market while staving off market competition. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure, and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.

Q2 FY21 Updates

Financial Results & Highlights

Detailed Results

1. The company had a good quarter with a 27% growth in consolidated revenues and a 38% rise in PBT at a consolidated level.
2. PAT rose only 32% YoY.
3. Rice business saw 32% YoY growth while Health business saw 29% YoY growth.
4. EBITDA in Q2 grew 29% YoY. EBITDA margin was at 20% vs 19% last year.
5. H1 performance was modest with 10% YoY revenue decline and 10% PAT growth. This was mainly due to bad performance in Q1.
6. Net debt is now at negative Rs 227 Cr. Cash & Cash equivalent is at Rs 334 Cr. Interest Coverage ratio improved by 164%. Cash generated from operations stands at robust Rs. 750 Cr in H1.
7. Market share if KRBL was at 38.6%.
8. Bulk pack sales were down only 12% YoY in Q2 and have come back to pre-Covid levels in Sep.
9. Consumer pack sales grew 19% YoY. This growth is led by organized retail.
10. The company saw a 59% YoY growth in e-commerce sales. KRBL now has a 37% market share in the modern trade sales channels. Modern trade & e-commerce contributed to 20% of overall sales for the company.
11. Health Portfolio saw a 39% YoY growth in H1.
12. Inventory is at Rs 2021 Cr.

Investor Conference Call Highlights

1. The company was able to ship the carryforward stocks of Q1 during the Q2 and resolve the backlog.
2. Rice exports were at Rs 670 Cr in Q2, a rise of 114% QoQ.
3. The management expects good exports to Iran going forward from the regime change in the USA and the Iranian Govt order to Iranian importers to clear all cargo.
4. The company has expanded its presence into 4 club stores which account for 65% of the total American market.
5. The company recently launched rice bran oil and Amaranth into international markets and the initial response has been very good.
6. The company expects Q3 to remain subdued for exports and demand to recover back in Q4.
7. The company anticipates savings on logistic costs to the tune of 50-100 bps of revenue.
8. The management has stated that going forward, the company will be looking to use the strong cash flows from H1 to bolster its inventory positions rather than deposit it to earn small yields.
9. Demand is expected to come back from Iran but it will take at least 3-4 months for things to normalize here. The management expects the full demand from Iran to come back from Q4 onwards.
10. The company has developed a whole consumer pack family for the brand Unity with products like Unity Biryani, Unity Premium, Unity Super, Unity Tibar, Unity Dubar, Unity Rozana, Unity Mogra, Unity Mini Mogra, etc. This brand is at rs 450 Cr today and the management expect it to grow to Rs 1000 Cr by FY23.
11. The management widely expects demand for bulk packs to surpass last year’s levels in Q3.
12. The margins in e-commerce are more or less at the same level as traditional margins. Margin savings from the channel of 4-5% are used up for promotions and increasing online visibility. The management is targeting e-commerce to reach 10% of sales in the medium term.
13. The management has reassured that the cash generated will be utilized definitely on inventory only. This is because of the aging process which may be longer for regional rice where it can be up to 2 years. This extra-aged rice will also command a good premium subsequently.
14. The fall in domestic business in comparison to domestic peers is mainly due to the larger fall in bulk packs which is a higher % of total sales for KRBL as compared to LT foods.
15. The company is giving promotions to retailers to promote bulk packs with small offers of appliances, etc.
16. The prices for paddy in FY21 are about 25% lower as compared to FY20. The management expects export prices to shoot up as demand from Gulf countries normalizes and Iran demand comes back.
17. The current procurement price of 1121 paddy is at Rs 26-27. The same for 1509 paddy is at Rs 27-28.
18. 1121 is largely exported everywhere except the EU where the company is selling only brown rice.
19. The company is looking to buy as much pesticide-free MRL rice as possible. The difference between the normal paddy and MRL paddy is about INR 2 to INR 3 per kilo which is very high. The company is buying it up despite the high price due to the high demand from EU countries.
20. The company has will start buying new regional varieties from the last week of Nov onwards and these varieties will be sold from Nov 2021 onwards as it requires minimum aging of 1 year.
21. The anticipated rise in demand for bulk pack sales is mainly due to the current low prices for the segment. This is because these packs do not need aged rice and thus should lead to stocking.
22. The company has indeed seen a decline in sales volume in the past 5-6 years in Saudi Arabia. It is already in a search of a good distributor to replace Balsharaf but replacing it has not been possible till now.
23. Consumer price realization from small packs has remained the same as Q1.
24. The company has raised domestic consumer pack prices by 4-5% in the recent past and is passing out this 5% to the retailer for the 2 months of the festival.
25. The management is hopeful of growing 24% in H2 to match FY20 growth.
26. The target to reach Rs 8000 Cr in revenues in a year has gotten postponed by a year due to COVID-19.
27. The company is yet to receive the payment of Rs 130 Cr from the Income Tax Department.
28. The idli market in Karnataka is going good for KRBL with sales of 250-300 tons a month. Margins in the business are at >10%. The company is looking to set up its own processing and manufacturing unit in Karnataka where KRBL is already doing processing and packing for Sona Masoori regional rice.
29. The rise in other expenses is mainly due to expenses related to logistics and freight like fumigation, clearing, forwarding charges, etc.
30. The management expects EBITDA margins to remain at current levels of above 20-21% in the future.
31. In the case of the GI Tag, the company has appeals pending in IPAB and Supreme Court.

Analyst’s View

KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has done well with consumer pack demand rising fast and bulk packs demand coming back to pre-Covid levels. The company is also expecting to see a demand resume from Iran which is good for exports. The company is doing well to reduce its dependence on working capital loans by investing its cash flows into building inventory. It has also seen good growth and rising demand in the health foods segment of >39% in H1. It remains to be seen how the company will evolve to the new packing and shipping norms due to COVID-19 and whether the company will able to reach its previous heights in Saudi Arabia and get back from the Balsharaf issue. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure, and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.

Q1 FY21 Updates

Financial Results & Highlights

Detailed Results

1. 1. The company had a dismal quarter with a 37% decline in consolidated revenues and a 17% fall in PBT at a consolidated level.
   2. PAT fell only 7% YoY mainly on account of the new reduced tax regime.
   3. EBITDA margin for the company for Q1 was at 25% vs 20% last year.
   4. The company saw export sales per ton rise dramatically to Rs 1,01,435 from Rs 85,502 last year.
   5. The borrowings for the company went down drastically from Rs 1428 Cr in Q4FY19 to Rs 496 Cr in Q4FY20.
   6. The revenue distribution in Q1 are as follows:
      1. India: (Q1 48.21% vs 47.56% last year)
      2. Export: (Q1 47.92% vs 50.6% last year)
      3. Energy: (Q1 3.77% vs 1.84% last year)
   7. ROCE for the company improved 130 bps YoY to 6.15% in Q1.
   8. The current ratio increased 154 bps YoY to 4.61 times.
   9. Net debt reduced to Rs 268 Cr from Rs 690 Cr last year while interest coverage ratio rose 11.12% YoY to 20.87% in Q1.
   10. Net debt to equity was reduced to 0.08 in Q1 from 0.24 last year.
   11. The book value per share was at Rs 138.11. The operating profit margin improved 465 bps YoY to 22.9%.

Investor Conference Call Highlights

1. The company has recorded best-ever margins of 25% due to higher price realization.
2. In the leadership consumer pack segment, KRBL has seen around 30% growth YoY and its best-ever volumes in the consumer pack segment.
3. The company saw a 70% YoY improvement in online sales. It also saw a 10-12% volume growth in the modern trade segment.
4. Most of the exports for high realization products go to the Middle East and U.S.A while lower realization products are exported to Iran, Iraq, Yemen, the African continent.
5. The management believes this rise in realizations to be sustainable as all of the above are permanent markets for the company.
6. The management is confident that Balsharaf will win the case as it has done in the previous tribunals despite the actions taken by the ED.
7. Online sales account for only 1.5% of domestic sales for the company.
8. The company has a direct account in Amazon, Grofers, Big Basket, Flipkart for selling its products online. The biggest shares of online sales come from Grofers & Big Basket (70% of e-commerce sales) while Amazon (12%) is at #3.
9. The management is largely aiming to deliver higher revenues than last year. It expects revenue growth of almost 5% YoY in FY21.
10. The company has lost around Rs 300-400 Cr of sales from the catering industry but this shortfall has been compensated by the rise in consumer pack sales where the company has gained market share.
11. In exports, the company is concentrating on Saudi Arabia & the USA at the moment.
12. The company definitely intends to go ahead with the demerger with the power business and get all PPAs transferred rather than renegotiated.
13. The company has started the promotion of giving away 200 gm of Quinoa with every 1 kg of brown rice as part of its health products promotion. It is also come up with rice bran oil with Amaranth, with Chia Seed, with Flax Seed for exports.
14. The company will be able to move ahead with its plans for other segments and geographies once things normalize by November or December.
15. The current loading rate at docks is at 1500 tons per day on days with no rain. This figure is expected to take at least 3-4 months to come back to normal levels of 5000 tons per day.
16. Out of the previously mentioned Rs 350 Cr of inventory in Kandla port, only Rs 50-60 Cr is left for shipping.
17. The overall increase in the consumer segment has been 30% while bulk 25 kg pack for the catering industry segment has fallen 40%.
18. The company is selling around 10 to 15 tonnes a month in Quinoa vs 7-8 tons pre-COVID. The company is also doing premium regional rice in 1 & 5 kgs packs in South India & West Bengal only.
19. The company currently has no immediate plans for a buyback.
20. The company is unable to execute any orders from Iran due to the US sanctions in place.
21. In the domestic market, the product mix has shifted towards lower varieties like mogra & mini-mogra.
22. The management has stated that the production of 1121 and Pusa Basmati would be lesser this year compared to last year, which will make the prices of the particular paddy varieties higher by 15% YoY.
23. Once the catering industry resumes, the company expects to make sales of Rs 500 Cr per quarter.
24. The pandemic has seen a fall in small players and a rise in branded rice. This situation is being mirrored in all segments in the FMCG industry.
25. The change in paddy price does not affect inventory value as it is priced at cost.
26. The company has seen changes in Saudi Arabia and the EU in import procedures.
27. The company is not looking to get into the heat and eat segment and is solely focused on expanding into the health segment.
28. The company has no plans to enter into other branded staples categories like dal.
29. The management is expecting sales in Q2 to be almost double that of Q1 mainly on the back of the carryover of the Rs 350 Cr of sales from the stock stuck in Kandla.

Analyst’s View

KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has done well despite the setback in the catering industry from COVID-19. The only major loss to the company in Q1 was from the loss of domestic orders from the catering industry while the consumer packs segment has risen dramatically to fill this void. The company is doing well to reduce its dependence on working capital loans and to develop into regional rice and other avenues like health foods in the export segment. It remains to be seen how the company will evolve to the new packing and shipping norms due to COVID-19 and whether the company will face any obstacles in its way ahead to demerge its power business. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure, and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.

Q4 2020 Updates

Financial Results & Highlights

Detailed Results

1. 1. The company had a modest quarter with an 11% decline in consolidated revenues and a 2% rise in PBT at a consolidated level.
   2. PAT rose 8% YoY mainly on account of the new reduced tax regime.
   3. FY20 numbers were good for the company with a 9% rise in revenue and an 11% rise in profits for the year.
   4. The borrowings for the company went down drastically from Rs 1428 Cr in Q4FY19 to Rs 496 Cr in Q4FY20.
   5. The revenue distribution in Q4 & FY20 are as follows:
      1. India: (Q4 51.82% vs 47.56% last year) (FY20 51.05% vs 51.25% last year)
      2. Export: (Q4 46.23% vs 50.6% last year) (FY20 46.32% vs 45.63% last year)
      3. Energy: (Q4 1.95% vs 1.84% last year) (FY20 2.62% vs 3.12% last year)
   6. ROCE for the company improved to 22.72% in FY20 vs 19.32% last year.
   7. Book value per share increased to Rs 132 in FY20 vs Rs 115 in FY19.
   8. Net debt to equity was reduced to 0.14 in FY20 from 0.52 in FY19.
   9. The debt for the company keeps changing and follows a wave pattern with the bottom at H1 each year.
   10. Most of the debt for the company is in the form of working capital, which starts rising with the commencement of procurement of paddy in H2 every year. But the company is working to lower the highs of each new wave by financing the working capital through internal cash generation.

Investor Conference Call Highlights

1. The inventory level for the company stood at Rs 2852 Cr.
2. The company had to shut down operations for only 3-4 days during the lockdown as it gained permission from the government as a food industry participant.
3. The company associated with Swiggy and Zomato for doorstep delivery of its products.
4. The management remains optimistic about reaching revenues of Rs 8000 Cr in the next 4-5 years.
5. The challenge that the company is facing currently is the fall in breakbulk cargo per day from 5000 tons to 800-900 tons per day. Thus the loading and shipping times are getting stretched.
6. Export orders are going well and the company has been able to overcome all issues regarding logistics and packing that they faced at the start of the lockdown.
7. The company expects to make shipments for the equivalent of 5 months in the next 2-3 months which should bring in strong momentum.
8. In the domestic sales for the company around 30% is from institutional buyers in the catering industry. The customers from this segment are expected to start buying in the next 30-60 days.
9. The management is expecting a volume growth of 5-10% in FY21.
10. The management is aiming to make the company debt-free for at least 6-7 months of each year. Currently, it is debt-free for only 2 months.
11. The management expects the company to make investments in regional rice and investments in inventory in the next 2-3 years.
12. The company is looking at the premium market only at the current moment. The potential market size is expected to be around 40000-50000 tons.
13. In terms of e-commerce players, Big Basket and Grofers contribute the most to the company sales.
14. The management has assured that there should not be any shortage in the export destinations of the company in the Middle East since most of the distributors there keep stock of up to a year which is sufficient to cover till exports normalize. So these sellers are expected to be selling old stock all the way till October at least.
15. The main area where the company has lost sales is in the domestic catering industry which is expected to be around 30% of domestic sales in Q1.
16. The company is indeed moving forward with demerging the power generating segment and will not be selling it outright to bidders.
17. The average realization per kg for exports is expected to be stable at around Rs 90.
18. All of the domestic sales are branded while in exports 75% is branded and 25% is private label. Thus in total, 85-90% sales are branded while the rest 10-15% is private label.
19. The company will not be looking into a buyback since all the cash generated is expected to be used in inventory to reduce the inventory loans.
20. The average procurement price for paddy is Rs 28934 per ton and for rice, it is Rs 48021 per ton.
21. The average realization overall is expected to be around Rs 68.
22. The management has indicated that to reach revenues of Rs 8000 Cr the company has to have at least Rs 4000 Cr in inventory.
23. The incremental cash profit generated by the company in FY20 was Rs 630 Cr.
24. The company is targeting Rs 5000 Cr in revenues in FY21.
25. The management maintains that the company remains focused on maintaining its market share and profit margins in the USA and will not compromise on its margins to chase volumes.
26. The company is not keen on expanding business from Iran as the payment process remains problematic and opaque.
27. The company is carrying around 427000 tons of paddy and 314000 tons of rice in inventory.
28. The management has stated that the main reason for the drop in paddy prices is excess supply in the market due to increased acreage.
29. The management has no doubt about the pricing power of the company since basmati is a niche product.
30. The market share of India Gate in the USA is around 10%.
31. The company now exports to 280 countries. It exports in private label only in Iraq and Iran.
32. The company has more than 100,000 acres of land under contract farming.
33. The new law changes regarding APMC fees is expected to increase the company’s bottom line by Rs 20-25 Cr.
34. The management has stated that the reason for EBITDA margin appreciation in Q4 was that 100% of all sales were branded and no private-label business was done in the quarter.
35. The overall negative impact from COVID-19 in Q4 was around Rs 100-150 Cr in revenues.

Analyst’s View

KRBL is one of the biggest sellers of basmati rice in the world. It has built up a long-standing legacy of more than 120 years and enhanced it using modern technology to make the process from grain to pack as efficiently as possible. The company has done well in FY20 despite the setback in Q4 from COVID-19. The only major loss to the company in Q4 was from loss of domestic orders while export orders merely got delayed. The company is doing well to reduce its dependence on working capital loans and to develop into regional rice and other avenues. It remains to be seen how the company will evolve to the new packing and shipping norms due to COVID-19 and whether this will prove to be a stumbling block in its way to its target of annual revenues of Rs 8000 Cr. Nonetheless, given the company’s long-standing brand image, its resilient operations and export structure and its focus on maintaining its strengths and developing new avenues, KRBL may turn out to be a prime wealth creator in the next few years.

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