KRBL-World’s Largest Basmati Rice Player.

KRBLWorld’s Largest Basmati Rice Player.

CMP– 243

Market Cap– 5,720 cr

Company Overview

The KRBL legacy that Mittal refers to spans a century. The company, headquartered in Noida, has come a long way since it was founded in 1889 in Lyallpur (present day Faisalabad in Pakistan) by Behari Lal—Mittal’s great grandfather—and his brother Khushi Ram. Back then, it had interests primarily in cotton-spinning mills; it was also involved in banking and textiles. Rice mills, now its mainstay, comprised just a miniscule part of the overall business then.

Today, KRBL has a whopping 35% domestic market share & 32% in international basmati exports with a combined milling capacity of 195 MT/hour paddy, & has the largest storage facility in the world at 1million MT.

KRBL has perfected the business of basamti Rice over 3 generations of family into the trade. The company has worked closely with the farming community over decades for its paddy requirements, creating knowledge skills, modern day crop management, seed education and top level training and education to the farmers. 

FARMING COMMUNITY– KRBL has built a strong farmer network with more than 70,000 farmers spread across more than 2,50,000 hectares across the states of Uttar Pradesh, Punjab and Haryana.

Surplus Raw Material (Paddy) availability– India’s agro-allied activities showcased a 2.8% growth owing to the record production of food grains. Further, government-initiated strategic schemes to support our farming community like the Pradhan Mantri Kisan Samman Nidhi Yojana (PMKisan), rural credit and crop insurance proved to be highly beneficial for the sector. Modernising farming activities and infrastructure, promoting efficient water usage and facilitating seamless trade is expected to propel India in the global scene as one of the key players in the agri-products industry. Favourable spells of the monsoon rains in major growing states resulted in an estimated record production in MY 2019-20. Basmati rice underwent a boom in the market, owing to an improved year-onyear (y-o-y) driven by sustained export demand.

MOAT- Branding a Commodity Business

FARMING COMMUNITY– KRBL has built a strong farmer network with more than 70,000 farmers spread across more than 2,50,000 hectares across the states of Uttar Pradesh, Punjab and Haryana.

KRBL’s own research and development team was involved in the development of PUSA 1121 seeds. KRBL were the first ones to bring PUSA 1121 into the market in 2002-03. With its innovative marketing approach, expanding distribution network, deep-rooted relations with farmers through structured contract farming and strong R&D capabilities further enhance long-term business sustainability and revenue visibility.

Geographical MoatThe biggest moat of this business is its grown only once a year in the Indo-Gangetic Plain beneath the Himalayan sub ranges. The fertile alluvial soil, fresh and cold air and the sweet water from the ranges contribute primarily to the unique characteristics associated with the grain.

Basmati also is geographically indexed to the northern region on the Indian Sub-continent, which includes Basmati growing areas in the states of Uttrakhand, Punjab, Haryana, Uttar Pradesh, adjoining areas of Jammu, Kashmir, Himachal Pradesh and Delhi. Only India & Pakistan share such geographical advantages to produce Basmati Rice. Pakistan has a market share of 30% in the global basmati business.

Ageing of Paddy requires smart inventory management
– Quite like wine, it gets better with age. Paddy procured from farmers requires a minimum 18-24 months to age, to enhance and intensify its taste, aroma and cooking characteristics. Under good conditions it keeps well for up to 10 years. Old rice cooks up fluffy, with separate grains and releases a pleasant aroma.  

India Gate- A Premium Brand After 2015, management decided to stop selling basmati rice in exports market under private label. KRBL positioned one of its most powerful brand ie India Gate in export market. As a result of strong branding initiatives, last 5 yrs CAGR in EBIDTA at 14% has been more than double vs CAGR in revenues at 6%.  

EBIDTA Margins at 20% vs 15% has improved over last years.

Premium Pricing of Products– KRBL has a 35% domestic market share & 32% in international basmati exports. Combined milling capacity of 195 MT/hour paddy & also has the largest storage facility in the world at 1million MT. The company has a strong network of 70,000 contract farmers for paddy supplies. These irreversible moats allow KRBL to sell its brands at 15-20% premium to its closest competitors.

New Initiatives

Ingraining a healthy future– KRBL venturing into, wellness and health segment of rice products with Quinoa & Brown Rice offerings. Other offerings are Chia & Flax seed & Flax Bran Oil. The main growth in consumer sales is through these healthy offerings of KRBL. The management is very positive on future outlook & expecting revenues of 500 cr from these health & wellness products. In times to come, KRBL is planning to set up special units in South India and West Bengal to cater to only wellness products, this will save logistics cost of the company and supply directly to the customers.

Management is very positive on the growth of wellness segment, mainly due to lockdown and focus on home cooked food. FY21- 500 cr revenues possible from Wellness Segment. Overall consumer pack reported highest ever sales in FY20 ie 765 cr.

Organic & Pesticide free grainsTo ensure that it receives maximum residual level (MRL) qualified paddy, KRBL has recently introduced an MRL program and collaborated with more than 5,000 farmers till date. This program helps KRBL ensure that the paddy is grown in an organic environment, are pesticide-free and match the quality standard preferred in the EU and US markets. EU & US markets don’t allow food grains with pesticides, this is an important step to entry into these high potential markets.

E-Commerce, explosive segment post COVID19– As KRBL adjusts to the ‘new normal’, some trends are emerging fast. There is a surge in online purchases, a situation beneficial for top brands who have high recall. In this light, FMCG is going to be a well-sustained consumer segment and provide a backbone for customers returning to the market.

Groceries in general will remain key to last-mile shopping, garnering strong positive sentiments of support. The COVID-19 pandemic has made safety, hygiene, and contactless delivery mandatory. Thus, KRBL further asserts the necessity of buying from safe, top quality and trustworthy brands. It expects more customers to shift to reliable brands which guarantee quality, safety and consistency.

Taking cognizance of such emerging opportunities in e-commerce segment, KRBL has specially focused on these channels. It has forged strategic tie-ups with both B2B and B2C ecommerce players, such as Grofers, BigBasket, Flipkart, Amazon Pantry, Jiomart, Udaan, and Jumbotail among others.

The ecommerce revenue contribution is very low at 5% of total domestic sales but growing at 50% on a low base.

Industry Overview

Feeding nearly half of the world’s population, rice is the most important food crop and is also the staple food for over half the world’s population. With China and India producing nearly 50% of the rice produced across the globe, rice remains one of the most protected food commodities in world trade. Hovering around record 501.96 million tons, the global rice production in 2020-21 was up by 4.7 million tonnes or 1.65% from the previous year largely owing to better crop production in countries like China and India.

Basmati Rice Production- According to APEDA, with normal monsoon and weather conditions prevailing in India, MY 2020-21 basmati rice production is expected to clock 9.8 MMT from 2.0 MHA compared to 9.2 MMT from 1.9 MHA last year. Further, owing to strong export demand, basmati rice prices in MY 2019-20 have increased 10-15% compared to last year, supporting farmers’ overall returns from the crop.

India produced 6.5-7 million MT of basmati, India meets around 80% of global requirement. India exported 4.5 million MT in FY20.

The domestic basmati market is around 2.5 million MT and 40% is branded retail. KRBL has a 35% market share in domestic organized retail.

Strong Operating Parameters

Important sign of strong fundamentals, KRBL is funding the growing inventory through internal accruals without adding any significant debt on the balance sheet.

Realization Per ton trends

Financials

Clearly improved trends in return and operating ratios, comparing the stock to its past valuations (EV/EBIDTA & PE) KRBL looks very attractive on all parameters.

KRBL has been investing all its Cash Profits into its Inventory & Paddy procurement leading to significant reduction in Net Debt levels.

The management has guided for 8,000 cr of revenues by FY24, at CMP 255 the company is set for exciting future.

Key Risks

  1. Paddy procurement- Any fluctuations in Paddy Prices can impact margins since KRBL cannot change shelf prices of its branded products that frequently. Lower paddy prices favors the company’s margins.
  • Iran Sanctions- Saudi & Iran being 2 biggest markets affects KRBL’s growth prospects. However post US elections the management is expecting key segments’ exports to open up. Partial Lifting of ban can include Medicines & Essential products, Basmati rice is included in essential items.

Any fresh negative information by gov authorities can have a significant impact on the stock.

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