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KRBL’s flagship Basmati Rice brand ‘India Gate’ is considered as a market leader within its industry space.
INTRODUCTION KRBL Limited is a basmati rice processing company engaged in seed development, contact farming, procurement of paddy, storage, processing, packaging, branding and marketing of basmati rice. KRBL’s agri-business division which consists of rice, furfural, seed, bran, and bran oil, etc. is a major contributor to the company’s revenue stream. The energy division comprises of power generated from wind turbines, solar power plants and husk-based power plants. KRBL offers its rice under a range of popular and commonly seen in household brand names such as India Gate, Nur Jahan, Telephone, Train, Unity, Lotus, Lion, Doon, Aarati, Shubh Mangal, Al Wisam, Al Bustan, Alhussam, Blue Bird, City Palace, Necklace, Southern Girl, Taj Mahal Tilla, and so on.
INDUSTRY OVERVIEW The global economic growth is expected to be at 3.5 per cent in 2019 and then, might increase slightly to grow at 3.6 per cent in 2020. Indian economy continues to remain as one of the fastest growing and possibly the least impacted economy by the recent global turmoil. Favourable macroeconomic fundamentals and proactive policy changes have relatively helped the economy absorb the external shocks. However, fiscal expansion remains the key to accelerating growth inflation rate witnessed in the past, which has primarily been facilitated by favourable supply side factors associated with food and fuel and also coupled with a lower demand as wage growth decelerated on account of the negative output gap. Having the second largest arable land in the world, India is considered as the largest producer of spices, pulses, milk, tea, cashew, and jute, as well as the second largest producer of wheat, rice, fruits & vegetables, sugarcane, cotton and oilseeds. In India, the total rice production for 2018-19 is assumed to be around 115.63 million tonnes, which is 2.87 million tonnes higher than the production of 112.76 million tonnes in 2017-18. Wheat production in 2018-19 is around 101.20 million tonnes, compared to 99.87 million tonnes in the previous year. Total agricultural exports from India grew at a CAGR of 16.45 per cent during FY10-18 to reach US$ 38.21 billion in FY18 and stood at US$ 39.13 billion in FY19.
Contributing by nearly 21 per cent to the global rice production share, India is the second largest rice producer globally, after China. The global rice production in 2018-19, increased by 4.7 million tonnes to 495.9 million tonnes, owing to the larger crop forecast of China. Total production of Kharif rice in India is estimated to be at 99.24 million tonnes higher by 1.74 million tonnes than the previous year’s production of 97.50 million tonnes. To support the farmers, the Indian government increased the MSP of kharif crops in-line with the rising cost of production. The support price of common variety was raised from Rs 1,750 a quintal to Rs 1,815 a quintal whereas; the higher quality ‘Grade A’ variety raised from Rs 1,770 a quintal to Rs 1,835 a quintal. Basmati rice is considered as the finest variety of rice produced in India and is grown only once a year. Even though by volume, Basmati rice contributes a very small portion i.e. by 6-10 per cent of the total rice production in India, it accounts for around 60 per cent of India’s total rice exports. Total Basmati rice export for FY19 stood at 4.41 million tonnes compared to 4.06 million tonnes in FY18, registering an increase of 9 per cent. The key factors are strong demand from Iran, improvement in average realisations and consecutively, increasing prices of paddy over the last three years which has helped to drive the growth.
AGRI-BUSINESS DIVISION KRBL has emerged as one of the leading players in the Indian agri-processing and marketing industry. KRBL’s flagship
Contributing by nearly 21 per cent to the global rice production share, India is the second largest rice producer globally, after China. The global rice production in 2018-19, increased by 4.7 million tonnes to 495.9 million tonnes, owing to the larger crop forecast of China.
Basmati Rice brand ‘India Gate’ is considered as a market leader within its industry space. During the year FY19, the company reported a 13 per cent YoY volume growth and 17 per cent YoY value growth on the basis of a strong focus on branding, customer engagement and wide distribution network. In FY19, India Gate brand saw an improvement in its domestic sales. The division is further divided into:
Consumer Pack Segment KRBL’s consumer packaging segment continued to grow in FY19. KRBL continued its focus on premium pricing strategy owing to its product quality unlike its peers who focus on gaining market share by lowering the prices. Overall sales value in FY19 grew by 19 per cent compared to the previous year and also when compared to 16 per cent overall industry growth for the segment. In the retail consumer segment, the company focussed on creating a strong brand presence for the Unity rice brand during FY19.
Bulk Pack Segment This segment is considered to be a specially-crafted segment aimed for servicing the needs of the institutional clients like hotels, restaurants and caterers. Its major clientele include Taj Hotels, Leela Palaces, Hotels and Resorts, ITC Hotels, etc. For this segment, overall sales value in FY19 grew by 22 per cent. The company has been able to implement appropriately strategised growth rationale which proved to be effective as the segment continued to grow post-GST implementation as well. KRBL focusses on providing product varieties without hampering the product quality across various pricing points.
Health Food Segment With a focus on delivering innovative and tailored solutions for its consumers, KRBL which is an agri-products led company launched its ‘Healthy Food’ segment a few years back. The segment consists of products addressed towards individual who are cautious of their health and wish to include healthy foods in their staple diet. This has helped the company to tap a new customer segment and has also enabled it to enhance offtake in the packaged rice segment as increasing number of consumers opt for branded rice from established players instead of purchasing it from the unorganised sector. India Gate Basmati Brown rice, India Gate Non-Basmati Brown rice and India Gate Quinoa form this segment.
FINANCIALS On a consolidated basis for Q2FY20, KRBL reported 28.52 per cent decrease in net sales from Rs 1,244.82 crore to Rs 889.84 crore in Q2FY19. Subsequently, PBT also dropped by 34.31 per cent to Rs 165.01 crore in Q2FY20 from Rs 221.82 crore in Q2FY19. As a result, the company’s net profit gained for Q2FY20, lowered by 27.87 per cent to Rs 113.39 crore from 157.21 crore gained in Q2FY19. The drop in revenues was mainly due to 32,000 metric tonnes of the company’s stock stuck at the port because there was a delay in getting the LCs. Hence some orders had to be rescheduled from Q2FY20 to Q3FY20. With the delivery completed in October 2019, better result are expected in Q3FY20.
Despite the gloomy economic conditions, FY19 proved to be a considerably favourable business environment for KRBL. Net sales grew by 27 per cent to Rs 4,120 crore in FY19 from Rs 3,246.52 crore in FY18. The company reported a rise by 17 per cent YoY to Rs 2,275 crore in domestic sales whereas; export sales grew by 42 per cent YoY to Rs 1,845 crore in FY19. The PBT expanded by 12 per cent to Rs 733 crore in FY19 from Rs 655.01 crore in FY18. Net profit for FY19 registered a growth by 16 per cent to Rs 503 crore when compared to Rs 434.44 crore gained in FY18. For FY19, EPS stood at Rs 21.37, a growth of 16 per cent. During FY19, the company achieved a capacity utilisation of 52 per cent and produced around 5.49 million metric tonnes. For FY19, KRBL focussed on debottlenecking its operations along with minimising costs.
OUTLOOK Despite the recent budgetary measures taken by the government of India to maintain a balance between fiscal prudence and growth, some uncertain risks are still there in the economy. India needs to solidify its investment position while maintaining fiscal deficit within the targeted range. Hence, the need to remain steadfast on fiscal numbers has increased largely from the need to stimulate growth amid pressure to cut taxes, increased budgetary allocations to social sectors, and enhanced infrastructure spending that could pressure public finance. India has set to achieve a target of doubling farm income by 2022. It also planned to increase the average income of a farmer. The Indian basmati rice industry is expected to continue its upward growth momentum during 2019-20, with an expected growth of 4-5 per cent on a YoY basis. Even though non-seasonal rains and flooding created problems, Basmati rice demand and revenues are expected to be positive
KRBL intends to double its retail presence in terms of value by 2021 along with exploring new geographical markets and locations for expansion. This will be achieved post-revival and doubling of its sales to focus more on active retailing in order to reach out to more retail stores. With continuing to expand its presence in the e-commerce business as well, KRBL's growth potential for the foreseeable future looks positive and confident. Hence, we recommend a BUY.