KRBL LTD: RICE COOKED WELL !!!

Scrip Code: 530813 / KRBL

CMP:  Rs. 377.25; Market Cap: Rs. 8,880.08 Cr; 52 Week High/Low: Rs. 388.80 / Rs. 174.00.

Total Shares: 23,53,89,892 shares; Promoters : 13,84,39,916 shares – 58.81 %; Total Public holding : 9,69,49,976 shares – 41.19 %; Book Value: Rs. 68.98; Face Value: Rs. 1.00; EPS: Rs. 15.19; Dividend: 190.00 %; P/E: 24.8 times; Ind. P/E: 25.71; EV/EBITDA: 17.57.

Total Debt: Rs. 1,160.45 Cr; Enterprise Value: Rs. 10,022.66 Cr.

KRBL LTD: The Company was founded in 1988 as a partnership firm, but incorporated as company on March 30, 1993 as Khushi Ram Behari Lal Ltd in Delhi. KRBL is a 120 year heritage and an in existence since 1889, KRBL Ltd. is India’s first integrated rice company with a comprehensive product chain. KRBL have experience of three generations in perfecting the Basmati grain. KRBL stands at top slot of the Indian Rice Industry, unmatched and unparalleled in every aspect. The company came with an IPO in 1995. The company has not declared any bonus shares yet. The company announced splits in its face value of shares from Rs. 10 to Re. 1 on December 17, 2009. KRBL Limited is an India-based basmati rice processing company. The Company is engaged in seed development, contact farming, procurement of paddy, storage, processing, packaging, branding and marketing of basmati rice. The Company's operating segments include Agri, which includes agricultural commodities, such as rice, Furfural, seed, bran and bran oil, among others, and Energy, which includes power generation from wind turbine, husk based power plant and solar power plant. KRBL manufactures agricultural products such as rice bran oil, furfural and de-oiled cakes. The husk is utilized to extract furfural and the bran used to produce around 50 tons of rice bran. It has a total bran oil capacity of 42 MTPD (metric tons per day) and furfural of 10 MTPD. The company’s milling and packing units are located in Ghaziabad (Uttar Pradesh), Dhuri (Punjab), Alipur (Delhi), Gandhidam (Kandla) and Dhulia (Maharashtra). Its integrated unit at Dhuri is one of the largest in the world with capacity of 150 MTPH (metric ton per hour). The company’s total milling capacity has increased to 198 MTPH in 2007. The company markets its products in India and overseas markets including the United States and the Middle East. In India, its products are marketed under the brand names: Royal, Zaffrani, Doon, Train, Al Wissam, Qiada, Al Bustan, Al Mithali, Indian Farm, Sun Flower, India Gate, Lion, India Gate, Nur Jahan, Aarati, Necklace, Bemisal, Shubh Mangal and Lotus, India Gate Classic, India Gate Super, India Gate White Organic, India Gate Golden and Doon Premium. It has its procurement network for basmati rice that spreads across Punjab, Haryana, Uttranchal and Uttar Pradesh. KRBL is also engaged in wind turbine and husk-based power plant power generation business. The company has 10.5 MW power capacity using rice husk as fuel and a 3.5 MW power plant in Ghaziabad. It has a 12.5 MW windmill in Dhulia, Maharashtra with a power purchase agreement with Maharashtra State Electricity Board (MSEB). The company is ISO 9002, Hazard Analysis and Critical Control Points (HACCP), KOSHER (approved by the Jewish dietary laws), and FDA (Food and Drug Administration) certified. The Company has two manufacturing units and one processing unit with a total capacity of 195 metric tons per hour. The Company’s Dhuri Plant in Punjab is the largest, fully integrated rice milling plant in the world with a capacity of 150 metric tons per hour and its Ghaziabad plant has existing capacity of 45 metric tons per hour. The Company has a wholly owned subsidiary, KRBL DMCC in Dubai. The Company's geographical segments include Sales within India and Sales outside India, including Middle East and Other than Middle East. It exports its products to Saudi Arabia, the United Arab Emirates, Iraq, Kuwait and Qatar. KRBL also engaged in trading of commodities. It operates in two business segments: agri and energy. The agri segment includes agri commodity, such as rice, pulses, seed, wheat, bran and bran oil. The energy segment includes power generation from wind turbine and husk-based power plants. The company is compared with Chaman Lal Setia Co Ltd, Kohinoor Foods Ltd, Lakshmi Energy & Foods, REI Agro Ltd, LT Foods Ltd, Usher Agro Ltd, Ajanta Soya Ltd, Navdurga Rice Mill and Globally with Riviana Foods Inc of USA, American Rice Inc of USA, Famers Rice Cooperative of USA, Ricetec Inc of USA, Riceland Foods Inc of USA, Farmers Rice Milling Company Inc of USA, Specialty Rice Inc of USA, MARS Incorporated of USA, Asia Golden Rice Co. Ltd of Thailand, Cargill of USA, Archer Daniels Midland of USA, Bunge of USA, Louis Dreyfus of France, Nakornton Rice Co Ltd Thailand, PAK Rice Village of Pakistan, Sunrise Foodstuff Joint Stock Company of Vietnam, AEDI’ S.R.L. of Italy, Tade BEVAR S.A. of Brazil, Sichuan Deyi Green Foods Group Co. Ltd of China.   

Investment Rationale:

KRBL LTD is India’s preferred Basmati Rice Company with a legacy spanning 120 years; KRBL is a global rice entity with a multi-brand presence both in domestic as well as in the overseas markets. A leading integrated industry player, the Company’s business philosophy is aligned to the heart of India with its quality rice, led by its flagship brand India Gate, made in the country’s heartland. The world’s largest Basmati Rice exports to 73 countries, KRBL’s business spans the value chain of rice, from the seed to the grain, across agro processing and marketing. Its rice milling capacity of 195 MT/hour, the largest in the world, lends it a distinctive edge, ranking it at the top of the industry. State-of-the-art storage and warehousing capacities, innovative marketing approach, expanding distribution network and strong R&D capabilities are the pillars of KRBL’s growth trajectory. The Company maintains robust and deep-rooted relations with farmers through a well-structured contact farming network, which has given the Company foundational strength. Backed by a strong brand equity and dealer network KRBL has an extensive geographical presence in the Middle East region, with Saudi Arabia, UAE, Kuwait, Bahrain, Iran, Iraq and Qatar among the key buyers of its Basmati rice. Over the years, the Company has also developed other popular rice brands, such as Nurjahan, Telephone, Train, Unity, Bawabat Al-hind, to meet the needs of different categories of consumers across regions. India is one of the major rice producing, consuming and exporting countries in the world. India continues to be the world’s largest rice exporter for the fourth consecutive year. India exports 30.1 % of total rice exports of the world around $6.4 billion followed by Thailand which exports 21.4 % of total rice export of the world of worth $4.5 billion. On third position it is USA who exports 9.7 % of total rice export of the world worth $2.1 billion. Pakistan exports rice worth $1.9 billion which has 9.1 % share in total rice exports of the world, Vietnam exports worth $1.6 billion with 7.5 % of total rice exports of the world. India has a significant competitive edge in rice exports due to combination of external factors, domestic market dynamics, high yielding and better paddy quality, low cost of paddy production and efficient execution of contracted business both from east and west coast ports of India. India’s rice industry has seen a transformation in the last decade, with growth of branded business in the domestic market and a strong impetus to export. This is reflected in the growth rates of leading Indian rice companies, with CAGRs ranging between 20 % and 30 % in value terms over the last four years. India is also the world’s largest exporter of Basmatic Rice to the global market with major destinations being Saudi Arabia, Iran, United Arab Emirates, Iraq and Kuwait. India is also the largest player in export of Non-Basmati Rice. Key markets in the non-basmati segment are Benin, Bangladesh, Senegal, South Africa, Liberia and Côte d’Ivoire. Indian rice industry has developed a strong position in exports, reaching 25 % of market share of global trade. The Government of India rolled out various policies in its Union Budget 2016-17 that aims to double rural income by 2022 and address critical factors hindering agricultural productivity in the country. These policies laid emphasis on water resources, soil fertility, input use and enhancing farmers’ access to markets. The “Pradhan Mantri Sinchai Yojana” schemes would fast track existing irrigation projects and bring an additional 10.9 million hectares of farmland under irrigation. Agriculture credit and storage capacity would be enhanced and a pilot programme for direct payments to farmers to assist them in fertilisers purchase would be implemented. According to the U.S. Department of Agriculture (USDA) Foreign Agriculture Services (FAS) report, that if the weather conditions remains normal then the rice production is forecasted to be at 105 million tonnes harvested from 44 million hectares as against with 103.5 million tonnes harvested from 43.46 million hectares in 2015-16. With the rice becoming staple diet for more and more people across the world and shift in preference for branded quality rice, the demand for Basmati Rice has been quite strong and will continue to remain so, on the back of rising income. In overseas markets, the only competition has been there from Pakistan as it is the only country other than India which grows basmati rice and exports the same. But, with superior quality and higher production, India continues to enjoy majority export market share. The demand for branded Basmati Rice has grown at CAGR of 20 % in past five years, driven by growth in domestic and exports market. India continues to be the largest exporter of basmati rice to the global markets with Saudi Arabia, UAE, Iran, Iraq and Kuwait being leading export destinations. Middle East remains leading export destination where premium basmati rice is widely consumed. As per report from US Department of Agriculture, global rice consumption has risen from 445 million MT in 2010-11 to 483 million MT in 2015-16 wherein export from India rose from 90mn MT to 97mn MT during the said period. During the same period, Indian basmati rice exports grew from 2.3mn MT to 3.8mn MT at CAGR of 13.4 % while domestic consumption grew from 1.2mn MT to 2.0mn MT at CAGR of 13.6 %. While Basmati Rice is consumed across the globe, West Asian countries account for 75 % of Indian Basmati rice exports in 2015-16. Within West Asia, Iran and Saudi Arabia are the two largest buyers accounting over 50 % of basmati rice exports from India. Data suggests that during 2011, unbranded basmati rice consumed was to 86 % as against 14 % branded rice; this has changed to non-branded rice at 74 % against 26 % branded rice during 2016. India accounts for 20 % of global rice consumption and 80 % of global basmati exports. Iran is the largest market for Indian basmati rice, with easing of sanctions by the UN, India did lose some market share but there was no impact on KRBL. Iran has been the fastest growing buyer for Indian basmati in the past three years. KRBL, with the largest and most modern milling capacities and R&D capability of Basmati Rice, is well placed to tap growth opportunity. The company enjoys more than 30 % market share in organized domestic market and 25 % share in export market. Over the years, the company has developed rice brands to meet the requirements of different categories of consumers. India Gate happens to be its flagship brand with two variants namely, Classic and Super having average realization of Rs. 72/kg higher than industry export realization of Rs. 54/kg. KRBL’s operating margin is likely to improve further as the company has procured low cost paddy and has strong inventory build-up. With brand recall, better processing setup and plants, well integrated and along with the Central government’s initiatives such as the ‘Rashtriya Krishi Vikas Yojana’ will help companies likes KRBL and the company can perform better coming future.   

Outlook and Valuation: 

KRBL Ltd (KRBL) history dates backs to the year 1889 in Faisalabad, Pakistan where the company was found, but was incorporated in 1993 in Delhi, KRBL is the world’s largest Basmati rice exporting company with multi-brand presence both in domestic as well as overseas markets. Over the years, the company has developed rice brands such as India Gate, Nur Jahan, Telephone, Train, Unity and Bawabat Al-hind to meet the requirements of different categories of consumers. Being an integrated player, the company also deals in value added by-products like Bran Oil and De-oiled Cakes. It has got Energy business vertical as well, wherein it uses rice husks for captive power plant. Its energy portfolio comprises of Bio-Mass, Solar and Wind energy. KRBL has strong presence in export markets with 51 % market share of Basmati Rice market of USA, dominant presence in Middle East and expanding its export base to Africa and Europe. The KRBL is ISO 9002, HACCP (Hazard Analysis and Critical Control Points), KOSHER (approved by Jewish Dietary Law) and FDA (Food and Drug Administration) certified. The company KRBL follows backward integration through partnership with farmers wherein the company encourages contract farming, makes available with high yielding seeds and provides intensive training on crop cultivation. Thus, the company is fully integrated across supply chain which enables it to focus on quality of produce and which ultimately helps improve realization for KRBL, which is around Rs. 72 per kg, much above average industry realization of Rs. 53 per kg. Basmati rice contributes to 97.5 % of total agri business revenue. KRBL came out with the strategy of contract farming in Punjab, Haryana and Uttar Pradesh wherein the company provides high yielding seeds including PUSA 1509 seeds and intensive training on crop cultivation which has been of great help in augmenting and procuring better quality paddy along with enhancing its market share for seed business. The strategy has worked in favour of farmers as well with acreage under cultivation has increased substantially from 60,000 acres in 2005 to 240,000 acres in FY15. Backed by strategic marketing initiatives, the company has come up with 6,90,000 outlets spread across towns and cities in the country. It has strong tie-ups with several domestic retail chains including Food Bazaar, Spencers, D-Mart Reliance Retail, Vishal Mega Mart, More, Walmart, Easy Day, Reliance Cash & Carry, Metro Cash & Carry and in local E-commerce to steer growth for KRBL. In order to capitalize on opportunity in renewable energy, the company has set up Solar Power Plants and Wind Power Plants at different parts of the country. Solar Power plant of 15 MW is situated in Madhya Pradesh whereas Wind power plants of capacity 87.05 MW are situated in different parts of the country including Maharashtra (33.50MW), Rajasthan (11.85 MW), Tamil Nadu (8.10MW), Karnataka (11.10MW), Andhra Pradesh (10.50MW) and Madhya Pradesh (12.00 MW). Wind Mills of 20.1 MW will be commissioned in Maharashtra shortly. Thus, energy segment is showing signs of greater traction thereby ensuring diversified earnings for the company. Also company has set up a Furfuryl Alcohol plant in Bhasaur, Dhuri dist. Sangrur (Punjab), at a total cost of Rs. 7 Cr. The commercial production of this Furfuryl Alcohol is expected to start shortly. On financial side the consolidated revenue for the 2nd quarter stood at Rs. 732.98 Cr from Rs. 918.76 Cr, when compared with the prior year period. During the 2nd quarter, net profit increased by 13.78 % to Rs. 98.41 Cr from Rs. 86.49 Cr in the corresponding quarter ending of previous year. During the quarter, EBIDTA stood at Rs. 153.06 Cr as against Rs. 140.18 Cr in the corresponding period of the previous year. During the quarter, PBT stood at Rs. 124.91 Cr as against Rs. 116.91 Cr in the corresponding period of the previous year. EPS of the company stood at Rs. 4.18 in Q2 FY17 against Rs. 3.67 in Q2 FY16. For 6 month period of FY17, net profit of KRBL stood at Rs. 178.82 Cr as compared to Rs. 166.65 Cr for the 6 month period of previous financial year. In H1 FY17, Net sales stood at Rs. 1533.32 Cr as against to Rs. 1941.71 Cr in H1 FY16. Operating Profit & PAT of the company are expected to grow at a CAGR of 11 % and 14 % over 2015 to 2018E, respectively. KRBL’s Current ratio points to soundness of health of the company in terms of its ability to meet its short term financial obligation. Growth trend is likely to remain up on the back of constant rise in demand, about 29.5 % likely fall in sowing of basmati seeds which may result into fall in production and corresponding rise in price, growing Basmati rice consumption demand in Middle East, Persian Gulf, Africa, US and Europe. KRBL, with the help of its subsidiaries and with the highest rice milling capacities, is well placed to capitalize on growing demand. Amidst growing demand of basmati rice as staple diet-domestically as well as globally, KRBL with the credibility of being the largest player in domestic and export markets and with highest milling capacities is well placed to boost its revenue growth. KRBL enjoys great brand recall, on the back of quality basmati rice and years of experience at industry place which result into its products attracting premium price. Given the backdrop of rising demand for branded basmati rice globally and domestically with wide network of distribution, KRBL is better placed to capitalize on opportunities. At the current market price of Rs. 377.25, the stock is trading at a PE of 22.78 x FY17E and 20.31 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 16.56 in FY17E and Rs. 18.57 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALS	FY15	FY16	FY17E	FY18E
SALES (₹ Crs)	3,159.69	3,428.13	3,085.31	3,239.58
NET PROFIT (₹ Cr)	321.73	337.06	389.90	437.17
EPS (₹)	13.67	14.32	16.56	18.57
PE (x)	21.72	20.73	17.92	15.98
P/BV (x)	5.27	4.30	3.54	2.94
EV/EBITDA (x)	15.50	14.89	12.16	10.74
ROE (%)	24.29	20.76	19.73	18.41
ROCE (%)	22.43	21.75	26.03	27.28

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