JUBILANT FOODWORKS LTD : IT's PIZZA TIME !!!

Scrip Code: 534804 / JUBLFOOD

CMP:  Rs. 1031.10; Market Cap: Rs. 6,800.00 Cr; 52 Week High/Low: Rs. 1348.75 / Rs. 760.50

Total Shares: 6,59,49,070 shares; Promoters : 2,96,52,784 shares – 44.96 %; Total Public holding : 3,62,96,286 shares – 55.04 %; Book Value: Rs. 116.49; Face Value: Rs. 10.00; EPS: Rs. 13.40; Dividend: 25.00 %; P/E: 76.94 times; Ind P/E: 50.12; EV/EBITDA: 24.95.

Total Debt: ZERO; Enterprise Value: Rs. 6,768.62 Cr.

JUBILANT FOODWORKS LTD: The Company was founded on 16th March, 1995 and is based in Noida, India. The company was formerly known as Dominos’s Pizza India Limited and changed its name to Jubilant FoodWorks Limited in 2009. Jubilant FoodWorks Limited operates as a food services company. The company holds the rights to develop and operate Domino's pizza brand in India, Sri Lanka, Bangladesh, and Nepal and Dunkin’ Donuts brands & restaurants in India. Its Dunkin’ Donuts restaurants offer donuts, drip coffee, cappuccino and latte, milkshakes, smoothies, and iced teas, as well as a range of burgers, wraps, sandwiches, and side-bites. In addition, the company sells its products online. The company came with an IPO of 2,26,70,447 equity shares of Rs. 10 each at Rs. 145.00 per share to the general public in January, 2010. The purpose of the issue was to achieve the benefits of listing on the exchanges and for the pre-payment of loans & other general corporate purposes. It got listed at Rs. 160.00 per share making a high of Rs. 240.90 on listing day. Domino's Pizza India has grown into a countrywide network of stores, with a team of over 6,000 people. Jubilant FoodWorks has the sole master franchisee for Domino’s Pizza & Dunkin Donuts in India. It also has, the product profile which are complementary to Domino’s and are run separately from Domino’s outlets. Dunkin’ Donuts is owned globally by Dunkin’ brands, which also owns Baskin Robbins worldwide. Dunkin’ Donuts has over 11,000 outlets worldwide in over 30 countries. As of February 6, 2017, Jubilant FoodWorks Ltd operated 1,111 Domino’s Pizza restaurants in across 260 cities; and 68 Dunkin’ Donuts restaurants in 19 cities in India. Jubilant Foodworks Ltd is locally compared with Westlife Development Ltd (who runs McDonalds in India), Speciality Restaurants (which runs Mainland China & Ohh Calcutta in India), Tata Global Beverages (which runs StarBucks in India) and Globally with Sato Restaurant Systems Co., Ltd of Japan, Hiday Hidaka Corp of Japan, Faurwood Holdings Ltd of Hong Kong, Ajisen (China) Holdings Ltd of Hong Kong, Cafe` de Coral Holdings Ltd of Hong Kong, Jollibee Foods Corporation of Philippiness, Matsuya Foods Co., ltd of Japan, MOS Food Services Inc of Japan, BJ’s Restaurants Inc of California, Bob Evans Farms Inc of Ohio, Carnival Corporation Ltd of Florida, Dunkin’ Brands Group Inc of Massachusetts, The Wendy’s Company of Ohio, Domino’s Pizza Group of UK, McDonald’s Corporation of Illinios, Compass Group PLC of UK, Lowe’s Companies Inc of North Carolina, Starbucks Corporation of Washington, YUM! Brands Inc of Kentucky, Zoe’s Kitchen Inc of Texas. 

Investment Rationale:

Jubilant FoodWorks was incorporated in 1995 but started its operations in 1996. It is the sole master franchisee for both Domino’s Pizza Brand since 1996 as well as Dunkin’ Donuts Brand since 2011 in India. The company is part of the Bhartia group, which owns a 48.9 % stake in Jubilant FoodWorks Ltd. With over 1,100 Domino’s restaurants in India, starting from the first outlet opened in 1996, Jubilant FoodWorks is in charge of the second-largest chain of restaurants for Domino’s worldwide, overtaking UK in the current year but it’s still behind the US which is Domino’s home country, headquartered in Michigan, US. In terms of number of stores as well as sales, Jubilant FoodWorks is the largest player in the Quick Service Restaurants (QSR) market, which is still in nascent stage in India with about 17 % market share whereas there’s more than 60 % market share is of pizza and in excess of 70 % in pizza delivery. QSR’s in India accounts for slightly 2 % of the overall food service market in India and this is expected to grow much faster at 20 % compared to 10 % food service industry’s growth. The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year. In India, the food sector has emerged as a high-growth and high-profit sector due to its immense potential for value addition, particularly within the food processing industry. The food industry, which is currently valued at US$ 39.71 billion, is expected to grow at a Compounded Annual Growth Rate (CAGR) of 11 % to US$ 65.4 billion by 2018. Food and grocery account for around 31 % of India’s consumption basket. Indian food service industry is expected to reach US$ 78 billion by 2018.The Indian gourmet food market is currently valued at US$ 1.3 billion and is growing at a Compound Annual Growth Rate (CAGR) of 20 %. India's organic food market is expected to increase by three times by 2020. The online food ordering business in India is in its nascent stage, but witnessing exponential growth. The organised food business in India is worth US$ 48 billion, of which food delivery is valued at US$ 15 billion. With online food delivery players like FoodPanda, Zomato, TinyOwl and Swiggy building scale through partnerships, the organised food business has a huge potential and a promising future. The online food delivery industry grew at 150 per cent year-on-year with an estimated Gross Merchandise Value (GMV) of US$ 300 million in 2016. Also as a help for QSR industry, there are many business factors such as high turnover, low area occupied; reasonable ticket size matters. In India, the biggest barrier to profitability in the restaurant as well as retail businesses in urban areas, particularly in metros, is high lease rentals. Domino’s predominantly delivery-based model in these cities enables it to circumvent this problem. While the overall proportion of delivery to dine-in is 50:50. Consequently, the store size required is much smaller at around 900-1,500 sq.ft compared to predominantly dine-in restaurants and other QSR (at 2,500-3,000 sq.ft). In addition, the average bill size for pizza outlets like Domino’s is also higher than other QSRs like McDonalds, KFC and coffee shops like Café Coffee Day (CCD), Barista and Costa Coffee. Jubilant FoodWorks has focused on its less competitive intensity delivery start-ups focusing more on profitability and will also focus on Same Stores Sales Growth over store expansion via store opening rationalisation. The demonetization drive was dampening on JFL’s performance in 2HFY17E, but with gradual recovery in consumer confidence, increased promotions, moderation in competition from food aggregators and success of new products could take SSSG to higher levels, going forward. While JFL’s operating cash generation has fallen from 15 % to 10 % of sales in past four years, it still remains strong as the Company generates operating cash in the excess of Rs. 2500 Cr annually. Notably, in past four years JFL has doubled its store count from 550 to 1,100 and added several commissaries without adding any debt on its books, which is impressive. JFL has maintained solid control over its costs. While overall expenditure witnessed 4 % CAGR through FY12-17E, JFL has remarkably been able to maintain its total expenditure per store constant in the last four years. Around half of Dominos’ sales are through the delivery platform with the average online ordering as a percentage of delivery sales has been increasing rapidly, which now accounts for 47 % of delivery sales. Most of these customers are using alternative payment options i.e. credit-debit cards, mobile wallets and net banking for paying the bill. JFL has now also offered cashless payment facilities for all home deliveries ordered through the phone. JFL did witnessed fall in revenues in initial days of demonetization, but gradually it improved as new currency started floating in hence marking improvement in sales. Not with standing significant material impact on revenues in last 4 years owing to dismal SSS growth with additional impact of Dunkin Donuts, JFL has impressively contained its costs. While overall expenditure increased at 24 % CAGR through FY12-17E, it has been able to maintain its total expenditure per store constant in the last 4 years. Despite steady rise in overall cost, JFL has been able to maintain average operating cost per store constant at Rs. 2.2 Cr calculated based on average number of stores per year. Company reduced employee strength per store without hampering efficiency and has also rationalized its power supply expenditure by implementing Wipro’s energy management services. Company have increased its share of online ordering and is renegotiating rentals and increasingly entering into rental contracts based on % of revenue rather than flat structure. The company is reducing the capex costs per store and increasing its emphasis on launching new products, JFL has introduced several new products especially in non-pizza segment like Pizza Mania Extreme & Burger Pizza. While through Pizza Mania Extreme, JFL intends to provide value-added offerings at reasonably lower price points vs. regular pizza, it introduced Burger Pizza to cash in the rising opportunity in Burgers segment with an all-day menu option, unlike Pizza which is more of a meal replacement category. With both these products getting encouraging response from the consumers, they would permanently feature on Dominos’ menu, going forward. In the pizza segment, the company has recently launched Quattro Formaggi Burst Pizza and Choco Pizza. JFL’s new state of the art commissary is expected to be commissioned in Noida by March’17, which is expected to not only manufacture the conventional dough, but also other products such as buns, breads and some types of desserts. This is anticipated to accentuate new product development and increase JFL’s ability to introduce new products at a faster rate. However, only very few of them contributed meaningfully to its growth in past few years, which is evident from share of Pizzas to its overall sales remaining more or less stagnant in past four years. Jubilant’s core business comes from Dominos Pizzas, and Pizzas are consumed during lunch and dinner and are not snacks like in the case of other outlets. A combination of delivery-based model and healthy bill size enables high sales per square feet and aids profitability. Jubilants’s Asset-light business model boosts its high-growth story, the business is remarkably asset-light as a result lease rentals are much lower which helps profitability of the store. Net working capital continues to be in excess of negative 25 days and fixed asset turnover continues to be in excess of 3 times. Even in a subdued economic environment of the past two years, there was no worsening of working capital metrics. When the growth trajectory resumes on same-store sales, cash flow improvement will be significant. It is remarkable that Jubilant FoodWorks, which runs a high-growth business like Domino’s, which expanded from 180 stores in FY08 to around 1,100 stores currently including 68 Dunkin’ Donuts outlets did not have the need to raise fresh equity capital or avail significant amount of debt. This is a testament to strong business model and a kind of proof about the abilities and expertise of management which also shows their understandings about their business in India.  

Outlook and Valuation:

Jubilant FoodWorks Limited is India’s largest food service company. JFL operates Domino’s Pizza & Dunkin Donuts brand with the exclusive rights for India, Sri Lanka, Bangladesh and Nepal. The company have recently launched Pizza Mania Extreme & Burger Pizza and launched Quattro Formaggi Burst Pizza and Choco Pizza, Navratra Pizza and these products are receiving positive response from its customers. It has launched its Online Mobile ordering site in July, 2013 and it is seen as important platform to reach a wider audience base. Till present there are over 62 lakh downloads of the Domino’s Pizza mobile ordering app across various smart phones & the Average Online ordering contributes to 49 % of delivery sales in Q3 FY17 and Mobile Ordering sales contributes to 56 % during the quarter. There are total 68 Dunkin’ Donuts Restaurants as on February 06, 2017 in 19 Cities and offers a wide variety of western menu including donuts, coffee, burgers, sandwiches, snacks, and more. It has introduced Big Joy Paneer Delight, Munchkins, Donut Cakes which is 100 % eggless, DunkyDoos, Big Joy Burger which are gaining popularity amongst kids and youngsters. Within the pizza market, Domino’s has a share of more than 60 %. Domino’s has consistently gained its market share from its pizza peers as well as other QSRs in the past few years. The average bill size of Domino’s Pizza is healthy across stores which range from Rs. 350 to Rs. 450 per head. And most of the stores also have delivery facility except stores that are located next to food courts situated at higher levels in malls and the ones that are newly set up. Delivery proportion in other stores is 20 %, which is healthy and adds another avenue of growth. Delivery portion has minimum bill size of Rs. 150 and has on an average 7 bikes to facilitate that delivery. Looking at these factors it can be easily believed that the break-even of its store could be achieved in two-three years. Company will focus more on Same Store Sales Growth rather than focusing on opening on new stores and expected that SSS growth could be around 8-9 %. Growth in SSS will depend on a mix of company-related and macro factors, like Increase traction in new products, faster growth in value-added offerings, Revival in consumer confidence, especially post demonetization, Level of discounting and promotions, Uptick in job creation, and Extent of price hikes which JFL could pass on to the consumers. The growth in SSS is likely to recover in FY18E on the back of positive improvement in afore-mentioned areas and it could be around 8 %. JFL plans to open over 100 stores annually in next few years. While the number of Dominos outlets stood at 1,100 at Feb 17 end, Dominos International has projected the potential store count for Dominos in India at 1,800. However, with the decline in percentage of new stores opened vis-à-vis extant stores, JFL’s margins would improve at a faster pace as higher number of stores would have attained breakeven. Based on current SSS growth trends, calculation suggests a new Dominos store would typically achieve cash breakeven in 4 years. On financial side Jubilant Foodworks Q3FY17 performance was good, it reported Revenues of Rs. 660 Cr, up 3.9 % YOY; SSG was at -3.3 %, EBITDA at Rs. 64 Cr, down 12 % YOY, gross margin declined 2 % YOY to 74.9 %, impacted by promotional activity and change in mix; EBITDA margin declined 1.80 % YOY to 9.7 %, impacted by higher rent cost, however lower employee cost and controlled other expenditure curtailed decline in EBITDA margins. Home delivery sales through phone has also been impacted due to cash crunch and has been not compensated by online sale, company is working on getting card machines for home delivery. New product launches like Pizza Mania extremes and Burger Pizza are seeing healthy traction and aiding growth. Delivery sales continue to grow faster than dine-in sales as company is aggressive on driving sales through OLO (online ordering) and in long term it expects to be 70 % to 80 % which is the average seen in developed markets. SSSG uptick, GST and break-even in Dunkin are levers to margin expansion. JFL’s operating cash generation has fallen from 15 % to 10% of sales in past four years, yet it still remains strong as the company generates operating cash in the excess of Rs. 250Cr annually. Notably, in past four years JFL has doubled its store count from 550 to 1,100 and added several commissaries without adding any debt on its books, which is impressive. JFL’s gross block increased by >2.5x to Rs. 900 Cr in the last 4 years, while the resultant higher depreciation impacted its earnings as well. This is evident from JFL’s cash profit of Rs. 220 Cr was almost double than the reported net profit Rs. 110 Cr in FY16. The growth shown by Jubilant FoodWorks Ltd is consistently based on the robust operational foundation on which it stands. In the current economic environment, demonetization and slowdown in consumer spending, especially in discretionary expenditure, the company continues to pursue excellence in key areas such as cost management, restaurant selection processes, and continual re-investment in strengthening the supply chain, connecting deeply with consumers, and investing in innovations. This approach is complemented by a robust training apparatus and high operational efficiency standards that allow growing the business in line with the potential. Domino’s Pizza mobile ordering (Online Ordering (OLO)) remains an important platform to reach a wider audience base serving around 63 lakh pizzas every month with its new ad campaign on Order 1 pizza online and get 1 pizza free. This enables to drive higher levels of optimization and supply chain systems into the hinterland, to serve tier 2 and 3 cities. At the current market price of Rs. 1031.10, the stock is trading at a PE of 80.55 x FY17E and 44.83 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 12.80 in FY17E and Rs. 23.00 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	FY16	FY17E	FY18E	FY19E
SALES (₹ Crs)	2,410.20	2,608.00	3,116.00	3,788.50
NET PROFIT (₹ Cr)	106.60	84.40	151.20	229.70
EPS (₹)	16.20	12.80	23.00	34.90
PE (x)	62.20	78.60	43.90	28.90
P/BV (x)	8.70	7.90	7.00	5.90
EV/EBITDA (x)	24.30	25.90	17.90	12.90
ROE (%)	14.90	10.60	16.90	22.00
ROCE (%)	20.40	14.30	23.10	30.40

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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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