KRBL Ltd India Gate basmati rice on your plates

BSE Code	530813	Current market Price	21.95
NSE Code	KRBL	Face Value	1
Industry	Packaged foods	Mkt Cap	511 crore.
CMP	Rs. 22/-	Date	19-Jul-12
ISIN Demat:	INE001B01026	Potential target	Rs. 32/-

Company snap shot:

• KRBL was founded in 1889 in Faisalabad, Pakistan and incorporated in 1993.
• Company is engaged in seed development and multiplication, contact farming, production and marketing of Basmati rice
• Company is well integrated &  generates value-added by-products like bran oil, de-oiled cakes and uses rice husks for captive power plants
• Company has set up a seed farm and a 4 MT per hour seed grading plant for its R&D activities and new products testing
• Company has rice warehousing capacity of 5,00,000 tonnes and paddy storage capacity of 1 million tonnes
• Company has collaboration with Buhler, world’s leading rice milling machine manufacturer, for process/machine improvement
• It emerged as Top Green company in ranking of 25 most popular food companies in India by Greenpeace.

Key points for consideration of KRBL:

• Strong Presence in Middle East market especially Saudi Arabia.
• Domestic Market Share of 30% in Basmati Rice segment.
• KRBL’s Acreage under contact farming stands at 240000 acres in FY'2011.
• Due to Contract farming farmers get better access to Technology & Company gets good value of paddy without involving intermediaries
• The rupee depreciated by 19 per cent between October 2011 and May 2012, against the MSP's rise of 16 per cent.
• The South-West monsoon, the lifeline of the country’s agriculture, arrived late by five days and its subsequent progress has been sluggish, resulting in a deficit of 23 per cent so far.
• State reserves of rice and wheat jumped 20 percent to 71.12 million tons as of May 1, said the Food Corp. of India.
• Indian rice is about $100 cheaper than supplies from Thailand.
• The Chinese premier agreed India has a large trade deficit with China and in that context he said rice exports from India would be allowed.

Company Brands.

Company Plants & Capacity:

Core Business: Plant Location Function Capacity (MT/hr) Grading & Packing (MT/Hour) Ghaziabad Rice Processing 45 50 Dhuri Rice Processing 150 50 Delhi Grading 30 Total 195 130 Non Core Business: Plant Location Function Capacity (MW) Dhuri Biomass 12.3 Ghaziabad Biomass 3.5 Sub-Total Biomass 15.8 Maharashtra Wind 12.5 Rajasthan Wind 8.1 Tamil Nadu Wind 8.1 Karnataka Wind 11.1 Sub-Total Wind 39.8 Total Biomass / Wind 55.6

Collaboration with Retails chains in India 

Collaboration with Retails chains across World

 

Rice overview:

• There are primarily three distinct varieties of rice:           
• Japonica rice that accounts for around 12 percent of global rice trade
• Basmati rice accounts for around 10 percent of global trade
• Glutinous rice accounts for most of the remainder.
•  Japonica rice is mainly cultivated (and consumed) in temperate and tropical-upland climatic zones, in Australia, China (in the three northern Provinces of Heilongjiang, Jilin and Liaoning and the eastern central provinces of Anhui, Jiangsu and Zhejiang), the Chinese province of Taiwan, the Democratic Republic of Korea, the European Union (EU), Japan, the Republic of Korea, Russia, Turkey and the Unites States (California State). Overall, some 80 million tonnes of Japonica rice were estimated to have been gathered in 2000-2005, about 13 percent of world output.
•  Indica rice varieties, which are especially well adapted to tropical climates but also thrive in temperate climatic conditions, account for the bulk of world rice production. Many of the rice hybrids available to producers derive from the basic Indica varieties, including the semi-dwarf rice varieties, the introduction of which led to record yield increases throughout Asia in the 1960s and 1970s. Although also belonging to the Indica long grain rice family, fragrant rice is often considered separately, because of their distinctive perfume that commands a price premium.
• The principal varieties defined as aromatic are the fragrant “Hom Mali” rice produced by Thailand and the various types of Basmati exclusively grown on the Himalayan foothills by India (in the states of Haryana and Punjab) and Pakistan (in the state of Punjab).

Major Rice Exporters/Importers of the world.

Exporters		Importers
COUNTRY*	1000 metric Tons	COUNTRY	1000 metric Tons
Thailand	8500	Philippines	2600
Vietnam	6500	Nigeria	1700
Pakistan	3800	Iran	1150
India	2200	Saudi Arabia	1100
Cambodia	850	Iraq	1100
Uruguay	700	Malaysia	1020
China	600	Cote d'Ivoire	860
Egypt	600	South Africa	800
Argentina	500	Indonesia	800
Brazil	400
* January/December year 2010
Source: USDA

Indian Govt efforts in Agriculture:

• Many measures such as adoption of new cultivation techniques, development of various varieties etc have been initiated to increase cropping intensity of India, because of these measures the production figures have exceeded over 100 million tonnes annually, since 1988.
• India has been regularly exporting high quality basmati rice (aromatic) and non basmati rice exports, for over (US) $800 million per annum.
• Over 80% of Basmati rice grown in India is produced for export.
• Significant increase in minimum support prices (MSP) of several agricultural commodities.

The Commission for Agricultural Costs and Prices (CACP) has typically followed a cost plus pricing formula for determining the MSP, and in an environment of rising wages and increasing input costs, rising MSPs have accentuated inflation pressures.

Annual Average Percentage Increase in MSP
	2002-07	2007-12
Rice	1.8	13.6
Wheat	4.0	11.9

• Given the cost plus formula for the determination of MSPs, the increase in MSPs as above is consistent with the rising input costs as evidenced by figures below.

Percentage Increase in Agricultural Input Prices
	2008/09	2009/10	2010/11
Inputs	3%- 19%	18% - 28%	3% -19%
Wages	9%- 36%	5% - 30%	18%-43%
Inputs: Fodder, diesel oil, lubricants, fertilizer and pesticides

 Key Indian developments for sector in last 6months:

• India produced a record 103 million tonnes of rice in 2011/12 crop year that ended in June, a jump of about 8 percent from the previous year, including 5.0 million tonnes of basmati.
• India's annual basmati exports may rise as much as 15 percent in 2012/13, touching a record 3 million tones.
• Indian Govt scrapped the $700 base price for overseas sales of basmati rice in month of July’2012.
• Basmati export expected to rise by 10 to 15 percent in 2012/13.
• The price of basmati has improved in international markets after the minimum export price imposed on it by a government order was removed.
• Prices for some premium basmati varieties are now $1,100-1,150 a tonne, as against $800-900 a tonne earlier.
• India's premium basmati rice is quoted at $1,055-$1,065 per tonne FoB.
• Indian farmers rely on a favorable monsoon for the so-called kharif crop, which is sown in the rainy season from June and accounts for more than 80 percent of annual output. Due to rain defict in India the prices will remain firm & Farmers in north are likely to switch to Basmati as it consumes less water.

 Key concerns in Global & Domestic region:

• Poor monsoon with draught conditions can impact Rice production.
• Out of the 80 million tonnes of grains stored by Government of India as of June 1, 2012, more than 30 million tonnes are lying in open or unhygienic storage.
• The compulsion to offload higher percentage of BPL and APL rice at Rs 3-6 per kg will intensify. Low cost rice will circulate in the bazaar, creating greater surpluses and value mitigation.
• The country has shipped 4.25 million tonnes of non-basmati rice since the export ban on the commodity was lifted in September 2011.
• India exported around 2.5 million tones in 2011-12, a growth of about 15% over the previous year's 2.18 million tonnes.
• Major importers like the Philippines and Iraq have no preference for India.
• Iraq buys Thai and South American origins at $600 c&f plus, while the Philippines has a fondness for Vietnamese rice, despite Indian shipments being the cheapest in the world. China has shown a significant inclination for Pakistani rice.
• The Thai government has accumulated 14 million tonnes of paddy at $480/tonne against vs $280/tonne last year, making their exports at $780 FoB unviable. With the pressure from excessive stocks building up and new crop of 24 million tonnes expected, any knee-jerk reaction by Thai policy makers may compel them to suddenly offload their paddy at heavily discounted prices, destabilising the rice trade.
• Planting of rice, the key kharif cereal, has not only been delayed by scanty rains, but has also been affected by poor water storage levels and erratic power supply in the irrigated tracts of northern India.
• India’s rice exporters have warned against extending credit to Iranian customers after its buyers defaulted on payments for up to 200,000 tonnes of the grain.
• India is Iran’s top rice supplier, accounting for 45 per cent of its annual imports of 1.2m tonnes. The defaults have affected rice shipments via Dubai over the past three months

Company’s Achievements: Source Company presentation

 Key Global developments for sector in last 1year: 

• The recovery of Latin America’s production, particularly in the Mercosur block, gave the world harvest a significant boost during 2010.
• The world rice production reached a new record in 2010, at 464 MnT (696 MnT paddy), up 1.8% from the previous season.
• Farmers will harvest 466.4 million metric tons in the 2012-2013 season, boosting stockpiles by      0.7 percent to 104.9 million tons, the largest since 2001-2002, says the U.S. Department of Agriculture.
• Thailand’s stockpiling program runs until mid-September and there is no limit on the amount that can be bought. The government wants export prices at $800 a ton and will stop buying when they reach that level.
• Vietnamese rice production will expand for a 12th straight year, reaching an all-time high of 26.5 million tons, the USDA predicts.

KRBL Price Chart covering Key Technical.

KRBL Fundamentals Annual basis (Consolidated):

• EPS for FY’11 was 4.95 on consolidated basis; EPS for FY’12 is 2.95.
• Sales for FY12 is Rs 1631 crore, Sales per share has been Rs 66/-
• Book value per share for FY’11 stands at Rs 26.5 & for FY’12 is estimated to be Rs.29/.
• Promoter holding is 56% and there is no stake pledged based on Mar’12.
• Current market cap is 525 crore.
• EV/EBITDA for FY’11 stands at 5.73 & for FY’12 stands at 8.28.
• Debt/Equity ratio is 1.39
• Net profit declined 38.40% to Rs 71.15 crore in the year ended Mar’12 compared to Rs 115.51 crore during the previous year ended Mar’11.
•  Sales rose 5.63% to Rs 1631.00 crore in the year ended Mar’12 as against Rs 1544.01 crore during the previous year ended Mar’11.
• Company has been paying Tax @ average rate of 20.74% in past 5years.

 KRBL Fundamentals Qtr basis (Consolidated):

• Revenue rose 5.48% to Rs 472.57 crore in the quarter ended March 2012 compared to Rs 448.02 crore during the previous quarter ended March 2011.
• Net profit rose 71.97% to Rs 49.87 crore in the quarter ended March 2012 compared to Rs 29.00 crore during the previous quarter ended March 2011. 

Reference:

• Company Annual Reports, RBI, KRBL Investor presentations, licensed charting software, Self build Var models & fundamental models & Google has been extensively used for this report.

Disclaimer:

• This report is based on the freely available content resources across web.
• Atmost care is taken while drafting the report however Investors need to cross check with company data for accuracy.
• I personally have invested in the script at levels of Rs 18-21/-.
• There is no guarantee that targets will be achieved in given timeframe, as changing world dynamics & company fundamentals guide the valuations.
• The user stands responsible for the entire risk of any use made of this report.
• This report doesn’t constitute investment or legal advice or any solicitation, whatsoever.