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














 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.





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