Part - II KRBL- King of rice can be the king of our portfolio?

Hope you have read part I. If not here is the link for the part I.

Part III will be coming in few days so please don’t forget to subscribe to get the direct readings in your inbox.

Now, let’s start with part II.

Mega Trends

·        Working population and Urbanization

-There is a continuous growth in the increasing working population in metro and non-metro cities. In that effect, there is the recurring buying of groceries rather than buying lumpsum, while there is also a major shift in a channel pattern for going to buy from offline to online like JIOMART, Amazon Grocery and much more, these major trends have shifted to buy from online makes the brand more trustworthy rather than going for a local or unorganised product as there is less impact of influence by the seller and buyer is always brand agonistic as they don’t like to return and refund process due to time constraint.

·        Increasing Internet Penetration

-         After 2016, when JIO entered into the telecom market with entailing of free internet for more than 6 months and while maintaining the lowest rate possible in the world, the companies either have to shut down their business or try to survive with a cut through the competition and while this scenario has increased the consumption of data per person compared to before 2016 version.

-        While now every Indian consumes more than 5GB per month and this internet penetration has increased and opened up the doors for all the new tech businesses like Zomato, policybazaar and many more, while every business is shifting from offline to an online while buying pattern has taken a significant shift, now most of the businesses are been into online marketing and online store which has changed the ease of doing the business, with better reviews and better pricing the game ends with the brand.

·        Higher spending Capacity

-        The population is migrating and moving towards metro cities for a better lifestyle, better education and a better future.

-        While discretionary spending has increased a lot to maintain the status quo and living with the societal standards, major credit goes to finance companies like bajaj finance, as easy EMI options and Financing are easy to opt-in.

·        Growing Health Awareness

-        After the pandemic, people behaviour patterns have changed people are consensus for their health, initially, people prefer to consume junk food and very few were focusing on health and considering as an important parameter but pandemic has changed the perception of living.

About the Company

·        KRBL is the world’s leading basmati rice producer and has fully integrated operations in every aspect of the basmati value chain, right from seed development, contract farming, procurement of paddy, storage, processing, packaging, branding and marketing

·        With a 120-year heritage, KRBL is the largest integrated rice miller in the country, is one of the major producers of rice products (both basmati and non-basmati rice), further the Company is engaged in the production of milling by-products like bran oil, furfural, rice bran, and de-oiled cakes.

·        The company sells rice under its flagship brand, ‘India Gate’ along with the other 13 brands like Taj Mahal, Doon, Nur Jahan, Bemisal and Unity among others. It has also created a strong brand presence through collaborations with global retail chains

·        It has a leadership position and high market share in several geographies across the globe

·        KRBL has its product presence not only in India but also across the globe. KRBL exports basmati rice products to 82 countries and leads the basmati rice consuming market in the branded segment. KRBL is the world’s largest exporter of branded basmati rice and 47 percentage of its revenue is derived from exports.

·        KRBL has a paddy milling capacity of up to 195 MT/per hour which is the highest in the world. KRBL also possesses the world’s largest rice milling plant in Punjab spreading across 200 acres.

·        KRBL has 500 + domestic distributors spread across the nation and the company has a warehouse of 6 million square foot which spreads over 346 acres of land.

·        KRBL provides high-quality seeds to its farming community, helps with the technical know-how on best agricultural practices and facilitates the sourcing of other high-quality input materials. Through the contact farming technique, the company have been able to monitor quality at every stage of production

·        With its increasing focus on green manufacturing, KRBL had diversified into renewable energy and has been increasing its capacity. Its green energy portfolio stood at 144.84 MW as of March 31, 2020. Out of the total power generated 40% was used for captive consumption. The energy segmented contributed 3% of total revenue for FY20.

·        On a broader picture from having 25% of the market share in the year 2010, the company has to try to catch up with the market growth and eating the new market trend with 38% as of 2020.

·        Increasing focus on health and nutrients and to get a projector growth in the revenue they have launched chia seeds and Flax seeds with modern convenient and online platforms

·        The YOY growth for the health range is 16% while the premium range had recorded a growth of 9% and daily range with 13%

·        The health category has a market share of 44% with an increase of 200 bps YOY growth.

·        Market Share in India is 44% with an overall increase of 700 bps while in metro cities KRBL has a market share of 42% with a 400-bps increase YOY

·        They are also setting a digital footprint in flour Mix like Idli Rava and Rice Flour that can stimulate growth to an extent.

·        Indian Basmati rice market is 25Lac MT while that segregates into 2 segments basmati rice and Non-Basmati rice.

·        Basmati rice market is 10 LCS MT while in that India Gate holds 4lc MT market share and in unbranded basmati rice segment which is 15 Lc MT market.

·        This unbranded basmati rice consumer is too price-sensitive and affordability is also a good question, while KRBL launched the UNITY brand for the affordability for smaller segments and Low-mid consumers.

Financials

Comments

·        Margin Ratios

-EBIT margin has grown substantially from 13% to ~19% while improvement in EBIT is due to better cost control

- PAT Margin is almost ~3x compare with 2012 and if we compare with 2011 the PAT margin has grown up by ~1.6x that huge growth in profitability

·        Performance Ratios

-ROE, ROCE and ROA has improved substantially compared with 2011 and YOY growth.

-Asset turnover is mostly on the same line of 1x, while in this industry asset turnover is approx. 1x so, the asset turnover is moderately good

-Fixed asset turnover having a range-bound between 2.16-3.06

·        Efficiency Ratios

-Receivable days are marginally improving from 33 days to 25 days that somehow reflect that there is a less bargain power of customer ( will see in detail in part II)

-Inventory days are always high in such industry as the business depends upon the agriculture and nature of the business is to store and protect which adequately can be used as per the demand and necessity of the consumers

-KRBL has the policy to pay their farmers within 3-5 working days and so the payable days has always been on a less side and might be they get a good price due to payment terms and there is some bargaining power within the company against the supplier.

-Working Capital cycle is long enough due to high inventory turnover days while overall on the supply and demand side it is well poised for growth and less availability of working cycle requirements.

·        Growth Ratios

-In the last 4 years there is no negative growth in sales, Profit margin, EBIT margin that shows the strength and efficiency of the management and its Execution

·        Financial Stability Ratios

-Total Debt/Equity Is improving quite well from 1.39 to 0.16 which is an immense improvement.

-Current ratio and Interest Coverage ratio have improved significantly, while the Quick ratio is a range-bound but still on the good verge with financial Stability.

Hope you like this part, yes we are left with one more part ( The most awaited part). You can read it HERE

Thank you for reading,

EquityManiac.