Hope you like the part I and II. If you haven’t read parts I and II please give them a read. This part will talk about the Analytical part rather than talking about the numbers.
Moat Analysis
· Brand
- One of the moats for the business is brand recognition. In commodity products brand can create a positive impact as it becomes easy for the customer to recall the brand. KRBL has created a legacy of the brand by the name of ‘INDIA GATE’, ‘Nur Juhan’, ‘Unity’ etc which impact the buying decisions for the customers and recalling the brand name makes a simple process for selling commoditised products
· Managerial Experience
- Management expertise is one of the most important things for the business and this family business had already proven a good track record of trust and growth in the business by taking the responsibility of growth and proving their modern and innovative techniques for growth in each segment. KRBL has a good management experience as well the new blood in the business focus on growth area which makes a sound moat for the business like KRBL
· Market Share
- Leading in the industry itself says a lot about the business entity and reputation in the market. KRBL commands the highest market share in basmati rice and Non-basmati rice. With the new product launched like Chia seeds and Flake seeds, they have command leader by maintaining 44% market share while with the different geographic business has flourished a lot, having a leading position in different regions as the image stated below.
· Economies of Scale
- KRBL with legacy and Innovation they have achieved the economics of scale as they have the highest producer of rice with having 195 MT/ hour which can showcase that KRBL might be the lowest cost producer and having the highest market share it’s proven that they have achieved the economics of scale.
· Geographical Advantage
- Rice is a paddy crop and even in India, there are only 7 states which produce basmati rice, while the GI tag authenticates the rice quality and genuineness of the basmati rice and emphasis buying from India and Pakistan.
Porter Five Forces
· Competition- Medium to High
- There is stiff competition in domestic as well international markets. While domestic unorganised markets take up the major chunk. The reason being the population has a cost-saving culture and there is a negative mindset of the brands concerning the cost compared to the non-branded cost. While KRBL initiated focusing on low-cost rice and trying to gain the share in the unorganised market with the impact of branding and selling at a lower cost.
· Barriers for Potential of new entrants into the industry- Low to Medium
- There is a low barrier to entry for the potential of new entrants, this is not a complex product to develop, if reliance wants to start their rice factory they can easily set up the plant and stabilize the business, The most difficult for such business is setting up the distribution channel, so if the distribution channel is set you are on roll to start this business, there is no much of cash burn, legality and formation of any product which takes years to develop before entering up in the market.
· Power of Suppliers- Low to Medium
- Suppliers might have the pricing power, MSP (Minimum Selling Price) is set by the govt and every business entity has to follow the MSP while buying from the farmers, so farmers do have some sort of pricing power but KRBL pays the farmers within 3-5 days so small farmers are always ready to negotiate with the price that can be a positive side for KRBL.
· Power of Customers- Low to Medium
- KRBL works Distributor- wholesaler-Retailer-consumer channel. While having product recognition by the impact of brand and continuous advertising, the distributor doesn’t have much power to negotiate with the KRBL. While it became a pull product from the consumers and pricing power remains with the KRBL
· The threat of substitute products- Low to Medium
-Rice is a diet product for most of the human population when it comes to China or India or Australia, there might be different consumption patterns or different types of variety been consumed in their regular diet so rice is rarely a substitute product for daily consumption.
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Analysis
· So, with all of the brief, I would Like to comment on the company prospects and future lookouts from my side.
· KRBL has a strong brand image and has a presence for 120 years, with strong track performance and having a strong execution by the management and fresh blood coming into the company, the company has a clean track record and past has proven ability can be continued with the prospects as well.
· In terms of the next 5 years, the revenue is going to be 2x and right now the company is commanding the highest EBITDA margin and lowest COGS (might be price rise in rice and other products). Management has a strong belief for further increase in the price and that can be benefitted as the company has the highest inventory and can be valuable as the rice grows old.
· They are also initiating with the new country like Canada and while they are emphasising more and more exploration of countries, as we know they already had initiated with Australia and America.
· The new product chia seeds, Flax seeds can be a good growth driver for the company in revenue terms and profitability terms.
· The company has reduced the debt to a great extent yes, this business might require liquidity and might be they carry some amount of debt in the business by the capital mix seems to be efficient in terms of debt and equity
· There is no Capex plan in the upcoming few years they are focused on more the new markets.
· They have surplus liquidity so there is a great chance of buyback of shares or there can be a good acquisition in front to increase capacity.
· Now let’s check the relative valuation for similar companies trading at what level.
Relative Valuations
Comments
· With a relative valuation, Chamanlal sethia and LT foods trading at a low P/E compare to KRBl
· While with the comparison with P/B you can notice that LT foods are trading at the lowest P/B while KRBL trades at 1.73X some notch above LT foods and better in terms of Chaman Lal and GRM overseas.
· While With EV/EBITDA multiple KRBL trades at a premium compared to Chaman Lal and LT foods while GRM is trading above KRBL
· In the D/E part, KRBL leads the game by having the lowest debt/Equity compare to Chamanlal, LT foods and GRM overseas.
· In relative valuation, the 5-year sales growth of KRBL is too low while with having a strong commentary and confidence in the management might be KRBL is trading at a premium.
· KRBL is fairly valued in terms of relative valuation and so there is no margin of safety at this point at a time to justify this price.
So this ends up our analysis on KRBL.
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Equitymaniac
The analysis is fine but seems to be withholding the poorer qualities of the business and company
1) management’s track record is not spotless, whether guilty or not, they were under ED investigation due to augusta case
2) it is a prevalent malpractice in this business to pay less than MSP as the mandi (govt) takes time to pay farmers who do not have the power or infra to hold their stock. Thus, they sell whoever buys with better payment terms to settle their debts (unorganised thus enjoys an unfair advantage vs listed players who must abide by the law)
3) the individual success of brands other than india gate like unity are not discussed, since i do not know myself i cannot comment
The intention is to learn and help others. ✌️
Boss, what kind of analysis is this without a mention of the Augusta scam ?