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KRBL Limited
BUY Target Price: Rs.280.00
CMP: Rs.225.00 Market Cap.:Rs.5478.75 mn.
Date: January 06, 2010
Key Ratios:
Particulars FY09A FY10E FY11E
OPM (%) 14.64 13.08 13.08
NPM (%) 3.72 6.72 6.85
ROE (%) 11.55 21.97 20.50
ROCE (%) 15.47 16.92 17.12
P/BV(x) 1.37 1.07 0.85
P/E(x) 11.82 4.85 4.13
EV/EBDITA(x) 3.00 2.49 2.16
Debt-Equity(x) 1.50 1.23 1.02
Key Data:
Sector Food Processing
Face Value Rs.10.00
52 wk. High/Low 233.20/42.50
Volume (2 wk. Avg.) 171000
BSE Code 530813
SYNOPSIS
• We initiated the coverage of KRBL Ltd and set a
target price of Rs.280.00. It is the largest exporter of
Basmati rice and a significant player in the branded
food industry.
• The company will invest up to Rs 30,000 mn in the
next three years on expansion and working capital
requirement.
• The company is in the process of extending the area
under contract farming from the present 1,80,000
acres to 2,00,000 acres in the next two years.
• KRBL, with a major market share in India and
abroad, will benefit from increasing exports, strong
brand value and a better product mix in the future.
• KRBL seems to have shifted its focus from trading to
manufacturing activity to enhance its margins by
introducing new varieties of rice & focusing more on
value added products like rice bran oil.
• The top line and bottom-line of the company are
expected to grow at a CAGR of 24.76% and 34.30%
over FY08 to FY11E.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
2
Table of Content
Content Page No.
1. Investment Highlights 03
2. Company Profile 07
3. Peer Group Comparison 10
4. Key Concerns 10
5. Financials 17
6. Charts & Graph 13
7. Outlook and Conclusion 15
8. Industry Overview 16
3
Investment Highlights
• Results Update (Q2 FY10)
For the quarter ended on September 30, 2009 (Standalone) the company has registered a 29.98
% (YOY) growth in the net sales and stood at Rs.4328.50 mn from Rs.3330.10 mn of the
corresponding period of the previous year. The revenue reflects an increase in income from Agri
Segment and a rise in income from Energy segment. The operating profit for the quarter stood at
Rs.527.30 mn from Rs.580.80 mn, for the same quarter of last year. During Q2FY10 the net profit
of the company stood at Rs.306.00 mn. EPS for the quarter stood at Rs.12.57 per equity share of
Rs.10.00.
Quarterly Results –Standalone (Rs in mn)
As at Q2FY09 Q2FY10 %Change
Net Sales 3330.10 4328.50 29.98%
Net Profit 221.00 306.00 38.46%
Basic EPS(Rs) 9.08 12.57 38.44%
4
• Margins (%):
Operating Profit Margins (OPM %)
Net Profit Margins (NPM %)
5
• Plans to invest Rs 30000 mn in 3 years
KRBL will invest up to Rs 30000 mn in the next three years on expansion and working capital
requirement. To achieve a turnover of up to Rs 35,000mn over the next three years, the company
would need an investment of Rs 30,000 mn for expansions as well as working capital.It has also
entered into contract farming in Punjab, Haryana and western Uttar Pradesh and currently has
around 1,80,000 acres under it. The contract farming operations of the company enable it to
acquire quality raw material at fixed price and also mitigate risks in commodity market.
• Plans to diversify into highly profitable, rice by-products
Looking ahead, KRBL will consolidate its position as the world's largest Basmati exporter; diversify
into highly profitable, rice by-products; create close partnerships with farmers, invest in contract
farming, and build enduring brands in India and abroad.
Now it is aggressively expanding into non-basmati segment with a variety from the South. `Sorna
Masuri' is grown in Andhra Pradesh, Karnataka and in Tamil Nadu and the demand of which is set
to grow in the coming years because of demand from South Indians living abroad. The company is
targeting exports of over 40,000 tonnes and expects higher contribution to its turnover from non-
basmati varieties in the coming years.
• Plans improve pre-harvest and post-harvest practices
KRBL continues to work closely with farmers in improving pre-harvest and post-harvest practices.
The company researching new seed variants; and are in the process of extending the area under
contract farming from the present 1,80,000 acres to 2,00,000 acres in the next two years.
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• Branded Product Portfolio
KRBL had developed a huge brand name over the years both domestically as well as in the export
market. KRBL owns strong brands like India Gate, Doon, Bemisal, Nur Jahan, Al Wisam, Lotus, etc.
It contributes 30% in India's branded rice sales and around 9% of the total Basmati rice exports
from India. Branded rice contributes around 83% of KRBL’s revenue. Building-up of these Brands
helps the company to get premium over the others. The company had also ventured into an
agreement with Big Bazaar, D'mart, Nil Giri, Food Land, Dhoppe Rite, VMart, Vishal Mega Mart,
Spencer Plaza and Reliance Retail chain of stores, resulting in a greater shelf presence and wider
customer base.
• Focus on manufacturing & value added products
KRBL carries out some trading activity in rice, lentils & pulses. KRBL seems to have shifted its
focus from trading to manufacturing activity to enhance its margins by introducing new varieties
of rice & focusing more on value added products like rice bran oil. Rice Bran oil is a vegetable oil,
once it is stabilized & extracted. Going forward, KRBL expects to generate decent revenues from
this product.
• Dividend
The company is giving dividend to its investors continuously. For FY09, the company has given
20% dividend on equity share of Rs.10.00 each.
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• KRBL Board approves Stock Split
The Board of Directors of the Company has considered and approved sub division of 1 (One)
equity shares of the Company having face value of Rs. 10/- into 10 (Ten) equity shares of Rs. 1/-
each subject to approval of shareholders by way of postal ballot.
Company Profile
KRBL Ltd is the largest exporter of Basmati rice and a significant player in the branded food
industry. KRBL's milling and packing units, located at Ghaziabad (UP), Dhuri (Punjab), Alipur (Delhi)
and Gandhidam (Kandla), enjoys the strong support of its procurement network for basmati rice
that spreads across Punjab, Haryana, Uttranchal and Uttar Pradesh.Around 70 per cent of which
came from exports to 25 countries such as the US, Europe, Africa and the Gulf countries. The
company has a network of 26 lakh retailers, 87 distributors and 434 dealers across the country with
popular brands like Doon, India Gate, Nur Jahan, Aarati, Necklace, Bemisal, Shubh Mangal and
Lotus.
Business Areas:
It operates in two business segments:
1. Agri Segment
2. Energy Segment
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Agri segment:
The agri segment includes agri commodity, such as rice, pulses, seed, wheat, bran and bran oil.
KRBL’s strong presence in domestic & international market could enable it to command better
market share in the rapidly growing rice industry, with the foodprocessing sector gaining industry
status gradually in India. Due to its popular brand image & better quality products,
KRBL has been able to maintain healthy relationship with its overseas customers in major countries
like Saudi Arabia, US, Kuwait & Middle East, which account for 80-85% of its total exports revenue.
This has enabled KRBL to fetch better realisations.Improved utilisation of 150 MT/hr rice milling
capacity at Dhuri plant (which started commercial production in FY07) could enable KRBL to meet
the rising demand & boost its revenues going forward. KRBL’s significant addition of warehousing &
storage facilities at Dhuri could enable it to procure large amount of paddy, which can be stored for
longer period.
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Energy segment:
The energy segment includes power generation from wind turbine and husk-based power plants.
The 10.5 MW & 3.2 MW power plants (run on rice husk) implemented at Dhuri (in FY07) &
Gaziabad (In April 2007) respectively have enabled KRBL to reduce the power cost substantially.
KRBL doesn’t need to buy electricity, since entire power generated from these plants is captively
consumed. KRBL had also implemented a 12.5 wind turbine plant at Dhulia in September 2006. The
energy generated here is sold, thus boosting revenues further.
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Brands:
The Company’s main brands include:
1. India Gate Classic
2. India Gate Super
3. India Gate White Organic
4. India Gate Golden
5. Doon Premium.
Peer Group Comparison
Name of the company CMP(R.s)
(As on Jan
6.2010)
Market
Cap.
(Rs. Mn.)
EPS
(Rs.)
P/E (x) P/BV
(x)
Dividend
(%)
KRBL Ltd 225.00 5478.75 19.03 11.08 1.36 20.00
REI Agro Ltd 53.00 16873.8 3.33 15.89 2.99 10.00
Lakshmi Energy&
Foods Ltd 165.90 10476.9 14.83 11.19 1.86 25.00
Kohinoor Foods Ltd 60.00 1698.6 - - - 0
Key Concerns
• Unfavorable monsoon condition
• Require high inventory levels
• Tough competition from un organized players
• Govt Policies
• Foreign Exchange risk
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Financials
Results updates 12 months ended Profit&loss Account (Standalone)
Value(Rs. in million) FY08A FY09A FY10E FY11E
Description 12m 12m 12m 12m
Net Sales 9965.20 12466.10 16829.24 19353.62
Other Income 102.60 9.10 12.74 15.29
Total Income 10067.80 12475.20 16841.98 19368.91
Expenditure -8529.00 -10649.70 -14641.43 -16837.65
Operating Profit 1538.80 1825.50 2200.54 2531.26
Interest -646.40 -859.90 -429.95 -472.95
Gross Profit 892.40 965.60 1770.59 2058.31
Depreciation -241.00 -235.50 -263.76 -290.14
Profit before Tax 651.40 730.10 1506.83 1768.18
Tax -103.90 -266.70 -376.71 -442.04
Profit after Tax 547.50 463.40 1130.12 1326.13
Equity Capital 243.50 243.50 243.50 243.50
Reserves 3363.10 3769.60 4899.72 6225.86
Face Value 10.00 10.00 10.00 10.00
Total No. of Shares 24.35 24.35 24.35 24.35
EPS(Rs) 22.48 19.03 46.41 54.46
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Quarterly ended Profit & Loss Account (Standalone)
Value(Rs. in million) 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09E
Description 3m 3m 3m 3 m
Net Sales 2091.50 4014.50 4328.50 4544.93
Other Income 0.10 1.50 3.60 3.78
Total Income 2091.60 4016.00 4332.10 4548.71
Expenditure -1866.30 -3402.60 -3804.80 -3997.26
Operating Profit 225.30 613.40 527.30 551.44
Interest -164.50 -143.80 -82.50 -78.38
Gross Profit 60.80 469.60 444.80 473.07
Depreciation -40.50 -64.50 -63.50 -66.04
Profit before Tax 20.30 405.10 381.30 407.03
Tax -62.30 -99.90 -75.30 -89.55
Profit after Tax -42.00 305.20 306.00 317.48
Equity Capital 243.50 243.50 243.50 243.50
Face Value 10.00 10.00 10.00 10.00
Total No. of Shares 24.35 24.35 24.35 24.35
EPS(Rs) -1.72 12.53 12.57 13.04
13
Charts
A) Net sales & PAT Chart
B) EV/EBITDA(x) chart
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C) P/E(X) Chart
D) P/BV(X) chart
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1 Year Comparative Graph
Outlook and Conclusion
• At the current market price of the stock Rs.225.00, the stock trades at a P/E of 4.85 x and 4.13x
for FY10E and FY11E respectively.
• The EPS of the stock is expected to be at Rs.46.41 and Rs.54.46 for the earnings of FY10E and
FY11E respectively.
• The topline and bottom-line of the company are expected to grow at a CAGR of 24.76% and
34.30% over FY08 to FY11E.
• On the basis of EV/EBDITA, the stock trades at 2.49 x and 2.16 x for FY10E and FY11E
respectively.
• Price to Book Value of the stock is expected to be at1.07 x for FY10E and 0.85x for FY11E.
• The company will invest up to Rs 30000mn in the next three years on expansion and working
capital requirement.
• KRBL’s strong presence in domestic & international market could enable it to command better
market share in the rapidly growing rice industry, with the food processing sector gaining
industry status gradually in India.
KRBL BSE SENSEX
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• The company’s captive power plant to help reduce the power cost substantially & wind turbine
plant to add fuel to the turnover growth.
• KRBL pioneered the concept of contract farming almost 10 years back to boost the quality &
yield of rice. It currently has 1.8 lacs acres of land under cultivation, spread across states such as
Uttar Pradesh & Punjab.
• KRBL seems to have shifted its focus from trading to manufacturing activity to enhance its
margins by introducing new varieties of rice & focusing more on value added products like rice
bran oil.
• KRBL, with a major market share in India and abroad, will benefit from increasing exports, strong
brand value and a better product mix in the future.
• The company is set to report significant jump in profitability on the back of capacity expansion,
growing consumer preference towards branded rice & quality, margin improvement on better
economies of scale and rising contribution from sale of by-products.
• We recommend ‘BUY’ in this particular scrip with a target price of Rs.280.00 for Medium to Long
term investment.
Industry Overview
Rice Industry:
Rice is the second largest produced cereal in the world and is cultivated in over 100 countries. In
India, rice occupies an important place in the agricultural basket. It accounts for 1/3rd of
agricultural production, 13% of overall agricultural exports and 1.6% of total exports from India.
The rice industry in India is worth around US$25bn, which is broadly divided into two segments ie
basmati and non-basmati. The non-basmati constitutes 98% production by volume and 95% by
value. Basmati rice is a premium rice variant grown only in India and Pakistan, with India garnering
a larger share of 53%. The basmati rice industry is worth US$ 2.0bn with an estimated production
of 4.05 million MT in FY08. The industry is witnessing significant changes in terms of consumption
patterns. With rising disposable income there has been a robust demand for basmati rice in
domestic markets. Production of basmati has shown a 3% CAGR in the last three years whereas
domestic consumption has been increasing at over 10% for the same period. On the international
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front, basmati is being preferred as a staple in Middle-Eastern markets and is increasingly finding
its way on platters of European and American consumers.
With food processing gaining industry status gradually in India, the rice sector is expected to grow
at an increasing momentum. Improvement in logistics, de commoditization of rice and shift
towards retail is likely to add momentum to the growth of Indian rice sector. In FY09, the rice
production is estimated to be 96 mn tones. The domestic & international prices of Basmati rice
have jumped up significantly over the last one year. This year, better than expected crop output
could lead to softening of paddy prices. However, due to significant increase in demand expected
for rice, mainly from the overseas markets where the basmati rice prices are much higher than in
India, the end product prices could decline only marginally. Also, KRBL, the largest exporter of
Basmati from India, has increased the ageing period of rice by making significant addition to
warehousing & storage facilities, which could enable the company to sell its end products at better
prices even if the paddy prices decline.
Both the basmati and non-basmati sectors offer significant opportunities to organized players, as
their share is significantly low with 35% in basmati and 5% in the nonbasmati. The fragmented
players lack the technology & expertise required for the highend activities such as procurement &
milling. With rice milling sector adopting hi-end technology, courtesy organised players,
downstream value-added products are adding significantly to the revenues of the rice sector. India
is the largest producer of rice bran oil in the world, producing 7 lakh tonne of bran oil per annum. It
still is producing much below its potential of 12 lakh tonne per annum.
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Food Processing:
India is the world's second largest producer of food next to China, and has the potential of being
the biggest with the food and agricultural sector. The total food production in India is likely to
double in the next ten years and there is an opportunity for large investments in food and food
processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food
Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing.
Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods,
Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food processing
industry. Health food and health food supplements is another rapidly rising segment of this
industry which is gaining vast popularity amongst the health conscious
India is one of the worlds major food producers but accounts for less than 1.5 per cent of
international food trade. This indicates vast scope for both investors and exporters. Food exports in
1998 stood at US $5.8 billion whereas the world total was US $438 billion. The Indian food
industries sales turnover is Rs 140,000 crore (1 crore = 10 million) annually as at the start of year
2000.
The industry has the highest number of plants approved by the US Food and Drug Administration
(FDA) outside the USA. India's food processing sector covers fruit and vegetables; meat and
poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and
other consumer product groups like confectionery, chocolates and cocoa products, Soya-based
products, mineralwater, high protein foods etc. The most promising sub-sectors includes -Soft-
drink bottling, Confectionery manufacture, Fishing, aquaculture, Grain-milling and grain-based
products, Meat and poultry processing, Alcoholic beverages, Milk processing, Tomato paste, Fast-
food, Ready-to-eat breakfast cereals, Food additives, flavors etc.
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The Indian food market is estimated at over US$ 182 billion, and accounts for about two thirds of
the total Indian retail market. Further, according to consultancy firm McKinsey & Co, the retail food
sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025,
accounting for a large chunk of the world food industry, which would grow to US$ 400 billion from
US$ 175 billion by 2025.
___________________________________________________________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase
or sale of any financial instrument or as an official confirmation of any transaction. The information
contained herein is from publicly available data or other sources believed to be reliable but we do not
represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors
Pvt. Ltd. or any of it’s affiliates shall not be in any way responsible for any loss or damage that may arise to
any person from any inadvertent error in the information contained in this report. This document is provide
for assistance only and is not intended to be and must not alone be taken as the basis for an investment
decision.
20
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