Does anyone knew the company krbl ltd and are familiar about their working environment?

Question

they are in to exporting basmati rice & especially to gulf and usa and already penetrate the indian consumer market by their brand product "india gate"

Answer 1

KRBL Ltd.(KRBL)  



By Pankaj Pandey

KRBL is well on track to maintain its leader position in the rice business due to aggressive expansion, growing consumer preference towards branded rice & quality, margin improvement and rising contribution from sale of by-products.  

Company Background

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. In FY05, overall sales stood at Rs 505 crore and 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.  

Industry Outlook

India being the largest producer and exporter of basmati rice commands premium over its traditional rivals in terms of prices and quality. The total rice market in the country is estimated to be worth around Rs 1,00,000 crore of which only 10 per cent of the rice is branded. The branded rice sales have taken off in recent years and have been growing at around 15 per cent in the domestic market compared to 5 per cent for unbranded rice. The branded rice sales growth is an impressive 25 per cent in the international market as compared to stagnant sales of unbranded rice. Added to this, of the Rs 3500 crore worth of basmati rice produced, only around Rs500 crore worth is sold in branded form. On the pricing front, Basmati rice prices are expected to increase by Rs 7-8 per kg due to steady export demand supported by lower crop. KRBL, with its strong franchisee network and a total export market share of 11% in value terms is likely to reap the benefits of growing penetration of branded rice including basmati.  

Expansion

The company is all set to commission, the largest rice mill in the world at Dhuri, Punjab, with a capacity to produce 170 metric tonnes per hour. It has invested a total of Rs 100 crore in the infrastructure expansion of the mill including land acquisition, expanding refining capacity and adding railway lines near the plant, after acquiring its assets at a cost of Rs 15.80 crore. The company hopes to utilize the plant for milling both basmati & non-basmati rice and also intends to exploit bran and husk, the two key by-products of the rice-milling plant. Husk would be utilised to extract furfural, for which there is good demand in the industrial sector. The bran would be used to produce around 50 tonnes of rice bran oil per day and carries a premium pricing of around Rs 85-90 per litre. Expansion at Duri would not only enable the company to achieve cost competitiveness and reap profits from economies of scale, but could also provide a strong fillip to its overall margins due to increased contribution from by-product division.  

Backward Integration

KRBL pioneered the concept of contract farming almost 10 years back to boost the quality and yield of rice. It currently has 1 lakh acres of land under cultivation, spread across states such as Uttar Pradesh, Punjab etc., which it plans to increase to 2 lakh acres by 2007. The company procures about 35-40% of its paddy requirement through contract farming, which is expected to increase going forward and is expected to have a beneficial impact on the margins of the company. The company has also decided to market seeds and presently it markets seeds of basmati rice and wheat, the annual contribution from this being Rs 5 crore.

Diversification into non-basmati

KRBL after establishing its presence in the basmati rice segment is now 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.

Topline & Bottomline to improve substantially

We expect KRBL topline to register a growth of 57.14% in FY06 on the back of improvement in volumes due to commencement of operation by Dhuri Plant in the second half of FY06. The bottomline is slated to grow by 74.69% in FY06E to Rs 28.44 crore and 33.02% in FY07E to Rs 37.83 due to higher margins. Although margins in the non-basmati segment are lower, the company is expected to improve profitability due to rising exports and increasing contribution from sale of by-products.



Financials:

During H1FY06, KRBL posted a strong 88.77% growth in net profit to Rs 15.8 crore (Rs 8.37 crore) and 43.85% rise in topline to Rs 328.66 crore (Rs 228.48 crore) as compared to previous corresponding half. The topline growth can be attributed to growth in the domestic basmati market segment and higher exports which were mainly driven by non-basmati rice segment. Margins improved by 375 basis points due to improved realizations, cost rationalization and cutting measures including lowering ad spends.  

Concerns

Rice processing companies including KRBL require significantly high inventory levels, as basmati rice has to be aged for 12-18 months before it can be processed. Also unfavorable monsoon condition could dampen rice crop as a result, margins could come under pressure due to high inventory carrying cost.  



Valuations

KRBL 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. It is expected to post an EPS of Rs 15.91 for FY06E & Rs 21.16 for FY07E. We believe that the current discounting of 6.3x its FY07E is on the lower side among its peers, thus increasing the chances of a potential re-rating. The stock has the potential to generate returns in excess of 40% in a 6-9 month time frame to Rs 190 levels taking a PE multiple of 9.

It is a good company to work