KRBLNSEyear 2023May 31, 2023

KRBL Limited

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10analyst exchanges

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Management on call

Anoop Kumar Gupta

JOINT MANAGING

Ayush Gupta

HEAD, DOMESTIC BUSINESS –

Ashish Jain

CHIEF FINANCIAL OFFICER – KRBL LIMITED

Key numbers — 40 extracted

rs,

like to invite Anoopji to share his views and the floor is yours. Anoop Gupta: Yes. Dear investors, good afternoon. In my prepared remarks, I'll be giving you an overview of the global rice scenario

512.6 million

ments and updates. The world rice production in the marketing year 2022-23 is now forecasted at 512.6 million tons, which is 2.4% below the 2021 all-time peak of 525.1 million tons. This shortfall of 12.5 mi

2.4%

d rice production in the marketing year 2022-23 is now forecasted at 512.6 million tons, which is 2.4% below the 2021 all-time peak of 525.1 million tons. This shortfall of 12.5 million tons in global

525.1 million

ar 2022-23 is now forecasted at 512.6 million tons, which is 2.4% below the 2021 all-time peak of 525.1 million tons. This shortfall of 12.5 million tons in global production is mainly due to lower production

12.5 million

million tons, which is 2.4% below the 2021 all-time peak of 525.1 million tons. This shortfall of 12.5 million tons in global production is mainly due to lower production in China, Pakistan, Sri Lanka and N

56 million

ion in China, Pakistan, Sri Lanka and Nigeria. The global rice trade, which has touched a high of 56 million tons in the year 2021-22, has come down to 53.6 million tons this year due to inclusive measures

53.6 million

bal rice trade, which has touched a high of 56 million tons in the year 2021-22, has come down to 53.6 million tons this year due to inclusive measures of countries such as India, who have banned the export o

100%

ons this year due to inclusive measures of countries such as India, who have banned the export of 100% non-basmati broken rice and implemented an export duty of 20% on non-basmati white rice. Such m

20%

dia, who have banned the export of 100% non-basmati broken rice and implemented an export duty of 20% on non-basmati white rice. Such measures have restricted exposure to African countries and China,

130.8 million

India. Shifting focus on the Indian rice industry. India is expected to record rice production of 130.8 million metric ton in marketing year 2022-23, which includes 2022 kharif crop and 2023 rabi crop.

9.5 million

harif crop and 2023 rabi crop. The basmati production of marketing year 2022-23 is around 9.5 million tons, around 12% higher than last year. Despite the overall increase in rice production in India

12%

crop. The basmati production of marketing year 2022-23 is around 9.5 million tons, around 12% higher than last year. Despite the overall increase in rice production in India in both basmati a

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Guidance — 18 items

Anoop Gupta

opening

“Hence, we feel that the impact of El Nino will be weak.”

Ayush Gupta

opening

“We see this as a watershed moment for the industry and expect this to be a significant growth driver in the coming years.”

Ashish Jain

opening

“The Board discussed various options to repatriate surplus funds and have sought professional opinion in this respect post which final decision will be taken.”

Anoop Kumar Gupta

“HoReCa is still not done, but the present distribution is not back to the same, but we are expecting that it will be done in the next 1 or 2 quarters.”

Ashish Jain

“So the distributor is performing on expected lines, but we expect the next year to be better.”

Ashish Jain

“We'll come back and present it to the Board and we are hoping that this entire exercise will be concluded in the next 4 to 6 weeks.”

Ashish Jain

“So I think the question really is on what is the company's plan to utilize these funds.”

Ashish Jain

“One is we are in the process of setting up 3 new plants, which will then require additional inventory, for this funding will be required.”

Ashish Jain

“So while there's nothing in the finalization stage, there is some amount of funding that will be needed at all.”

Soumen Choudhury

“And what is the outlook on this going forward?”

Risks & concerns — 9 flagged

Hence, we feel that the impact of El Nino will be weak.

— Anoop Gupta

The decline, like I mentioned, in volume was also because there were no bulk basmati sales during the quarter.

— Ashish Jain

And are we able to get our gross margins in absolute value terms per unit increasing for basmati rice even in Q4 in the domestic market because non-basmati is also a bigger proportion of our revenue and exports, it is difficult to really understand how successful we are on the branded side to transfer the pricing.

— Himanshu Upadhyay

So on the overall trade, the impact of this is quite minimal for a brand, branded we have firstly and then also for basmati rice as a category.

— Ayush Gupta

One more thing, On 6th Slide of Investor Presentation, we have said that the margins were under pressure because of some contracts which got cancelled.

— Himanshu Upadhyay

— Soumen Choudhury

I think finally, your question is that what is the impact of commodity prices in this?

— Ashish Jain

Or it's a very volatile, you can have an 8% margin and then a 22% margin.

— Anuj Sharma

Do you stop that, you only plan that we'll have only 20-plus percent margin or it's an uncertain scenario as to how do it play out next quarter and next year?

— Anuj Sharma

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Q&A — 10 exchanges

Yes. So my first question was what we hear from various consumer companies is that consumer demand is low and upgrading is not happening, especially at the middle class and lower middle class level. We have a very large inventory at this point of time. In such a scenario, can you give some of your thoughts that the bullishness what we have is usually in domestic market or exports market? And are we able to get our gross margins in absolute value terms per unit increasing for basmati rice even in Q4 in the domestic market because non-basmati is also a bigger proportion of our revenue and export

Ayush Gupta

Yes. Himanshu, thank you for the question. See, on the consumer front, the pressures and the inflationary pressures that you're talking about, for basmati rice I think these behaviours are quite muted because majority of basmati rice consumptions are happening in metros and Tier 1 towns of the country. And rural and Tier 2 towns are a very small portion of the overall basmati rice contribution. So on the overall trade, the impact of this is quite minimal for a brand, branded we have firstly and then also for basmati rice as a category. Secondly, on the stock front, the stock position that we c

Yes. I think my first question regarding dividend was answered. Like, any reason why you have not declared it right now and 4 to 6 weeks later?

Ashish Jain

Yes. So I'll just explain. So at this time, the Board looked at various options that are available to repatriate surplus funds. We discussed various options, but the Board wanted a professional opinion to be taken. So we are in the process of taking that. We'll come back and present it to the Board and we are hoping that this entire exercise will be concluded in the next 4 to 6 weeks. So in short it's just evaluating various options, which is why it was not declared this quarter. Okay. So deciding between a buyback and the dividend essentially? All options are on the table. Okay. And my second

My question is regarding broken rice. We have been exporting broken rice to China. So what is the total amount of broken rice that has been exported in this financial year? And the government ban, are these affecting our topline because of broken rice?

Ashish Jain

Amit, we don't generally share country-specific revenue numbers. INR 242 crores revenue from China. Yes. But I think Anoopji has mentioned that total revenue from China was about INR240 crores in the year. Yes. So broken rice was exported to China only or some other country also? Primarily to China. And my second question is regarding the realization of the basmati rice in domestic market. Sir, the company has been saying that 17% is the -- more realization has been happened in the same particular year. But if you compare the retail tax pricing of basmati Classic or some other categories, the

Sir, this quarter, we saw a significant decline in export revenue from the last couple of quarters that we have seen, whereas one would have thought that one should have got the benefit of Ramadan also. So is there any particular reason why this has happened? And what is the outlook on this going forward?

Ashish Jain

Yes. So as I have explained in my speech, as of March 31, we had about INR 440 crores of exports that were dispatched, but the revenue is pending recognition. Now if you look at the same period last quarter, this number was around INR 220 crores. So as you are aware, we recognize revenue only once the payments are received. So this additional revenue, most of this INR 440 crores will be recognized in Q1. So if you look at export sales across Q4 and Q1, you will find that the trend is being maintained. So I think it's a timing difference that has happened in case of exports. So are we looking a

My question was on exports. So for exports, as we have seen exports have been a pain-point since the last few years and have been quite lumpy. Even in this quarter, you mentioned that some of impact would be transferred to Q1. But then if INR200 crores, which could have come in Q4 gets transferred to Q1, it means Q1 is already lower versus our current run rate. So can you just give us a clear sustainable growth or run rate for export for the next 1 or 2 years?

Ashish Jain

Yes. So I will just give a short-term view and then a slightly longer-term view. See, as you know, part of our exports also include bulk exports. That tends to be lumpy. So you may have quarters in which there is significant bulk exports and then you may have a quarter like Q4, where it doesn't happen. So first, on a quarter-on-quarter basis, that's primarily the reason why you will see export revenue moving. However, from a longer-term perspective, when we look at both elements of export, one is both branded as well as bulk, I think we see the outlook as bright, whereas as Anoopji has also me

So first question is on Modern Trade. So this is the fastest-growing channel for us. So how is the profitability and pricing in the Modern Trade relative to traditional trade? And do we see any challenges in maintaining profitability in this channel given the dominance and purchasing power this segment has?

Ayush Gupta

Thank you, Varun, for the question. Our Modern Trade and e-commerce channel actually for us is more profitable if I compare the overall P&L account because expenses are quite less compared to general trade. So in general trade, we will have a lot of manpower and other expenses to cater to that wide spectrum of retailers, when Modern Trade because of the consolidation of supply chain and other effects, our cost tends to be lower. Also, Modern Trade and e-commerce, this category of staples is I would say crowd-pullers or footfall drivers really. So these channels also invest heavily on these par

And just going back to this question on margin. See, what I understand is since we have been holding inventory and I think the pricing have been on an uptick and ignoring the other 2 factors, how does it work that in Q3, we could have a high margin and the cost certainly becomes high in Q4? How does the calculation work? Just could you explain the model?

Ashish Jain

Yes. So I mean, the answer really lies in 2 things. One is that the profile of our sales in Q4. So if you look at the sales of higher-margin SKUs, in volume terms that was at 71% in Q3, while in volume terms, it was up 54% in Q4. So that will have its own consequent impact on the gross profit margin. Second factor, which I've explained was that there are addition -- we had lower-than-usual realization on a non-basmati deal because goods had to be moved to another country and sold there. So that is the second factor affecting gross profit margin. The third is you would see that there are additi

Congratulations to the management for good set of numbers. Sir, I have some very broad questions in terms of the overall volume, I mean, how it has played in terms of the India volumes and the export volume? And how do we look at the margin when one wants to model it? Do you track margins on a per ton basis? And if yes, what is the benchmark margin that you look?

Ashish Jain

Yes. So the EBITDA margin range that we look at is a minimum of 17% to 18%. So that's what we are looking to achieve through the year. Now like I explained in the previous answer, now quarter-to-quarter, this may vary because there is a lumpiness in the nature of bulk exports. But however, over the year, you can expect the 17% to 18% margin to be maintained. Right, right. And would the margin for the export business be higher than the domestic? Not -- some work. However, the reason is that the realization tends to be higher, but then the product mix is also different, right? So typically, it m

My question is, what is the split of business between basmati and non-basmati in volume terms?

Ashish Jain

Yes. So if we look at the domestic branded business, like I mentioned, domestic branded basmati volume was at 370,000 tons. The non-basmati branded was at about 21,000 tons. So 370,000 basmati branded in domestic, 21,000 tons non-basmati branded. In exports, basmati branded was at 88,000 tons while non-basmati was small at about 5,000 tons.

First of all, congratulations for a good result. So Mr. Ashish has said about something about some M2M. So I just want to understand what kind of M2M he was discussing. And he has just informed that there is an INR44 crores income of more interest on debt refund. So what kind of refund is this?

Ashish Jain

So the MTM loss that I was referring to is that as you know, we mark-to-market our investments. So on that investment portfolio, there was a notional loss of INR 3 crores. So the PBT that we reported was after adjusting for that loss. However, in taxable income, that setoff is not available. So our taxable income was higher than the reported PBT, which is what resulted in our tax outgo. So when you take the tax outgo as a percentage of PBT, it appears to be higher than the previous quarter. So that is what I was trying to explain. The other income number you are referring to includes interest

Speaking time

Ashish Jain

Moderator

Ayush Gupta

Jigar Upadhyay

Anoop Kumar Gupta

Amit Agrawal

Kush Gangar

Varun Bang

Anuj Sharma

Himanshu Upadhyay

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Opening remarks

Ashish Jain

Thank you, Michelle, and thank you, everyone, on the call for joining us. Welcome to the Q4 and FY 2023 earnings conference call for analysts and investors of KRBL Limited. Today, we have Mr. Anoop Kumar Gupta, Joint Managing Director; and Ayush Gupta, Head of Domestic Division. Mr. Anil Mittal, who usually joins us on the call is not available today. So his comments will be read by Mr. Anoop Kumar Gupta. To kick off the call, Mr. Gupta will share the business, industry and overall strategy. Following that, Ayush will delve into the perspectives of our domestic business. Finally, I will present financial overview of the company for the fourth quarter and fiscal year 2023. Once the management has concluded their opening remarks, we will open the floor for an interactive Q&A session. Please note that some of the statements made during the call may contain forward-looking information and actual results may differ from these statements. For more details, you can refer to KRBL's investor pr

Anoop Gupta

Yes. Dear investors, good afternoon. In my prepared remarks, I'll be giving you an overview of the global rice scenario and then focus on the Indian rice industry and will further focus on the basmati rice industry in India. Thereafter, I'll discuss about the KRBL specific developments and updates. The world rice production in the marketing year 2022-23 is now forecasted at 512.6 million tons, which is 2.4% below the 2021 all-time peak of 525.1 million tons. This shortfall of 12.5 million tons in global production is mainly due to lower production in China, Pakistan, Sri Lanka and Nigeria. The global rice trade, which has touched a high of 56 million tons in the year 2021-22, has come down to 53.6 million tons this year due to inclusive measures of countries such as India, who have banned the export of 100% non-basmati broken rice and implemented an export duty of 20% on non-basmati white rice. Such measures have restricted exposure to African countries and China, who are the major imp

Ayush Gupta

Thank you, and good afternoon. I will now share an update on the performance of the India business. India business clocked INR 932 crores revenue in Q4 FY2023, which is a 38% increase in value year-over-year. With this, the India full year revenue grew at 26% in value to close at INR 3,335 crores. The year marked a new high for KRBL with our portfolio crossing a household penetration of 1 crores households landmark with an 11.5% increase against the package basmati penetration growth rate of only 2.5%. This year also has been recognized as the world's number one basmati rice brand, which further reinforces our global leadership position in the category. Further, maintaining its market leadership position in India across channels, KRBL clocks a volume share of 32.5% in traditional trade in the exit quarter, while Modern Trade registered a higher server market share of 58% in the quarter. During the quarter, KRBL has expanded its numeric distribution by 75 basis points on sequential basi

Ashish Jain

Thanks, Ayush. I will now take you all through performance for the quarter and year ended March 31st, 2023. All figures mentioned by me would be for the consolidated financials of KRBL. Total income for the quarter stood at INR 1,323 crores, marking a growth of 33% over the corresponding quarter last year. The revenue from operations grew by 30%, while other income in the quarter increased by more than five times on account of interest on income tax refund. Domestic revenue, as Ayush mentioned, increased by 38% over the corresponding quarter last year to INR 932 crores. Year-on-year Basmati sales increased by 43%, driven by 18% growth in volume and 22% growth in basmati realization. On the export side, revenue increased by 18% over the corresponding quarter to INR 331 crores. Branded basmati sales increased by 11%, though overall basmati sales were flattish in value terms owing to no bulk basmati sales during the quarter. Total basmati sales volume declined by 14% on a year-on-year bas

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