KRBL Limited has informed the Exchange regarding Analysts/Institutional Investor Meet/Con. Call Updates - Transcript of Earnings Conference Call held on Tuesday, 5 November 2019
E:KRBL/BIBHU/STK_EX_ 1920/60 19 November 2019
The General Manager Department of Corporate Services BSE Limited Floor 25, Phiroze Jeejeebhoy Towers Dalal Street Mumbai - 400 001
National Stock Exchange of India Limited "Exchange Plaza", C-1, Block-G Bandra-Kurla Complex
v Bandra (E)
Mumbai-400051
Scrip Code:
530813
Symbol: KRBL
Series: Eq.
Dear Sir/Madam,
Sub: Transcript of the Earnings Conference Call held on Tuesday 5 November 2019
Pursuant to the provisions of Regulation 30 read with Para A of Part A of Schedule Ill of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI Listing Regulations"), please find enclosed herewith the transcript of Earnings Conference Call held on Tuesday, 5 November 2019.
THis is for your information and record.
Thanking you,
Yours Faithfully, For KRBL Limited
/
aman Sapra
Company Secretary
Encl.: As Above.
Corporate Office: C-32, 5th & 6th Floor, Sector-62, Noida-201301, Gautambudh Nagar, (U.P.), INDIA. Regd. Office : 5190, Lahori Gate, Delhi - 110 006, INDIA. Tel. : +91-11-23968328, Fax: +91-11-23968327, CIN No. LOlll lDLl993PLC052845 Tel.: +91-120-4060300, Fax : +91-120-4060398. E-mail: mails@krblindia.com. Visit us at: www.krblrice.com WORLD'S LARGEST RICE MILLERS & BASMATI RICE EXPORTERS
“KRBL Limited Q2 FY2020 Earnings Conference Call”
November 05, 2019
MANAGEMENT: MR. ANIL KUMAR MITTAL - CHAIRMAN &
MANAGING DIRECTOR, KRBL LIMITED MR. ANOOP KUMAR GUPTA - JOINT MANAGING DIRECTOR, KRBL LIMITED MR. RAKESH MEHROTRA - CHIEF FINANCIAL OFFICER, KRBL LIMITED
Page 1 of 21
KRBL Limited November 05, 2019
Moderator:
Ladies and gentlemen, good day, and welcome to the KRBL Limited Q2 FY2020 Earnings
Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines
will be in the listen-only mode and there will be an opportunity for you to ask questions
after the presentation concludes. Should you need assistance during the conference call,
please signal an operator by pressing “*” then “0” on your touchtone phone. Please note
that this conference is being recorded. I now hand the conference over to Mr. Aniruddha
Joshi from ICICI Securities Limited. Thank you and over to you!
Aniruddha Joshi:
Thanks Steven. On behalf of ICICI Securities, we welcome you all to Q2 FY2020 Results
Conference Call of KRBL Limited. We have with us today Mr. Anil Kumar Mittal,
Chairman & Managing Director; Mr. Anoop Kumar Gupta, Joint Managing Director; and
Mr. Rakesh Mehrotra, Chief Financial Officer. Now I hand over the call to the management
for their discussion on Q2 FY2020 results. Thank you and over to you Sir!
Rakesh Mehrotra:
Good afternoon, ladies and gentlemen. Welcome to KRBL Limited Q2 FY2020 and Half
Year Ended September 2019 Earnings Conference Call. Thank you ICICI Securities for
organizing this call today. Our investor presentation is available on the stock exchanges and
website for your easy reference.
Talking about performance for the quarter, consolidated revenue from operations stood at
Rs.890 Crores as compared to Rs.1,245 Crores for the same period last year. Export
contribution to the revenue declined to 35% as compared to 51% in the same period last
year. EBITDA is at Rs.172 Crores as compared to Rs.239 Crores for the same period last
year. PBT for the quarter is at Rs.146 Crores as compared to Rs.222 Crores for the same
period last year. PAT for the quarter is Rs.113 Crores as compared to Rs.157 Crores for the
same period last year.
Moving to performance for the half year ended September 30, 2019. Consolidated revenue
from operations stood at Rs.2,116 Crores as compared to Rs.1,994 Crores for the same
period last year. Export contribution to our revenue stood at 44% as compared to 46% in the
same period last year. EBITDA is at Rs.412 Crores as compared to Rs.423 Crores for the
same period last year. PBT for the half year period is Rs.345 Crores as compared to Rs.371
Crores for the same period last year. PAT is at Rs.250 Crores as compared to Rs.257 Crores
for the same period last year.
The Company has exercised the option permitted under Section 115BAA of the Income Tax
Act 1961, which has resulted into lower tax liability at the rate of 25.17% as compared to
Page 2 of 21 KRBL Limited, Regd. office: 5190, Lahori Gate, Delhi - 110 006, INDIA. CIN No.: L01111DL1993PLC052845
KRBL Limited November 05, 2019
34.94% of taxable profits computed without any exemption of the incentives under the
different provisions of the act. Consequent to such change, the accumulated deferred tax
liability has been remeasured, which has resulted into one-time additional charge of Rs.7.89
Crores, recognized in the profit and loss account for the period ended September 30, 2019.
Operating cash flow for the period ended September 30, 2019 on a standalone basis stood at
Rs.1,365 Crores as against Rs.1365.68 Crores for the same period ended September 30,
2018. Free cash flow for the period ended September 30, 2019 stood at Rs.1,349 Crores as
against Rs.1,355 Crores for the same period last year. Dividend of Rs.58.85 Crores
excluding dividend distribution tax, which was declared in the AGM, was disbursed during
the quarter.
As highlighted in our earlier calls, our company has very little short-term debt forming part
of working capital loans. The net debt starts rising with the commencement of paddy
procurement season in the beginning of Q3 every year and becomes insignificantly low by
end of H1 in the next financial year. This is a cycle, which results into a zero or
insignificant debt by September every year for the company. We continue to deliver our
efficient working capital management for the half year ended September 30, 2019. Our net
working capital debt stood at Rs.60 Crores, which is down from Rs.1,424 Crores as on
March 31, 2019.
I would like to reiterate that we are able to maintain the cycle despite increasing
procurement and higher inventory levels of Rs.1994 Crores as compared to Rs.1416 Crores
as at the end of the same period last year.
I would like to conclude by saying that our balance sheet strength along with long-term
growth opportunities for the business gives us confidence that we can take this company to
much greater heights. With this, I hand over the floor to Mr. Anoop Gupta, our Joint
Managing Director for his comments.
Anoop Kumar Gupta:
Thank you Mr. Mehrotra. On the macro front, I would like to reiterate that the demand for
rice remains strong. For KRBL, this quarter some of the orders were rescheduled from Q2
to Q3. About 32,000 metric tonnes of our stock was stuck at the port because there was
some delay in getting the LCs. This shipment was pushed to October 2019, which resulted
in a drop in Q2 revenues. The delivery of this shipment was completed in October 2019 and
you will see it in Q3 numbers. We expect Q3 FY2020 growth to be phenomenal, like what
we reported in Q1 for this year. Our business growth is intact, and we are optimistic on
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KRBL Limited November 05, 2019
delivering results as promised. We reiterate our commitment to grow our business in
domestic and international markets and expect to grow multifold over the next five years.
Our expedition is to grow our topline at Rs.8,000 Crores at the back of our strong and
widespread distribution network across India, our huge contact rice farming network
covering 250,000 acres, strong R&D capabilities and global presence. We see a strong
demand both in domestic as well as international markets and are committed to deliver
results going forward. With this I now open the floor for questions.
Moderator:
Thank you very much. We will now begin the question and answer session. The first
question is from the line of Shailesh Kumar from Sunidhi Securities. Please go ahead.
Shailesh Kumar:
Thanks for the opportunity and I would also like to appreciate the timely manner in which
the company secretary has updated the results and presentation. Sir, I have a couple of
questions. First thing is what is the current scenario of our tax dispute, where we were
expecting favorable judgment any time after July and second thing, looking at the global
uncertainty and all these things, how our Middle East business is looking up?
Anil Kumar Mittal:
Good morning to you and wish you a belated Happy Diwali. As far as tax demand is
concerned, actually, the department themselves are quite puzzled that how to react on the
appeal as our case is very strong and they have no points to reject the appeal. The final
hearing of the appeal has already done about a month-and-a-half back and we have been
given to understand that the order should come in our favor. This is what we have come to
know, and we are ourselves are waiting eagerly to have the result of the appeal, which we
think will be quite positive. This is our personal feeling, but till the time we get the order in
hand it is too difficult to say anything. That is as far as the demand is concerned on IT. As
far as exports are concerned, the prices this year that are coming from the new crop are
comparatively low as compared to last year’s quote. The prices of paddy are also down by
about 20% this year compared to last year. So, we feel that the demand will be quite high,
but still no new business has been concluded so far which has come to our notice. There are
two to three reasons for that. - Iran used to be the first comer in the market and because of
the sanction by the Americans, the Iran business, for the time being has been stopped,
which has got no effect on KRBL at all because we are not so active in Iran. Whatever
business we do with Iran is against the letter of credit. So, neither the new letter of credits
are opening, nor no new demands are coming and as far as the old shipments that have gone
to Iran, which was without the letter of credit, those payments are also stuck up in Iran to
the tune of Rs.1,500 Crores of various exporters from Haryana. But KRBL is not at all
affected due to this Iran sanction.
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KRBL Limited November 05, 2019
As far as Europe is concerned, it is now almost two years and this is the third year because
of the pesticide residue. That market used to be 300,000 tonnes for India, which has come
down to 92,000 tonnes to - 100,000 tonnes, and 200,000 tonnes have been taken by
Pakistan. All the other markets are intact, and we are expecting by November 15, 2019 to
November 20, 2019, at least a million tonne business would be concluded with different
parts of the country. This is the export scenario.
Shailesh Kumar:
And Sir, now that Saudi Arabia has become very strict on this pesticide front and I think
they have also pushed for this rule of origin, do you think it is going to impact our country’s
export and KRBL in particular, how it is going to impact?
Anil Kumar Mittal:
Let me tell you, as far as Saudi is concerned up to December 31, 2019, there is no problem.
After December 31, 2019, they have introduced a condition called CoC, conformity
certificate. Now, everybody has equipped themselves to get that CoC for the shipments that
is to be made after December 10, 2019 or December 15, 2019 because any shipment that
reaches Saudi before December 25, 2019 or December 28, 2019 will be cleared without any
problem. Therefore, after December 10, 2019 or December 15, 2019, all the shipments to
Saudi Arabia will go under CoC, and everything has been lined up, streamlined and there
will be no problem. The buyer will have to pay another $10 to $12 being the cost of that
CoC. That is all.
Shailesh Kumar:
Thanks very much Sir. I will get back in the queue.
Moderator:
Thank you. The next question is from the line of Dikshit Mittal from Subhkam Ventures.
Please go ahead.
Dikshit Mittal:
Sir my question, as you mentioned, because of Iran issue the exporters are facing stress,
though KRBL is not impacted directly, but indirectly. Sir, can there be an impact because if
we are hearing that Iran has completely stopped the imports of Basmati rice so that may
lead to impact other countries as well?
Anil Kumar Mittal:
Let me make it clear to you, something has to be understood about rice today. A country
like Iran, whose staple food is Basmati rice cannot afford to be without rice, that is number
one. Pakistan is not in a position to fulfill the demand of Iran because the total production of
Pakistan is at 600,000 tonnes and India’s production is 6 million tonnes, that is 10 times
over Pakistan; and Pakistan has to fulfill certain demand of other countries also, especially
Europe. Now out of 600,000 tonnes, if they export 180,000 or 200,000 tonnes to Europe,
they have roughly 400,000 tonnes and then there are 15-20 other countries that they have to
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KRBL Limited November 05, 2019
fulfill. What is happening between Iran and Pakistan is that because a lot of Pathanis are
there via Afghanistan, the rice is smuggled, and they have some payment arrangement
within themselves. That is the part which is going to Pakistan. Out of 1.4 million tonnes
exported to Iran last year from India, the share of Pakistan was just 150,000 tonnes.
Pakistan does not have the capacity to export or fulfill the demand of Iran, number one.
Number two, it is a temporary effect. Yes, I do agree that if Iran totally stops the import
then there will definitely be a big hue and cry on the exports, but that cannot be because
then where will they import the food from? They cannot import, they require the food being
an essential commodity. I think so it is a matter of days. We are expecting that by December
15, 2019 it will open up, by November 30, 2019 the whole payment of Rs.1500 Crores will
also come and by that time everything would be clear between America and Iran and
between India and Iran. The only impediment, which is between India and Iran in importing
rice is - Iran says that under the rupee mechanism, they are ready to import rice provided
India starts buying oil from them. Now that is the only chance between India and Iran, if
that clears up then again it will go more than a million or 1.2 million tonnes; that is no
problem.
Dikshit Mittal:
Okay. So Sir, suppose this US-Iran logjam does not clear by December, do you see any
risks to the industry?
Anil Kumar Mittal:
The risk will be that the prices will come down because then there will be surplus of 1.4
million or 1.2 million, but let me tell you, you have to understand what is KRBL. See there
are three things: first of all, the Iran business will continue either via Dubai or either via
Iraq; they are the two places but yes, instead of 1.4 million, it may be 1 million tonne, it
could be 900,000 tonne, that is number one. Out of my total kitty of India Gate or of KRBL,
Iran’s share is not very big. If, let us say, tomorrow Iran does not import rice, we will not
have comparatively that much impact which the companies who are totally dependent on
around 1.4 million tonnes will have. So, I think we cannot take a total negative figure, but
one thing is sure if Iran is completely zero then it will not only impact the Basmati rice
industry but everybody, the farmers, the industry. It will affect everybody as 1.4 million
tonnes is not a small quantity.
Dikshit Mittal:
Alright Sir. So, Sir, like in the event of prices falling, so what can be the impact on us
because I think we are holding quite a lot of inventory and looking at the balance sheet I
think with the kind of inventory, can we see some inventory losses coming by the end of
this year?
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Anil Kumar Mittal:
Let me give you a good example. Let us say the new crop price in the market today is Rs.80
KRBL Limited November 05, 2019
a kg. You go to the market and say I want two-years-old rice or one-and-a-half years old
rice - is it available? When one-and-a-half years-old rice is not available, then how come I
always say that KRBL Basmati, India Gate Basmati rice is a unique rice and there is
nobody today in India who can supply you two-years-old or one-and-a-half-year-old. Our
prices have not come down and we maintain our brand and the prices as it was about three
months back when the prices were on the peak. So as far as KRBL is concerned, there is no
impact at all and that is why we are known to be FMCG company because of branding our
rice, our quality. What is our USP? We always say that you if buy our rice on January 1,
you will have the same quality even after 12 months on December 31, so this is the strength
of KRBL.
Dikshit Mittal:
Okay Sir. Sir, lastly from my side. There is 14% de-growth in the domestic volume as well.
Export you mentioned there was some delay in the shipments so what was the reason for the
domestic decline?
Anoop Kumar Gupta:
See 14% - because the atmosphere in the domestic industry and also because of the prices
going down, the stocks at the distributor level and the wholesale level were quite low, so
they were not maintaining the stock, but I think in the third quarter, we will cover up this
loss of 15%.
Dikshit Mittal:
What was the extent of shipment that was delayed to next quarter, so what was the amount
of that shipment?
Anoop Kumar Gupta: About Rs.300 Crores.
Dikshit Mittal:
Thank you Sir.
Moderator:
Thank you. The next question is from the line of Amit Doshi from Care Portfolio
Management Services. Please go ahead.
Amit Doshi:
Good afternoon Sir. Sir, with respect to Iran, of course, a lot of discussions already
happened. Just wanted to know what is our share to Iran in our exports?
Anil Kumar Mittal:
It is small, I cannot quantify the percentage, but it is not that much, it could be 10%, could
be 8%. I do not know, but we will let you know. That can be known. You send us a mail
and we will reply to you.
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KRBL Limited November 05, 2019
Amit Doshi:
Okay. Second, you mentioned that in the domestic market, Anoopji just said that the prices
were falling and therefore the distributors and stockists were not maintaining the inventory,
but in terms of realization of prices we are seeing that it is rising so I slightly got confused
between that answer and the presentation, which says that the prices have increased?
Anil Kumar Mittal:
This could be answered in two different ways. From June onwards, we have a system called
mapping, and we start mapping the crop that what is the size of the crop, how much crop in
which state, what would be the outcome of the crop, which is known as mapping and that
mapping always showed that this year the crop size is about 20% higher over the last year.
Based on that from August onwards the prices start depressing, but this year the crop is
higher by 20% and if the crop is really higher by 20% and with those sentiments the market
prices started dropping. But as you know KRBL we have brands, we never reduce our
prices and we were stuck on our prices because that type of a quality was not available in
the market. That was one reason that the market share came little down. If you think that the
market will come down by 15%, 20%, then after all you may be strongest brand, but you
also have to reduce by 2%, 3%, 4%, not the price of the market share.
Anoop Kumar Gupta: Volumes can drop 2% to 3%, but we do not reduce our prices.
Amit Doshi:
Right, to maintain our premiumness and of course the quality that we offer.
Anoop Kumar Gupta:
Exactly.
Amit Doshi:
So, Sir, in that light, can you share now that we are already in the post-procurement season,
what is the crop like and how are the paddy. I mean, if you can just give some sort of an
overview of the crop that has been coming now.
Anil Kumar Mittal:
No, there is something, funny estimates are coming, which have come for the first time,
though the crop is higher by 20% there is no doubt, the yield per acre this time has reduced
by 15% to20%, which is confusing in many areas. One example, 1121 used to have a yield
of 19 quintals per acre. People are saying it is coming only 15 quintals or 14 quintals
because of the late rains or sowing or the weather/atmosphere changes and all. So, the
picture is a little dicey. By November 15, 2019 the picture would be clear that how much
area is under low yield, how much area is under natural yield and what would be the impact
of 20% higher coverage in paddy, that we will come to know only after 10-15 days.
Amit Doshi:
Okay. So, till now, you would like to say that the paddy prices, etc., are at the prior year
levels. I mean there are no significant changes in the prices despite 20% overproduction?
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KRBL Limited November 05, 2019
Anil Kumar Mittal:
No, it is impacted for example this year we started buying 1121 at Rs.28 a quintal, Rs.27 a
quintal. We thought this is the right price, but it again came back to Rs.29 only. Two days
back it was Rs.27, today it is Rs.29. Now I think within two to three days picture will be
clear and all the exporters and local players will come into the market; then we will be able
to assess the real price of the market.
Amit Doshi:
Okay. Got it and Sir last question, I think it was clear that everybody is waiting for that
income tax appeal outcome, but with reference to the payment that we were supposed to
make on a monthly basis, does that continue or since the final hearing is over does that stop
or it continues like it was?
Anoop Kumar Gupta:
It continues, we have to pay around Rs.12 Crores a month. So, till September 30, 2019, we
have paid Rs.147 Crores and in the month of October also we paid another Rs.12 Crores. So
now the total is Rs.159 Crores as on date.
Amit Doshi:
Till the time outcome is not going to be out we will you continue to pay?
Anoop Kumar Gupta: We will continue to pay Rs.12 Crores per month, yes.
Amit Doshi:
Thank you Sir. All the best.
Moderator:
Thank you. The next question is from the line of Rajeev Agarwal from Sudarshi Advisors.
Please go ahead.
Rajeev Agarwal:
The first question is to just to understand the Basmati market. It seems to me that there are
only a few key players in this market so can you just give the competitive intensity in the
market and how do you see that is changing over the last few years because I believe quite a
few players went out of the market and so if you can just lay out how the market is looking
from your perspective?
Anil Kumar Mittal:
Are you talking on domestic front or are you talking on export or overall?
Rajeev Agarwal:
Overall from an Indian player perspective.
Anil Kumar Mittal:
Let me tell you, India has a total production of around 6.5 million tonnes, out of which 4.4
million tonnes has been exported last year, I am giving this figure up to March 31, and 2.2
to-2.3 is the domestic market; so, this is size of the market. As far as domestic market is
concerned, we have a consumption of around 2.2% in India and as far as export is
concerned because of the monopoly, 600,000 tonnes is the share of the Pakistani market and
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KRBL Limited November 05, 2019
4.4 million tonnes is the share of the Indian market. The total export market is 5 million
tonnes, which is a monopoly of Pakistan and India, that is the predictor. The main countries
who import Indian Basmati rice, which stands to 65%-70% of the total market is Iran,
second is Saudi Arabia, third is Iraq and then fourth, maybe about 700,000 to -800,000
tonnes comes to Oman, Kuwait, Qatar, UAE, and all these countries. So, this is the total
market share and total market of Basmati rice comparison to Pakistan. Now what is
happening in last couple of years, people have been speculating on this business of Basmati
rice because the crop comes in the first three months that is October, November and
December. So now, let us say in the market they sell about 10% of their total production or
15% of their total production in these three months. So therefore, they are taking a risk of
35% of balance of the year. Whereas KRBL is concerned, we have got our brand, we have
got our distributors, we have got our set prices and they are all controlled, and all
maintained throughout the year at the same prices with good quantities, with aggressive
pricing and aggressive marketing. So, this is the difference between us and the other
players, who have become NPAs and have gone out of the market. Now another one good
player is there in the market, that is Daawat Foods. They are also having the same
proposition as that of we because they are also having their own brands throughout the
world and they are also keeping the pace in the right direction. Rest all are speculating, and
the most dangerous part is the private label. Now in private label, most of the people
worldwide exploit the situation and how they exploit the situation, for example, let us say,
they buy certain quantities, later on, either they will not open the letter of credit or if the
prices go down they will try to exploit the exporter. So, there are the things where rice
industry has come into trouble, whereas we are not at all neither in that atmosphere nor we
do business like that and that is one of the biggest reasons that in spite of doing business
with Iran, neither Re.1 is stuck up there nor we have any problems with Iran. That is why
we say that Iran business also does not have any impact on KRBL and let me tell you our
credibility - in the last 30 years of our export market, we have not lost a single dollar
outside. That much care we take about our company.
Rajeev Agarwal:
Right. So actually, my question was it seems to me that a number of Indian players, big
Indian players have gone down and therefore your positioning in the Basmati rice market
both from the branding but also from just being such a big player had only strengthened, is
that what you would say domestically as well as internationally?
Anil Kumar Mittal:
Yes, and I give you one example. Go to the market from there you will also understand the
export market. Just go to the shelf you will see our prices and you see the competitors'
prices you will come to know how we work.
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KRBL Limited November 05, 2019
Rajeev Agarwal:
Right. Yes, I was actually noticing at least in some of the foreign markets like the US
market I believe your product is positioned I do not know what are the other brands that are
selling there, but it seems to me that you are positioned quite competitively in that market
so can you just maybe elaborate. I know in the Indian market you are on the premium side,
is that the same positioning you have across all markets or you position yourself differently
in different markets?
Anil Kumar Mittal:
We are positioned differently in different markets. Especially in America, we are not that
much strong because our exports to America is hardly 8,000 to 10,000 tonnes per year
compared to that the market is 100,000 tonnes, which is 10%. The leader of the American
market today is Daawat, but if you look at the prices of Daawat and KRBL, there is a
difference of $100 to $80 per tonne and we many times are surprised that how they are
competing. But they have their own way of working. We cannot criticize since they are the
market leader of that country, but the difference between India Gate and the Daawat prices
are that they have a brand called The Royal. The prices are so different that it does come to
our mind that how they are conducting the business with that lower prices.
Rajeev Agarwal:
Right. Got it. Okay. That is very helpful, and this was really helpful. Thank you very much.
Moderator:
Thank you. The next question is from the line of Subhankar Ojha from SKS Capital. Please
go ahead.
Subhankar Ojha:
Hi Sir. So, I wanted to understand this movement of price last quarter and current quarter
and what gives you confidence that with the correction of the paddy prices you will still be
able to maintain your margin?
Anoop Kumar Gupta: No, I am not clear, please. Can you repeat it?
Subhankar Ojha:
Can you share some data point on the realization both domestic as well as exports and
secondly, I am assuming that you must be having some high cost inventory and with the
correction of the paddy, you have just given a figure of 20%, so what gives us confidence
that you would still be able to maintain the margin?
Anoop Kumar Gupta:
See as Mr. Mittal just now told you, whatever stock we are having in the inventory is the
old crop and the old crop valuation and the new crop valuation is altogether different.
Whatever we are selling, we are supposed to carry the stock for two years because we have
consumer pack, which says the cargo is two years old or one-and-a-half years old. So, our
pricing will not drop seeing the new price. Our margins will remain intact, but as far as the
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KRBL Limited November 05, 2019
realization is concerned, in the coming quarters you will see a little drop because there will
be a mixture of old crop sale and the new crop sale. The net realization maybe you will see
some downward trend, but our margins will be intact.
Subhankar Ojha:
And any data points of what is the current realization and last two quarters’ realization?
Anoop Kumar Gupta: Mr. Mehrotra will tell.
Rakesh Mehrotra:
For the quarter ended September 30, 2019, our average realization in the domestic market is
Rs.57,933 as compared to Rs.52,171 in the same period last year. It is up by 11% and in the
export market our realization is Rs.86,137 as compared to Rs.76,698 in the same period last
year. The realization is up by 12%.
Subhankar Ojha:
Can you please share the inventory data Sir with respect to the value and volume?
Rakesh Mehrotra:
We are carrying paddy stock of 104,922 metric tonne valued at Rs.361.27 Crores. Average
price is Rs.34,432 per metric tonne.
Subhankar Ojha:
Rs.34 that is approximately?
Rakesh Mehrotra:
Yes, and we are carrying rice stock of 302,290 metric tonne valued at Rs.1,536.71 Crores,
the average price is Rs.50,836 per metric tonne.
Subhankar Ojha:
Okay. So that is approximately Rs.34 and Rs.50, I mean that is right?
Rakesh Mehrotra:
Right.
Anoop Kumar Gupta: But if you look even at today’s price, with the pricing of rice of Rs.50 you cannot go wrong.
The stock valued at Rs.50 back to one-year, two-year-old stock even today’s value it is not
Rs.50. I mean the market value is even today more than Rs.50.
Subhankar Ojha:
Okay. So, do you mean the current domestic realization is approximately that, Rs.50?
Anoop Kumar Gupta: No. It is around Rs.57 in the current quarter. If there will be a sale of new crop because
always there is a sale of new crop, the sale would definitely be at a lower price. Average
may come down by Rs.2 to Rs.3 in the next quarter.
Subhankar Ojha:
Understood Sir. Thank you.
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KRBL Limited November 05, 2019
Moderator:
Thank you. The next question is from the line of Manish Bhandari from Vallum Capital.
Please go ahead.
Manish Bhandari:
Hi. Good afternoon. Sir, I have a few questions. One, you have spoken about the rice, which
is, for us, is a two-year old so one question keeps on coming to me is that is there any
technology which can prove that a similar label is one-and-a-half-year old versus a two-
year-old because there is a lot of this mixing, which happens in the rice so how far the
technology has progressed and is KRBL doing anything on this to make sure that the
consumer can know that this is the whole package is a two-year-old?
Anil Kumar Mittal:
See, it can be found out, but you have to do the DNA testing that how old is the rice and
that is also not very authentic, though it is costly. Every sample cost you about Rs.25,000
and let me tell you that consumer preference and the demand of the brand itself is the label,
a certificate that the rice is genuinely old, and it has been aged accordingly because you
have to understand that as ageing increases, the attributes of the rice also increases
accordingly. Do you think people do not know what the brands of Rice KRBL is selling,
they look at the rice and they realize that, yes, the rice is of continuously of good quality
with aroma, with taste, with no problem whatsoever. That is the test of the ageing. Let me
tell you, somebody is selling Rs.8 a kg cheaper than me and even then, the consumer
prefers India Gate it means it is the age and the quality certificate rights.
Anoop Kumar Gupta: And Manish you tell me Indian Gate Classic has been sold at Rs.200 a kg in the Indian
market and the same rice, which is non-aged or they are claiming to be one-year-old or a
two-year-old been sold at Rs.140 a kg our consumer is giving Rs.60 a kg on the brand only
you think, it is not the quality attributes.
Manish Bhandari:
No, I appreciate that, but that makes our position far more unique to get this kind of
certification done or maybe money back guarantee or something, which could definitely
make the consumer aware that what he is adding up, is not an apple-to-apple, which
happens in the wine industry or which happens in many of the industries.
Anoop Kumar Gupta: Manish, I’ll tell you one thing. Once Patanjali or other competitors had given a complaint in
the Advertising Authority of India, which is in Mumbai, that they are claiming the rice to be
two-year-old, they cannot claim, how will they prove it and the notice came to me. I went to
Mumbai and proved with my account statements that the rice what I am carrying is two
years old and I won that case.
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KRBL Limited November 05, 2019
Manish Bhandari:
Sure, So I was just drawing a leaf from one of the controversies which happened in
bedlinen company where the whole origin of cotton was under question and then that just
became from the industry practice and finally now I think they have implemented a
technology where you can have the origination of the cotton itself to be proven so I am just
wondering if there is any technology in which KRBL has thought of, then I would like to
know?
Anil Kumar Mittal:
See to find out variance, cotton is also 200 different varieties grown in different part of the
globe. Similarly, Basmati in India have got five-six varieties like 1509, 1121, CSR 30, 370,
Pusa Basmati #1, 1401. These are the five to-six varieties, which are grown. To find out
these varieties, there is a foolproof system and there is a simpler system, but to find out the
ageing same way if you want to find out the ageing in that cotton, that how old that cotton
base is, it is not that easy job. To find out the ageing is not an easy job, but you have put
this question to me, so let me go to Pusa Institute and let me go to European lab standards
whether they have such technology to exactly prove whether the rice’s exact age could be
found out or not.
Manish Bhandari:
Sir my next question is regarding the newspaper item, which appeared a few days back
about the GST on food grains and how serious is it and do you think whether it will be
positive or negative for our company and is there any talk, which is going on?
Anoop Kumar Gupta: Yes, it is going to be a big positive for KRBL if food grain is taxed. We will be the happiest
person if food grain is taxed. Today we have got a big problem in our institutional pack
25kg pack where we have to pay GST and no other company is paying tax on 25kg bags.
Manish Bhandari:
So why there is a discrepancy where we are paying and a competitor with a similar attribute
is not paying so what is it that they are able to find?
Anoop Kumar Gupta:
They are not selling in the brands. I am selling in my brand, India Gate or Unity, those are
registered brands. As per the law, anything sold and registered under a brand had to be
taxed. I do not want to sell anything out of brand.
Anil Kumar Mittal:
No, Manish. You have to understand the law before putting this question that in GST an
amendment came, and they said the brands, which put disclaimer on the bag will not be
charged with GST and this disclaimer is that this brand is not registered. Anybody can
copy, and we have got no right on the registration of the brand. This is one of the
disclaimers where people are not paying GST that is point number one. Point number two,
when you said that all food grains will be taxed and all, let me tell you in India, since it is
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KRBL Limited November 05, 2019
independence, wherever there is a variation in the law, people have always taken advantage,
you should have one common law. Now let us say if the taxation for example, let me give
you mundi tax example, in Delhi it is 1%; Haryana it is 4%; Punjab it is 4%; UP is 2.5%;
Rajasthan it is 2%, so much billing manipulations are done because of savings at 4% to 1%
or 1% to 4% so we have been always promoting to the government that please make one
universal law. If whatever law consist in Kanyakumari same should be in Kashmir so we do
not want a very different laws in different places.
Manish Bhandari:
Sir, can you quantify the gains we could have if the GST on food grains comes, how we
will benefit?
Anoop Kumar Gupta: My domestic sales will increase minimum by 40% immediately.
Manish Bhandari:
So that means apple-to-apple, you mean to say, everything becomes apple-to-apple?
Anoop Kumar Gupta: Yes.
Manish Bhandari:
Sure. So, my other question is I have been asking on various occasions about your
diversification plan and you did a brush-up on the quinoa side so how things are going there
and is there any other thought, which you have put across and now we have enough pile of
cash, which keeps on coming back to us and which gets settled in the inventory. So, is there
any other use of cash which you can think on acceleration and there is an amount of cash
getting released by the lower taxation also, so on the areas, which you have ventured into,
including also the Idli one, which you have discussed some time back?
Anoop Kumar Gupta:
Idli we will be marketing very shortly because there were some problems in the south. So, I
think by December we will be in the market for the Idli rice and quinoa as we told you last
time also, quinoa is not doing that great. We are having a monthly sale of around 10 to-15
tonnes only. I mean, it is annual sale of 150 to 160 tonnes and we have cash surprises also.
The ones I was selling at Rs.700-Rs.800 a kg, today I am selling at Rs.200 a kg, even then
the market, according to my calculations, the total quinoa market in India is not more than
1,000 tonnes and my share is around 15% and the majority of the share is of South
American, which is a good quality from Peru - quinoa that is a major market, Bolivia.
Anoop Kumar Gupta: As far as cash generation is concerned, Manish, I told you several times, we do not want too
much dependency on the financial institutions and as our topline grows, our investment in
the raw material also goes up and there are two options either to take bank finance or to
invest your own money. We do not want our exposure in the bank. I want even in the peak
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KRBL Limited November 05, 2019
time my exposure should not be above 50% to 55% to the bank, rest 40% to 45%. I am
talking about the peak. 45% should be by KRBL only. Suppose I have to, going forward, I
want a stock of Rs.6,000 toRs.7,000 Crores, when I am talking of Rs.8,000 Crores topline
that means one day I have to keep a stock of Rs.7,000 Crores to Rs.8,000 Crores. That
means, I need minimum Rs.4,000 Crores of my own funds to be invested in the stock.
Dependency on the bank I do not think in today’s scenario is good.
Manish Bhandari:
Sure. Sir, my last question is regarding what you said recently about the stock, which you
may as we progress to plan to Rs.8,000 Crores and what number it is. So, do we have the
handling capacity and the warehousing capacity to handle such kind of food grain over the
next two years, three years’ timeframe?
Anoop Kumar Gupta: Manish, every year, we are spending Rs.20 Crores to Rs.30 Crores on warehousing. Today
we have more than 2.7 million square feet of closed warehouse which we use for rice and
paddy is always stored in open areas and that is covered with a tarpaulin. So as far as open
land warehousing is concerned I do not foresee any problem.
Manish Bhandari:
So, this year, if the paddy prices goes down, which ideally what you are saying versus the
last year you should have a record inventory and record position in terms of your
warehousing position on the inventory?
Anoop Kumar Gupta:
September 30, 2020 we will be the highest inventory ever in KRBL I can assure you.
Manish Bhandari:
Sure. Thank you.
Moderator:
Thank you. The next question is from the line of Seema Bansal, an individual investor.
Please go ahead.
Seema Bansal:
Good afternoon Sir. Thank you for the opportunity. Sir now, with the LC being received
and our shipment being cleared and all, I just wanted to know how does Q3 FY2020 look
for KRBL and also if you could throw some light on the full year FY2020 number, some
guidance around that please?
Anil Kumar Mittal:
We are quite confident as far as Q3 is concerned. It will have same phenomenal results what
we showed in Q1 because Q1 results were quite good and that was also one of the reasons
that many of the shipments of Q4 could not be shipped so we shipped in Q1 and now it will
be from Q2 FY 20 to Q3 FY 20 that is number one. Number two is that your question is a
little bit early, normally every year we used to conclude, or the industry used to conclude
export to the tune of 30% to 40% of whatever we export the whole year. This year it has
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KRBL Limited November 05, 2019
been delayed because the prices are coming down and buyers are also a little shaky abroad.
They want to let it be stabilized, then we should come into the market and we are
anticipating that buyers will come by November 15, 2019 to November 20, 2019 in the
market. Once the buyer comes then the paddy prices also stabilizes and then you come to
know the international and global prices, that these are the prices which are going to remain
the whole year. So, based on that only I can tell you what the price would be, what would
be the outcome, but one thing is sure - I can assure you that this year up to March 31, 2019;
now there are two ways of calculating the quantums also. One way is the financial year,
which is April to March and other is from October to September. October to September is
our yearly crop year, that is kharif year and the financial year is our financial year from
April to March. If you look at the April to March, we might have a little setback in our
quantum, we might not be able to do 4.4, it might be 4.1, it will be lesser by 3 lakh tonnes
or 2.5 lakh, 3 lakh tonnes, India. I am talking of India, the quantum, but when you look after
November, what I am telling, since the prices are down, all country will jump in into India
to cover their stocks. People especially like Iran and Saudi Arabia, they will like to order
20% to 25% more over the last year because the prices will remain low. So, I feel that the
clear picture to us will be available around November 20, 2019. That is the reaction of the
importer from outside.
Anoop Kumar Gupta: But overall, we are confident that we will gain about 8% to 10% over the last year in our
topline.
Seema Bansal:
That is, it from mine side
Moderator:
Thank you. The next question is from the line of Varun Goenka from Max Bupa Mutual
Fund. Please go ahead.
Varun Goenka:
Yes. I am from Nippon Mutual Fund formerly Reliance Mutual Fund. So Anoopji I just
wanted to ask you on our domestic side. I think in the last call also you have been
mentioning the way biryani culture is picking up in India and Zomato also has been sharing
the data. I think this H1 even though we had a price hike, but we had no volume growth.
You have been sharing the potential in India, but if you could just give us some idea what
could be the volume growth next two, three years, how we will be taking our distribution,
our e-commerce sales, is there any competition from, if at all, any private labels or stuff like
that?
Anoop Kumar Gupta:
So today also e-commerce, we have an average, I think, around 40% to 45% of the share of
e-commerce in the Basmati segment is by KRBL only, but you are talking of the biryani
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KRBL Limited November 05, 2019
culture, now GST is the biggest problem as far as volume growth is concerned. KRBL
being the quality leader, my prices are higher by 8% to 10% to the market and that is not
because it is KRBL but because we have a quality product and over and above that there is
a 5% GST. So, difference is about 15%. Restaurant sales and institutional sales where they
are not getting any input on account of GST, they prefer to buy a non-GST material. That is
the biggest problem which is, I am able to maintain my sales, but the growth in that
segment; I am growing in the segment of consumer pack. I am growing at the rate of 15%
to 18% in consumer pack segment, but the segment of institutional sale, which is a bulk bag
wherein I am not able to show a growth, but I am able to maintain it.
Varun Goenka:
So just one concern here Sir. Ultimately, the way biryani culture is going through the
country, people go to the biryani shops, but they do not ask for India Gate or KRBL
ultimately they need a biryani and so how do we have a way in which I am just drawing a
leaf from Intel computer had something inside a computer, which we consumers never
bought, but it was very critical so how do we now going forward so that our brand remains
relevant and as dominant as it is today?
Anoop Kumar Gupta:
I have got a Unity brand for biryani. When I go to a restaurant I will say my volume after
cooking would be 10% higher to others number one and my rice will never break after
cooking. The biggest thing a biryaniwala sees is that the rice should not break after cooking
and it can stay for even four, five, six, seven and eight hours after cooking and above all the
taste of the rice. Taste of the rice is raised, but sometimes what happens if a biryaniwala on
a very, very low cadre does not look at it, he looks only at the price. You see today, in
Bengaluru Meghana Foods selling Biryani at Rs.280 a plate, he buys only India Gate
Classic. I cannot compete with roadside biryani because they are buying all kinds of rice.
Varun Goenka:
Right. So, is there any other significant player, Anoopji, in this, which can compete with
your quality, most of the people are just buying because of their GST difference?
Anoop Kumar Gupta: Quality, I think I am on the top, but people are buying, it is not only because of GST it is
also the price difference. They are selling at least Rs.7 to Rs.8 a kg cheaper than me.
Anoop Kumar Gupta: Unity was started five years back at 5,000 tonnes. Today this SKU is at 80,000 tonnes. In
five years’, time, I have grown from 5,000 to 80,000. Now the question is the same speed
should go for next five years.
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Varun Goenka:
Right. Okay and the news of India Gate brand getting ownership, I think, since the 1970s or
something was very, very heartful. So, are we looking to now use this dominant brand for
any other categories, non-Basmati we are trying and Idli rice, but as such, any other
adjacent food categories are we looking at?
KRBL Limited November 05, 2019
Anoop Kumar Gupta:
Frankly we find a very big scope in rice only.
Varun Goenka:
Fair enough.
Anoop Kumar Gupta: We started India Gate Ambemohar, we have started India Gate Jeera Rice, we have started
India Gate Sona Masoori rice, but all our products are premium products. If you tell us
India has got a market of 100 million tonnes and you are selling say a few 10,000 tonnes,
but selling 10,000 tonnes at EBITDA of 20% plus. I do not want to sell my product at the
EBITDA of 3% to 4%.
Varun Goenka:
Perfect. So branded rice itself is a very, very big opportunity point taken Sir yes. Just one
more thing on exports to non-Middle East, how is that doing for us, is there any traction, is
there any material market possible?
Anil Kumar Mittal:
Middle East total market is 68%, 32% market is rest of the world. One of the biggest market
non-Middle East was Europe, which we have lost in the last two years, but the way
government is, I think the way individual exporters are behaving, the type of interaction we
have with the farmers and the amount we are spending, I am quite sure that it might take
another one year, we will take back the European market because we will have pesticide-
compliant material. Today, the problem is on the pesticide-compliant material, that is one
market. Number two, all other markets throughout the world, for example, Africa, if you go
back five years back, the total African market was just 7,000 to 8,000 tonnes, five
containers a year, sometimes 10 containers a year, from India I am talking. Now each
African country is buying 50 to 100 containers as the economy is developing and they are
able to afford to pay for Basmati rice, they love to eat Basmati rice. One of the biggest
markets is Nigeria. Nigeria used to import 1,000 tonnes, now they are importing 8,000 to
9,000 tonnes of Basmati rice, so markets are increasing, but as far as markets like China is
concerned, let me tell you, for example, market like Brazil, Argentina is concerned, it will
take lot of time. See, you will be surprised, in Argentina, only India Gate Basmati rice is
available, no other Basmati rice; but what is the quantum, may be 4 containers a year, which
is 80 tonne or 100 tonne, that only India Gate, but we cannot expect this market to go over
hundreds and thousands of tonnes so easily.
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KRBL Limited November 05, 2019
Varun Goenka:
Okay. Just one final question. Since we are looking to get to Rs.7,000 Crores to Rs.8,000
Crores sales in four, five years and that volume of sales so this north India climate changes,
yield variations, are you seeing challenges in terms of crop output of Basmati or production
in any way?
Anil Kumar Mittal:
First of all, let me tell you, as far as Punjab is concerned, 70% to 75% land is under non-
Basmati cultivation, 25% in Basmati. Haryana is the only state where it grows 70% to 75%
Basmati and 25% parmal. As far as Western UP is concerned, it is only 10% to 15% of
Basmati, rest all is parmal. So as far as land is concerned, we have sufficient land provided,
farmer gets good income and is satisfied. For example, this year, the prices are lower, and
farmer is not happy with Basmati pricing, next year, the production will come down by
25% to 30%, so this is a circle as per the market behavior that is number one. Number two,
let me tell you some good two to - three things, which have happened in the last two years.
Pusa Institute, Delhi is really working very hard and they have been working hard for the
last seven to eight years because two things were in their mind: first was that water is going
to be a very big scarcity in India and what will happen to rice crop that was number one.
Number two was pesticide attack and we used to have too much of fungicides and pesticide
attack and used to use pesticide and number three was about the temperature, the various
type of temperatures in three to-four states. Now as far as water is concerned, already this
year, Pusa Institute has come out with two genes, which will allow you to grow Basmati
rice as per ordinary grains like wheat or bajra or matka, no need of sowing Basmati rice in 1
feet 6 inches, 9 inches water all the time. That is good news especially for agriculturists.
Number two, as far as pesticides are concerned, we already have new varieties, which are
already there in the market. This year the results have come very good, they have not been
attacked by any pesticide diseases, so that is also one of the more successful things and
third thing is they are coming out with certain varieties where we will have short duration,
where they can sustain more heat and different climates.
Varun Goenka:
Okay. Sir, water consumption of Basmati is how much less versus normal rice, just to get a
sense?
Anil Kumar Mittal:
Today, as per the scientific, non-Basmati consumes around 4,000 liters, basmati consumes
about 2,000 liters, so half and I think that is a big success. If we are able to sow any type of
rice including Basmati without the consumption of water that will be a good achievement.
Varun Konika:
Great. Thank you so much Sir. That is all from my side.
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KRBL Limited November 05, 2019
Moderator:
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now
hand the conference over to the management for closing comments.
Anoop Kumar Gupta: As far as our forward-looking statement for FY2020, we are expecting very good results
and especially on this tax slab of 25%, additional PAT of Rs.50 Crores will come in the
bottomline this year, which is due to 7% of tax reduction and PAT will definitely be much
better than last year so we are expecting very, very good results for FY2020. Thank you
very much for the call and God bless everybody.
Moderator:
Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes
this conference. Thank you for joining us. You may now disconnect your lines.
Page 21 of 21 KRBL Limited, Regd. office: 5190, Lahori Gate, Delhi - 110 006, INDIA. CIN No.: L01111DL1993PLC052845