KRBL Limited (KRBL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to KRBL Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Jain, Chief Financial Officer of KRBL Limited. Thank you, and over to you, sir.

Thank you, and welcome to KRBL Limited Quarter 3 FY '23 Earnings Conference Call for Analysts and Investors. Along with me on this call today, we have Mr. Anil Kumar Mittal, Chairman and Managing Director; Mr. Anoop Kumar Gupta, Joint Managing Director; and Ayush Gupta, Head of the Domestic business. We will begin with updates from Mr. Mittal with his views on the industry, the business and broad strategy. We shall then have Ayush taking us through his perspectives on the domestic business. Thereafter, I will present the financial overview of the company for the quarter and 9 months ended December 31, '23. After the opening remarks from the management, the forum will be open for Q&A. A cautionary note that some of the statements made on the call today could be forward-looking in nature and actual results could vary from these statements. A detailed information in this regard is available in KRBL's investor presentation, which is available on the stock exchange website and also on the company's website. I would now like to invite Anilji to share his views. Over to you, sir.

Thank you, Ashish. Dear investors, good afternoon. I will start with a brief on the overall current scenario for rice industry. The rice industry in India has been very bright in both basmati and non-basmati segments. During the period April to November 2022, we have seen a total basmati exports of 2.73 million metric tons, valued at USD 2.87 billion as compared to 2.39 million metric tons, valued at USD 2.06 billion during the same period last year, thereby witnessing a growth of 48% in volume terms and 49% in value terms. As far as non-basmati exports are concerned, a total quantity of 11.57 million metric tons were exported during the same period at the value of USD 4.11 billion as compared to 10.95 million metric tons value at USD 3.93 billion during last year, witnessing a 6% growth in volume terms and 12% growth in value terms. As regard to non-basmati, the ban on export of broken continues, and there is a 20% duty and export of white rice. Even then we have seen a remarkable growth in exports, both in value as well as in volume terms. After imposition of a 20% duty, Indian rice prices continue to remain most competitive as compared to global prices. At present, FCI has a stock of 15.4 million metric ton of rice and another about 31.5 million metric tons are to be received from the mill out of the new crop. The quantity will be far more than the annual buffer requirement of 13.8 million metric tons that FCI is required to maintain. In the meanwhile, since the commencement of paddy procurement by FCI in the state agencies for the current kharif season, '22, '23, the total purchase till now has been up by 2% on a year-over-year basis at 64 million metric tons. Higher grain procurement is expected to boost rice stocks held by FCI, which have been depleted by implementation of a free ration scheme that was implemented during April 2020 to December 2022. FCI distributes around 40 million metric tons of rice and 18 million metric tons of wheat annually under the National Food Security Act, where 5 kg of grain per head is distributed free of cost to 800 million beneficiaries. This scheme has further been extended up to the year 2024. Still -- current scenario and basmati crop. We have never -- witnessed a year like this in our 50 years of experience in the Basmati trade. We have witnessed [ such an unprecedented ] rice is the basmati prices, both paddy as well as white. The prices were spiraling up and up continuously because of the damage of the crop in terms of yield per acre as well as quantity due to the unexpected rains during September, October when the crops were just ready to be harvested. Nobody was able to judge the exact quantum of damage, but the prices went higher by about 40% as compared to last year for the beginning of the season. For example, 1121 paddy was started at the price of INR 37, INR 38 per kg went up to INR 51, INR 52 per kg. Similarly, 1718, which was started arriving at INR 34 per kg went up to INR 48 per kg. Likewise, 1509 went up to INR 31, INR 32 to INR 42, INR 43 and 1401 started at INR 36 went up to INR 54. This got reflected in the rice prices as well. For example, 1121 parboiled basmati rice started with price of INR 75 per kg and jumped up to INR 92 per kg. Similarly, 1718 started at INR 65 per kg and went up to INR 82. Besides, 1509 started from INR 62 and went up to INR 82 per kg and so on. I would like to add here that as per the original survey of all the 7 states, including MP and Rajasthan, it was assessed that the total paddy output would be 12.54 million metric tons, equivalent to about 8.15 million metric tons of rice. Therefore, as per the original assessment, the production should have been sufficient to meet the demand, and there was no reason for such a hike in the prices. However, the rice prices in the domestic market increased by around USD 300 per metric tons, as mentioned above, which was expected by the importers worldwide. A number of factors that have contributed to such a sharp rise in prices are the expectation of a lower crop size on account of unseasonal rain. It is believed that the yield per acre in certain areas was reduced by 10% to 15%, limited carryover stock, which got depleted before the commencement of the new crop. Historical high basmati prices in Pakistan due to floods in the Sindh region. For the first time in the history, Pakistan [indiscernible] USD 100 higher over the Indian basmati despite the fact that their rupee was devalued against dollar by about 65%. Huge reduction in container freights over the last year. For example, container freight for Saudi have come down from $2,200 during February, March to $400. For Europe, the rates have come down from USD 8,000 or be it USD 9,000 to just $1,150. For U.S.A., the rates have come down from $11,000 to $2,000; and Australia has come down from $5,500 to $1,000. The container availability has eased out and freight rates have become very attractive and equivalent to pre-pandemic levels. Indian rupee has also depreciated by about -- around 9%. Last year, the exchange rate for the rupee was INR 75.60 in the month of October, November, which now stands at INR 82.50. High wheat prices in the international markets. Though wheat price in India are in the range of INR 25 to INR 28 per kilo, the wheat prices in U.S.A. and other global markets have just doubled at around 56, 57 per kg. Wheat being applying cereal commodity across the world has a phycological impact on rice prices and other cereals as well. All the above factors have resulted in sharp increase in basmati export prices and hence, this level will also be sustainable in the long run as well. We would like to reiterate that there has been a complete turnaround in the logistics and transportation sector in terms of freight rates and availability of equipment. The availability of railway for movement of cargo to ports are now surplus. Same is the situation in warehouse space at the ports. More importantly, the turnaround time at the ports have become very fast because of availability of labor, both in the country as well as at the ports. Just 8 months back, the load rate was just around 1,500 metric tons per day in breakbulk vessel, which is now around 5,000 to 6,000 metric tons per day. KRBL went ahead with its steady procurement for the current season at a remarkable pace and the procurement was completed in a record period. This was mainly because Basmati paddy arrivals in the market were at historically faster rates this year and got completed by mid of December itself. This normally goes up to middle of February. We procured 47% higher quantity because we have good orders in hand, both for domestic and exports. Beside there is an aging requirement and hence, our procurement this year has been so robust. On export front, our numbers on a quarter-over-quarter basis are more or less the same for basmati rice, though there is a growth of 55% in value terms on a year-over-year basis. However, there is a reduction in export revenue in the current quarter due to ban on 100% broken non-basmati rice. Previous 2 quarters, we had exported good quantity of 100% broken to China. Our Saudi business is going as per expectation, and our new distributor is performing well, but we are still unable to finalize a new distributor for the HoReCa segment, the efforts for which are going on. Regarding Iran, the payment mechanism is a big question mark and still the shipments and payments are routed through Dubai. We feel that after Ramadan is over, the stocks lying at the ports are depleted. There would be a solution for the payment mechanism. Rest, our export to all other regions and destination throughout the world are performing as usual. I have tried to portray a complete scenario on the production and export of basmati rice and would be happy to answer any questions in the following session. Thank you. I will now pass it Ayush for the domestic market update.

Thank you, sir, and good afternoon. I will now share an update on the performance of the India business. India business recorded a higher ever quarterly revenue of INR 998 crores during the quarter. This marked the growth of 32% year-over-year. Growth in the quarter came on the back of both retail as well as HoReCa segments. The consumer pack segment grew by roughly 9% in volume terms year-over-year, with both the traditional trade and modern trade channels growing well. In traditional trade, KRBL clocked volume market share of 32.4% with a gain of 70 basis points year-over-year. In modern trade, we clocked volume market share of 39.8% with a gain of 360 basis points year-over-year. Besides the strong demand, the growth in retail segment is an outcome of the input measures that we are driving with reserve month-over-month. One of the strategic pillars of the India business is to drive distribution. Here during the quarter, KRBL expanded outlet penetration by 15% year-over-year to reach a numeric distribution of 39.2%. In the current financial year, we have expanded our distributor account by 40% to take the number to a [indiscernible] of 700-plus dealers and distributors. Annual household penetration of India Gate brand as of September '22 stood at around 10 million households, including 1.4 million new households in this past year. As you would be aware, Arroz Basmati currently contributes close to 65% of the total in-house consumption of basmati rice in India. This forms the foundation of the second strategic pillar that of increasing branded basmati rice penetration. We have been driving this agenda with our Unity brand as a budget-friendly offering. Unity credit stands at INR 600 crores plus brand in the KRBL portfolio. And we have been able to make good in growth in particular geographies from a brand penetration point of view. Starting quarter 3, we have added to this drive and are now also driving branded basmati penetration through India Gate brand. Our new advertising campaign featuring the popular Bollywood actor, Pankaj Tripathi, is one of the main initiatives in this direction. Moving on to HoReCa segment of the business. This segment has grown by 20% year-over-year and 88% sequentially in volume terms. It contributes roughly 40% of the domestic business revenue. KRBL plays very strategically in the segment, focusing only on top of the pyramid, which means customers who value quality and are willing to pay the price for it. With the revision in GST norms, which puts all sellers on a level playing field, the opportunity size for KRBL has significantly expanded. We are now targeting 20% to 25% of this segment as against around 10% earlier and are looking at doubling our revenues in this segment in the next 2 years. Coming now to the third pillar, that of augmented portfolio across segments. Here, all 3 regional rice ratings are focused. Sona masoori, gobindobhog and Kolam Rice are now launched in the market. We have received positive feedback from our customers, and we are looking forward to this very exciting growth journey. Regional rice is deep routed in culture and traditions and consumers are very high emotional value attached to it. India Gate being a brand, which connects with consumers at an emotional level is extremely well positioned to take on this journey. With that, I come to the end of my remarks, and I will now hand it over to Ashish, who will take us through the financial performance.

Thanks, Ayush. I will now take you through the performance for the quarter ended December 31, '22. All figures mentioned by me would refer to the consolidated financials of KRBL. Total income for the quarter was at INR 1,554 crores, a growth of 33% over the corresponding quarter last year. Gross profit of the company increased by 82%, and EBITDA and profit after tax by 141% and 180%, respectively. The company recorded highest ever domestic revenue and total revenue during the quarter. Revenue from operations grew by 33%, led by both domestic and export sales, which grew by 32% and 38% against Q3 FY '22. Domestic sales, excluding power clocked INR 998 crores on account of higher retail volume, higher HoReCa volume post-GST rationalization on bulk tax and higher -- and higher realization as Ayush just explained. Basmati rice realization increased by 31% over Q3 FY '22. Higher realization was recorded across both domestic and export segments. Gross margin improved to 29.3%, an improvement of 800 basis points over corresponding quarter last year, led by improvement in realization, which was slightly offset by increase in input costs. Gross margin, however, fell by 535 basis points from 34.6% in Q2 FY '23 on account of change in product sales mix and higher input costs. EBITDA margin for the quarter was at 19% as against almost 11% on account of better gross margin, partially offset again by increase in other costs. KRBL finance costs continue to decline. They were at INR 3.5 crores as against INR 4.2 crores in the corresponding quarter as our reliance on borrowings continues to reduce year-on-year. The company's PBT margin also improved to 17.7% as against 8.6%, while PAT margin was at 13.2% as against 6.3%. Now I will discuss 9-month performance. Total income for the period stood at INR 4,083 crores, marking a growth of 27% against the same period last year. Gross profit of the company increased by almost 50% and EBITDA impact by 58% and 66%, respectively. Revenue from operations grew by 27%, led by both export and domestic sales, which grew on a year-on-year basis by 37% and 22%, respectively. I will now share some inventory highlights. Total inventory of the company as of December 31, '22 was at INR 4,435 crores, comprising INR 2,252 crores of paddy and INR 2,018 crores of rice. These 2 numbers were at INR 1,359 crores and INR 1,660 crores, respectively, as of December 31. In volume terms, paddy stocks were at approximately 577,000 tonnes and rice at approximately 363,000 tonnes. These numbers were 398,000 tonnes and 340,000 tonnes, respectively, as of December '21. Inventory, as Anilji explained, is higher primarily on account of our expectation of higher demand and because of aging requirements. That brings me to an end of my prepared remarks. I will now like to hand over to the moderator for opening the Q&A session. I would just like to mention that as the ED matter at sub judice, we will not be in a position to respond to queries on this matter. So over to the moderator now.

[Operator Instructions] And the first question is from the line of with Anand Venugopal from BMSPL Capital.

So what I wanted to know is how much percentage of the global rice production does Pakistan make up? And with the economic issues going on in Pakistan, have you seen any supply disruption occurring? If so, what will be the price impact on basmati rice be, as such?

Share of Pakistan and overall. The share of Pakistan in the global trade is just 600,000 tonnes whereas the total crop size is just 850,000 tonnes. 350,000 is consumed domestically and -- but 250,000 and 500,000 to 550,000 is the export demand. As far as these quantities are concerned, they got affected this year due to flood in Sindh area. Sindh area, they grow particular variety like Irri-6 and part of Super, which is used for mixing along with the basmati rice produced in Punjab area. So that also is produced to the tune of about 300,000 tonnes, 250,000 to 300,000 tonnes, which got -- totally 100% got damaged due to floods in Sindh area. As I told you in my remarks that this was the first year in the history of 40, 50 years with our competition with Pakistan that their prices were $100 higher over the Indian prices, and that was one of the reasons that the Indian prices also got quite high, and the acceptability of the Indian rice was higher by $200, $300 in certain markets due to Pakistan offering at much higher prices.

The next question is from the line of Himanshu Upadhyay from O3 Capital.

Congrats on good set of numbers. I have 3 questions. One is on the exports of Saudi, okay. The issue with the distribution and we have been trying to search for this HoReCa distributor for quite some time. Why is it taking so much time because we already have a retail distributor. Cannot this be the same for HoReCa also? What are the thoughts? Just some of your ideas if you can share with us.

Yes. See, as far as the current distributor is concerned, it took us almost 9 months to 1 year to look at this distributor. The biggest problem in Saudi is that everybody wants credit. And we are not enough to [indiscernible] there is no culture in KRBL to provide credit. So till the time we get a distributor who will agree to our terms and conditions, it might take another 3 months, 4 months, that is not important but tonnes are more important, and I hope it will take another 2 months, 3 months. After Ramadan, I'm quite sure that we will be able to finalize. We have already shortlisted 2, 3, and we are going to finalize one of them -- One of them in a very short period.

And yes, the second question was, again, related to exports. Are we seeing people moving for lesser volumes and more orders because the prices of rice have increased quite significantly. The incremental orders, what we are getting, are they of large volume only for exports or are you seeing that people are trying to get lower volume orders also? Just some thoughts on that.

Let me tell you, normally, basmati rice, whatever it is consumed in Middle East especially, is an aged rice. So what is happening, particularly in Saudi Arabia, most of the rice, it has been aged over there also by storing the rice for 7 months, 8 months, 9 months. So this year, there were stops in Saudi Arabia for which the new crop -- for which they were holding for the sale of Ramadan. And people in the beginning when the prices were low in India had concluded some contracts over there. Those shipments are going regularly and people are into trouble since the prices are low at that time, but all the new prices are quite high because although the old contracts have been finalized. Now the new contracts are higher by $250 to $300.

Okay. And one more thing. For last 2 years, the Pusa Institute is trying to give different varieties of basmati, which are more infection resistant or pest resistant, so the lower agrochemicals. How successful are those varieties? And how large has the cultivation come in FY '23? And what are our expectations for the new season, which will start happening from let's July -- June, July of sowing of the seeds.

All the 3, 4 varieties are super excellent. It has been accepted by the trade. We had made a trial shipments also, trial milling also, everything went very well. And this year, I can't say because '23 crop will also have a very limited quantity, but '24 crop will have sufficient of those varieties, which is known as pesticide-free. It is not diseased or a remedy, it's a pesticide-free, resistant-free commodity. And that will help us to capture the European market, American market where the pesticide issue has been come in a big wave. And normally, in every speak, we say that it is nothing but a non-tariff barrier for which we accepted the challenges, and we are ready for that, but it will be in '24.

Okay. And lastly, the CapEx from the 3 facilities of -- we were going to do for -- besides basmati, the Gujrat and all these 3 facilities. So what has been done? And are we expecting the 2 facilities to start in FY '24?

Yes. So the total CapEx that we had indicated across the 3 plants was around INR 250 crores. Out of which 1 plant, which is in Gujrat, we are expecting production to begin in April. So you would find that number getting capitalized maybe by next quarter. For our second plant, which is in Karnataka, the land has been acquired, the various other formalities are currently underway. The third plant, which is in MP, we are looking for the right piece of land there. So overall, you can expect this CapEx to be spread between FY -- the next financial year and the following one.

The next question is from the line of Amit Doshi from Care PMS.

Yes. I have questions regarding the procurement. You mentioned that we procured around 40% plus higher. And if I read it correctly, the prices of last paddy and this paddy is higher by around 50%, 20%. So I'm not able to tie up the figures, which is mentioned in the presentation of December '21, which is around INR 3,100 crores and current inventory of around INR 4,400 crores. So can you please slightly clarify on that?

Yes. I think Ashish will tell you the numbers exactly. But if you take the average, you see we started buying the paddy rice from September 10, 12 and then the new crop started coming and they were at a quite low prices. If you take our average price of the whole season of several lakh tonnes, which will be closed this year, we are very, very at a comfortable level and at a very, very competitive price. As far as numbers are concerned, Ashish, you can tell that.

So the average price of basmati paddy procurement will be last year as 15% higher. I think -- was that your question?

Yes. No. So even if I count 15% higher, so this INR 3,100 crores of inventory, which is mentioned. So it turns around, say, for example, if I have to compare on the volume term the price comes -- value comes around INR 3,600 crores. The current price, current inventory, you mentioned is INR 4,400 crores. And Anilji mentioned in the opening remarks that we procured in terms of volume, some 40% plus higher compared to last year. So if it has been 40% plus on the higher -- on the volume front, then the figure for -- should have been far higher than INR 4,400 crores or I'm missing something? So that's what I wanted to understand.

Must be getting the closing stock...

Yes. So I think let me explain to take this offline. I'm fine. I just thought I was just a bit confused on numbers.

So I see, I can share the numbers in terms of our purchases and if the still a query, we can take it offline. So in the last season, which is '21, '22, we have procured about 520,000 tonnes of basmati paddy. Against that, we procured roughly 45% to 47% higher this season, right? So that combined with a 15% higher rate will give you the number. That's number one. Number two, you would notice in our debt that our rice procurement is also higher this season and again, at a higher rate. So if you put the 2 things together, that should get it close to the overall inventory number that we've reported.

The questions is what is the value of 0.5 million tonnes last year and what is the value of 700,000 tonnes this year?

[indiscernible] That number is given. I can share that -- yes.

That should be 35%...

Does that answer your question?

I think broadly, I'll just figure out the workings. If I don't, then I'll touch base. The question was -- the second question is this excellent growth of the domestic sales. So is it anything related to just typically in the Indian households. There is this new season rice, which comes up? So is there some sort of a seasonal factor attached to it pursuant to which there is a higher domestic sales this year around, apart from HoReCa growth which you've already shared.

No. So there isn't that -- that [ bharti ] that you're referring to happens only in Gujrat and the trend of this buying behavior has also diminished over the last decade. So it's a very small portion of the overall industry, I would say, that the trend of [ bharti ] that you are referring to. But our sales is not a representation of that behavior.

Okay. Okay. Okay. And you mentioned domestic growth grew by 9% volume-wise. Is that correct?

No. So consumer pack business grew by 9%, volume-wise.

Okay. So can you share overall volume growth?

Yes, I will give you. Quarter-on- quarter or?

Quarter-on-quarter.

So overall, branded volume growth in the quarter, which is on a year-on-year basis, was 12%.