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Picks from Rice Industry: KRBL, LT Foods and Chaman Lal Setia Exports

HDFC Sec | 24 Jan, 2017  | Follow Author | Add to my Favourites 
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Industry Overview

Rice is one of the most crucial food crops in the world and a staple diet for nearly half the global population. Over 90% of the global rice output and consumption is centered in Asia, wherein the world’s largest rice producers, China and India, are also the world’s largest rice consumers. High domestic consumption and restrictive trade policies of several countries for rice have restricted the international trade of rice to only 6-7% of the production. Food security objectives and the need to provide income support to domestic producers are the main reasons cited by countries to restrict rice imports. Among the several varieties of rice, Basmati is considered the most superior in terms of product characteristics and, therefore, the most premium.

Rice is the most important food crop in India contributing to more than 40 percent of total food grain production and cultivated/consumed across the country. Rice is predominantly a rainfed crop planted in the kharif season after the onset south-west monsoon rains during June through August.

Basmati rice constitutes a small portion of the total rice produced in India. By volume, the share of Basmati in total rice production is around 6% (as of FY2016), but by value, Basmati exports account for 60% (as of FY2016) of India’s total rice exports and its exports have increased at a compounded annual growth rate (CAGR) of 13% from Rs. 10,890 cr in FY2010 to Rs. 22,718 cr in FY2016. The proportion of Basmati export in India’s total exports was at around 1.3% in FY2016 and it remains an important constituent of the Indian export basket. (Source: ICRA)

“Basmati” is long grain aromatic rice grown for many centuries in the specific geographical area, at the Himalayan foot hills of Indian sub-continent, blessed with characteristics extra- long slender grains that elongate at least twice of their original size with a characteristics soft and fluffy texture upon cooking, delicious taste, superior aroma and distinct flavor, Basmati rice is unique among other aromatic long grain rice varieties.

Agro- climatic conditions of the specific geographical area as well as method of harvesting, processing and aging attribute these characteristic features to Basmati rice. Owning to its unique characteristics the “scented Pearl” lends a touch of class that can transform even the most ordinary meal into a gourmet’s delight



KRBL derives its name from its founders Khusi Ram & Behari Lal, who founded the world’s most favoured Basmati brand way back in 1889 at Lyallpur currently known as Faisalabad in Pakistan. Over the years the company has refocused its business from agricultural commodities such as wheat, cotton and oil to become India’s first integrated rice producing company with a comprehensive product chain. It has developed various rice brands to meet different requirements of customers. Being an integrated player, the Company generates value-added by-products like brain oil, de-oiled cakes and uses rice husks for captive power plant. The company has total rice processing capacity of 195MT/hour and also has renewable energy plants of 119.6 MW comprising of wind, solar and biomass.

Investment Rationale (other than industry triggers)

  • Strong market share in Middle East countries
  • Higher realization than industry average
  • Diversification in Renewable energy/ Captive power
  • Integrated operations resulting in minimum wastage
  • Inhouse R&D facilities

Concerns (other than industry concerns)

  • Absence of Iraq order post FY16


View and Valuation

Years of experience in the basmati rice industry gives KRBL brands a strong recall value and it is able to attract premium pricing on back of quality basmati rice. KRBL has been performing consistently despite subdued market conditions on back of increased supply of paddy. It has been able to fund its working capital requirements through its net worth, limiting bank HDFC Scrip Code KRBLTDEQNR BSE Code 530813 NSE Code KRBL Bloomberg KRB IN CMP as on 20 Jan 17 344.55 Eq. Capital (Rs Cr) 23.54 Face Value (Rs) 1 Equity Sh. Outs (Cr) 23.54 Market Cap (Rs Cr) 8110 Book Value (Rs) 68.98 Avg. 52 Week Vol 223941 52 Week High (Rs) 346.00 52 Week Low (Rs) 174.50 Shareholding Pattern-% (Dec-2016) Promoters 58.81 Institutions 6.47 Non Institutions 34.71 Total 100.00 Research Analyst: Atul Karwa [email protected] RETAIL RESEARCH RETAIL RESEARCH P a g e | 11 borrowings and having a strong liquidity position. KRBL has demonstrated better financials and characteristics of a consumer player. Given the backdrop of rising demand for branded basmati rice globally and domestically with wide network of distribution, KRBL is better placed to capitalize on opportunities. Integrated operations of the company and its expansion into renewable energy generation has helped the company become self-sufficient to largely meet its energy needs and has mitigated the risk of rice business to some extent. KRBL is the largest basmati rice exporter which has high barriers to entry. It is the largest basmati rice player in many of the Middle East markets where the demand for basmati rice has been increasing. With Iran expected to lift its ban on imports of basmati rice and China also looking to import rice from India, demand is expected to pick up and falling prices are likely to be arrested. We feel KRBL deserves a higher multiple as compared to other players due to its leadership, size, higher realization and strong presence in the largest Basmati market i.e. Middle East. We feel investors could buy the stock at the CMP and add on declines to Rs 300-306 band (~15.5x FY18E EPS) for sequential targets of Rs 371 (19x FY18E EPS) and Rs 409 (21x FY18E EPS) in 2-3 quarters.


LT Foods

LT Foods offers branded basmati rice, value-added staples and organic food. Its brands ‘Royal’ and ‘Daawat’ enjoy No.1 & No.2 positions in US and India respectively. While Basmati rice remains its core proposition, the Company’s vision is to emerge as a Global Specialty Food Company, admired for its wider range of quality products. Its integrated operations span the entire rice value chain – right from farm to fork. The Company has 5 state-of-the-art manufacturing units in India, 2 packaging facilities in US and in addition deploys 5 more third-party facilities to manufacture high quality food products. LT Foods operations include contract farming, procurement, storage, processing, packaging and distribution. It is also engaged in research and development to add value to rice and rice food products.

Investment Rationale (other than industry triggers)

  • Growing demand for organic food, expanding value added portfolio
  • JV with Future Consumer to increase domestic demand
  • Inorganic acquisitions leading to healthy growth
  • Wide distribution network
  • Leading brand ambassadors help in increasing recall value

Concerns (other than industry concerns)

  • Insurance claim of Rs 180 cr pending out of which Rs.44 provided so far

View and Valuation

LT Foods has transformed itself from a B2B player to B2C. It has a strong market presence with its brand ‘Daawat’ and ‘Royal’ are the leader in premium packaged basmati rice in India and US respectively. It has a diversified geographical presence backed by an established marketing network and strong brands. Recently the company has also added organicproducts and staples to its product portfolio. It has also acquired brands from HUL, further strengthening its presence in the Middle East and North American markets.

LT Foods is amongst the largest basmati rice exporter which has high barriers to entry. It is the largest basmati rice player in North American markets where the demand for basmati rice has been increasing. With Iran expected to lift its ban on imports of basmati rice and China also looking to import rice from India, demand is expected to pick up and falling prices are likely to be arrested.

We feel investors could buy the stock at the CMP and add on declines to Rs 325-335 band (5.5x FY18E EPS) for sequential targets of Rs 400 (6.75x FY18E EPS) and Rs 445 (7.5x FY18E EPS) in 2-3 quarters.


Chaman Lal Setia Exports


Chaman Lal Setia Exports Ltd (CLSE) was set up as a partnership firm by Mr Chamanlal Setia and his sons, Mr Vijay Setia and Mr Rajeev Setia, in Amritsar (Punjab) in 1983. It was reconstituted as a public limited company in 1994, and listed on the BSE in 1995. CLSE mills, processes, and trades in basmati rice in the domestic and export markets. It has one milling unit in Haryana with a capacity of 360 MT per week manufacturing raw, steamed and parboiled rice. Its products are sold under the brand ‘Maharani’.

Investment Rationale (other than industry triggers)

  • Innovative products gaining strength
  • Focus on promoting the brand Maharani
  • Healthy CPS with low debt-equity
  • Rewarding shareholders by consistent record of dividend payment, split, Bonus.
  • Strong margins/return despite having a large rice trading portfolio

Concerns (other than industry concerns)

  • Huge cash holding without any utilization plan
  • Not included in list of companies approved by China


View and Valuation

CLSE is one of the oldest rice millers in the country. Although it has a very small milling capacity the company procures rice from domestic market and exports it under its brand Maharani. CLSE has very low working capital requirement due to its large trading portfolio and is debt-free on a net basis. It has a strong dividend payment record and high return ratios. The  focus on promoting its brand Maharani should lead to better recall value in the future.

We feel investors could buy the stock at the CMP and add on declines to Rs 88-92 band (8.0x FY18E core EPS of Rs.8.6 + FY18 cash per share of Rs.21.5) for sequential targets of Rs 112 (10.5x FY18E core EPS of Rs.8.6 + FY18 cash per share of Rs.21.5) and Rs 128 (12.0x FY18E core EPS of Rs.8.6 + FY18 cash per share of Rs.21.5) in 2-3 quarters.

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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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