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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the KRBL Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, Siddharth.
Thank you, Rachel. Welcome to KRBL Limited's Quarter 2 and H1 FY '23 Earnings Conference Call for analysts and investors. I'm pleased to introduce to you senior members of the management team on today's call. We have with us Mr. Anil Kumar Mittal, Chairman and Managing Director; Mr. Anoop Kumar Gupta, Joint Managing Director; Mr. Anoop Gupta -- Mr. Ayush Gupta, Head, Domestic Division; and Mr. Ashish Jain, Chief Financial Officer. We propose to begin with updates from Mr. Mittal with views on the industry, the business and broad strategy. We shall then have Mr. Ayush Gupta, who will take us through the perspectives on domestic business. Thereafter, we shall have the financial overview presented by Mr. Ashish Jain. After the opening remarks from the management, the forum would be opened for interactive question-and-answer session. On personal note that some of the statements made on today's call could be forward-looking in nature and actual results could vary from these statements. A detailed intimation in this regard is available in KRBL's investor presentation, which is available on the stock exchange website. I would now like to invite our Chairman, Mr. Mittal, to share his views. Over to you. Over to you, Anil.
Good afternoon, investors. I would like to brief you on the production and consumption of Indian rice crop this year since there have been many changes due to deficient monsoons. However, as we've all witnessed, there were rains in the month of September and October, which slightly damaged basmati rice crop but benefited non-basmati rice crop. When compared with the production of Kharif season 2022, which was 112 million metric tons, the production this year is lower by 6% at 105 million metric tons, out of which basmati is around 7.5 million metric tons. In the last 10 years, India's rice production has grown at a CAGR of 2.4% per annum, whereas India's rice consumption has grown at a CAGR of 0.9% per annum. The production yield has grown much higher than the domestic consumption which has helped India to become the larger rice exporter in the world. Last year, India exported around 21.21 million tonnes of rice, out of which Basmati exports were 3.95 million tonnes. The government of India on 8th September imposed an export duty of 20% on non-basmati rice, exempting non-basmati paraboiled rice and all varieties of basmati rice. These measures were taken since the government buffer stock was depleting and the government had to fulfill their application of free distribution of wheat and rice for poor people, whereas 100% broken rice was completely banned for exports. There is a huge demand for broken rice for manufacturing ethanol other than feed and poultry industry. Hence, this decision of the government was a positive move to control inflation in the country. We would like to add that broken rice was primarily exported to China to the tune of 1.5 million metric tons. This year, in the first half, India has exported around 2.6 million tonnes of basmati rice as compared to 1.95 million tonnes exported during the same period last year, showing an increase of 11% in volume terms, whereas the exports grew by almost 46% in value terms, amounting to INR 17,896 crores as compared to INR 12,295 crores last year. To further add, India exported around 60% of the total basmati rice to 4 countries such as Iran, 600,000 tonnes; Saudi, 407,000 tonnes; Iraq, 130,000 tonnes, UAE, 175,000 tonnes, confirming that majority of basmati export is to Middle East, including Persian Gulf. Moving to the current basmati scenario, the crop was expected to be higher by around 15% to 16% over last year. With the delayed monsoon in the month of October, that basmati crops got slightly damaged, not only in yield but it has -- but also the grain got damaged by additional 2% in some parts of the basmati growing areas. The overall crop, now after mapping and cross-field surveys, should be either higher by 5% to 7% or maybe equal to last year. The prices of new crop paddy have opened up slightly higher than expected levels. But still, we feel that looking at the prevailing price during April, August 2022, the current crop prices are still lower by 12% to 15%, depending upon the varieties.
The demand is subdued and the buyer from Middle East, Far East, Europe and U.S.A. are working the market and are accepted to start buying around first week of middle of December -- either first week or during middle of December. But this buying trend has no concurrence to KRBL since we market mostly 1- to 2-year branded aged rice and the orders for which are received regularly on a monthly basis. We believe that prices will remain stable for at least 1 month till the time the correct assessment of the damage due to the late months is clear. Moreover, the mapping figures are also not correct, hence the trade up until now is in dilemma as to which way the paddy prices will move in the next 45 days. The rice prices are directly correlated to the paddy prices, hence, we at KRBL are going to purchase good quantities at the prevailing prices. There are rumors -- there were rumors that basmati prices will take a jump due to floods reported in Sindh area of Pakistan. No doubt the basmati and non-basmati crop in field area got badly damaged to the tune of 70%, but the production of basmati rice in Sindh area is very minimal compared to Punjab region of Pakistan, which is witnessing a good harvest. Moreover, Sindh area grows a duplicate basmati rice which is used for mixing with their traditional varieties. Therefore, the effect of Pakistan flood on pricing will have no effect on international prices of basmati rice but just irritants in exports where the ocean freight rates and the availability of containers, both the issues have been resolved. The freight rates have come down to 1/3, and they will further come down by another 10% to 15% compared with their peak about 9 to 12 months back. Still, the freight rates for USA and Australia have not come down compared with other destinations which are also expected to reduce in the coming months. The availability of container are in abundant supplies are going to further increase since China is manufacturing around 30,000 containers per day against orders from railway shipping lines world over. KRBL is going to have enormous advantage with the imposition of GST on unbranded prepackaged rice. This has broad parity between private label and established brands. With the imposition of 5% GST, the demand for KRBL brands have improved significantly which would be witnessed in the third quarter, the details will be shared by Ayush, who heads the domestic department. KRBL has shown a robust performance in the second quarter of FY 2023. The total revenue of the company grew by 26.5% year-over-year and 8.12% quarter-over-quarter, whereas the export business grew by 106.05% year-over-year and 21.6% quarter-over-quarter. Besides, EBIDTA margins improved to 22.79% compared to 19.27% last year. The PAT was at 15.91% compared to 12.89% last year, giving an EPS of INR 9.05.
The company is growing in the spot market but has made a remarkable progress in Saudi Arabia with the new distributor. The sales are pertaining -- and those sales pertaining to modern trade is really showing a good progress, and we are happy with the performance. We have nearly captured back our lost market share, and it seems that the customer was waiting for the India Gate products to come back in the market. We have still to finalize the HoReCa segment for which our efforts are ongoing, and we expect that during quarter 4 we will be able to finalize it.
I have tried to convey most of the events, and if something is left, it could be discussed during the question-answer session. Thank you once again. Thanks.
Shall we begin with the question-and-answer session now?
No. We've got 2 notes left. So I'll request Ayush to sort of give us comments.
Thank you, sir, and good afternoon, ladies and gentlemen. I'm delighted to share that the domestic business recorded yet again a strong quarter performance, with revenue growing by 18% year-over-year. We have delivered best ever H1 performance, wherein revenue increased by 36%. Growth has been equally contributed by the general trade and modern trade e-com channels. It is notable that within the general trade channels, [indiscernible] segment has led the growth. The decision to charge 5% GST on prepackaged food nullifies the advantage local players had over established brands. We have been looking forward to this for the last 5 years. This decision will formalize the sector and lead to healthy competition. I will now share a progress update on our 3-pronged strategy that I've been talking about in our previous calls. On the distribution front, we are diligently expanding our direct distributor network to town Class 1, town Class 2 and rural markets of India. We have effectively appointed 167 new distributors in this financial year so far, and we are on track with our target to expand our distribution reach to 250 new towns by the end of this financial year. Our numeric distribution percentages had already increased by 370 basis points in quarter 2, but we'll be seeing the true results of this in the subsequent quarters. In the past year, our secondary sales coverage stood at 31%, which means the percentage of distributor sales being captured by our field sales team. In the first half of this financial year, we have been able to expand our secondary coverage to 38%, a growth of 700 basis points. This is in line with our strategy to drive the category through robust active retailing. Increase in secondary sales coverage has resulted in higher throughput at retail outlets, improved relationships with trade and better saliency of the brand. We will continue to drive this feature and are targeting to reach 60% secondary sales coverage by financial year 2025. On the third strategy, on augmented product portfolio, while the non-basmati initiatives remain under the work, I'm happy to share that Unity brand has grown by over 40% in this financial year and is on track to reach the INR 1,000 crore mark by the end of financial year 2025. We have developed a strong pipeline of new product introductions which span across the value-added rice segment as well as the health segment. We will see [indiscernible] launching few of these products in the next 2 quarters. As the competitive scenario in our category becomes more dynamic, we are strategically taking on the role of category captaincy. As a category captain, our approach will be to focus on the long-term evolution of the category. We are continuously deepening our understanding of the shopper behavior and reviewing the category for variable insights. For the first time, we are taking a regional approach to marketing. We have divided the country into 3 market types based on basmati penetration, KRBL market share and other quantitative factors. Firstly, there are states where the focus is to drive consumption from unbranded segment to packaged segment. Secondly, there are states where we need to drive category penetration and frequency of consumption. And thirdly, states where we have to take disruptive market share gains. We have devised a specific marketing mix for each of these market types, and you will see communication emerging from this approach launched in the market in the next few weeks. The category captaincy mindset will ensure that we are not just fighting the short-term market share battles, but investing appropriately in the -- in building this category for the long-term games. During times of inflation in FMCG industry, we see consumers down-trading or downsizing. In rice, we typically witness a downgrade into unbranded [indiscernible] segment during such times. To navigate this challenge, we have beefed up our assortment with a clear price laddering strategy to erase this so that the consumer has an offering within our portfolio even during inflationary scenarios. While the basmati penetration in India is at 42%, the packaged penetration hovers around 20%. We are constantly reminded of the immense headroom for growth in the segment of this business. 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.
Thank you, Ayush. I will now take you through the performance for the quarter ended September 30, 2022. All figures mentioned by me would refer consolidated financials of KRBL Limited. Total income for the quarter stood at INR 1,340 crores, marking a growth of 26.5% over the corresponding quarter last year. Gross profit of the company increased by almost 50% and EBIDTA and PAT increased by almost 50% and 56.4%, respectively. The company recorded several highest-ever metrics, too. For example, the company recorded highest total income, highest EBIDTA, highest PBT, highest PAT, highest total comprehensive income and highest quarterly earnings per share in the quarter. Revenue from operations grew by 25.2%, led by export sales which grew by 105% to INR 592 crores. Domestic sales, excluding power, were at INR 696 crores or lower by 5%, but this is on account of higher bulk rice sale in the corresponding quarter last year. Excluding bulk rice, referring to branded sales, value sales grew by 18%, as mentioned by Ayush. Basmati rice sales realization increased by 42% over quarter 2 FY '22. Higher realization was recorded both in domestic and export segments. Gross margin improved to 34.5%, an improvement of 535 basis points over corresponding quarter. This was led by both improvement in sales mix as well as higher realization. EBIDTA margin for the quarter was at 22.8% as against 19.3% on account of better gross margin, partially offset by following increases over corresponding quarter. Freight expenses increased by INR 28 crores, advertising expenses by INR 11 crores, other selling and distribution expenses by INR 4 crores besides increasing some other provisions. Sales expenses increased during the quarter, though the latter is largely recovered from the customers. KRBL's finance costs declined to INR 1.5 crores as against INR 1.7 crores in the corresponding quarter. This is happening as our reliance [indiscernible] continues to reduce. The company's PBT margin also improved to 21.3% as against 17.3%, while PAT margin improved to 15.9% as against 12.9%. Now I'll just summarize the H1 performance. For first half of this year, total income was at INR 2,579 crores, marking a growth of 23.4% as against H1 of last year. Gross profit increased by almost 37% while EBITDA and PAT increased by 33% and 36.3%, respectively. Revenue from operations grew by 23.1%, led by both export and domestic sales, with Y-on-Y growth of 36% and 16%, respectively. Cash generated from operations before tax is INR 169 crores higher than H1 of current year as against H1 of last year. I will now share some data with respect to inventory. Total inventory as of September 30, 2022, was at INR 2,054 crores, comprising INR 160 crores of paddy as against INR 177 crores in September 2021 while price inventory was at INR 1,751 crores as against INR 1,700 crores at the same period last year. In volume terms, paddy stocks were at approximately 50,000 tonnes and rice at approximately 313,000 tonnes. These numbers were slightly higher at 62,000 tonnes and 365,000 tonnes, respectively, in September 2021. Inventory, as you know, is lower primarily to lower paddy purchase [indiscernible]. The cash position of the company continues to be healthy. The total cash and bank balance, including investments, was at almost INR 1,600 crores, up 74% over the same period last year. With that, I come to the end of my prepared remarks. I would 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 sub-judice, we will not be in a position to respond to queries on this matter. So over to the moderator now.
[Operator Instructions] Our first question is from the line of Pritesh Chheda from Lucky Investment.
I have a few questions. In the half year, 20-plus percent top line growth that we see, what will be the volume growth in this?
Overall volume, you're talking about half year?
Yes, half year because both quarter 2 and half year is about 25% and 23% top line growth, so.
Sure. So half year rice volume growth is at around 6%.
Okay. What explains the improvement in margins that we see in the first half now?
So I think the improvement in margin is explained by 2 factors. One is there is improvement in product mix, which is higher share of higher realization SKUs and also the general increase in rice prices that we've seen over the last, I would say, now 3 quarters.
Okay. Looking at the current scenario, do we see the H1 performance sustaining in H2?
Yes, definitely, our third quarter and fourth quarter is going to deflect H1 performance.
And my last question is, sir, I see the export business in the first half at about, let's say, INR 1,077 crores. There is -- looks a lot of improvement versus the last year's number, because last year full year number was about INR 1,500 crores, INR 1,600 crores, my guess. So now what is the progress on the Saudi and the Iran business in order to -- for us to better understand this export business of INR 1,077 crores that I see in the first half.
As I explained to you in my opening remarks that Saudi, we are doing very well. Really, people who are waiting for India Gate to be marketed for which they have been waiting for last -- more than 2 years it was not available in the market. It seems that the consumer was waiting and the demand is quite good. Orders are quite good. And Saudi is a very big reflection in our export data also. That's number one. Iraq, we are not able to get a good distributor, but we have exported a small quantity. It's a negligible quantity. But we expect that we will get a good distributor. Actually, problem in both the countries Saudi and Iraq is that there...
The question was Saudi and Iran, not Iraq.
Yes, I'm talking of both here. I'm talking of Saudi and Iraq only. There is a problem in both the countries normally is that there are local traders, multinational traders, which have captured those local markets and they are the local residents of those countries. And they are, like Japan, they are into multi-facet businesses, in construction, automobile as well as in every culture. And then under every culture, they do rice and in particular basmati rice. So you have to see the competition is very tough when you have to fight within local person. And in those circumstances, in Saudi Arabia, we still call ourselves to be the leader of that market as far as the product and the pricing is concerned, but we have still to capture the quantum business of Saudi Arabia and that we will be able to capture once we finalize HoReCa distributor. That is point number one. Iraq, the margin of profits are very less. We have met 3, 4 people to appoint our distributorship. And let us see, I hope during this year, it will be difficult, but I believe during the first -- fourth quarter of the year or during January, February, we will be able to finalize the Iraqi business. But let me tell you, when you look at the price of the Iraqi business, the margins of profit are so low that -- which is making us a little bit disturbed, whether we have to work on those margins or not.
Okay. Sir, so I could understand, so the Saudi and the Iran business, which was, let's say, at the peak about INR 1,100 crores and which fell down to INR 300 crores until last year, now where are we on those 2 businesses after what I see exports improving, too?
Let me correct you. It was only one country, INR 1,100 crores was only Saudi Arabia. Iraq, we were never active because there were payment problems. There were many problems in Iraq, not to those experience like Sudan and Yemen, but there are still problems. And most of the business and money is routed through Dubai still from Iraq. It is not a direct business. And we were not very active since beginning in Iraq. That INR 1,100 crore business you are talking about, it was Saudi, out of which, I suppose this year, we will be completing at least INR 550 crores to INR 600 crores and another INR 500 crores is the HoReCa business for which we are trying to finalize the distributor.
Okay. So in this INR 1,077 crores, we already had INR 250 crores-type business in Saudi in the half year?
Should be. I don't have the correct number, but should be.
Our next question is from the line of Anuj Sharma from M3 Investments.
Yes, congratulations for good results. We've been hearing some positive news about the [indiscernible] variety, which is 1 1 8 5 8 6 and 47. Can you just highlight the productivity in these? And the price which could be different than the existing varieties. And third is, how much time the export market will take up to accept these varieties?
See, these varieties initially came to our lab for giving the inputs -- outputs and input both to the scientists in Pusa Institute. And 2 years back, we had given our very positive inputs that these varieties are excellent. There is no problem in cooking. The texture is excellent. Everything was good. And based on that, only last year, some quantities were given as a test. This year, only some quantities were given at for test sowing..
This year, we will be getting a good quantum of seeds from the market to have a commercial production in big quantities next year. But what our quantities are coming in the market of these 3, 4 supplement varieties which are test assistance, I think so we are quite happy with whatever quantities we are getting, they are really pesticide -- there is very less pesticides in that, and they qualify the -- both Europe, America and elsewhere, they qualify the results. And prices are the same. There is no high in prices and our production yield, [ everything ] is the same, and the beauty is that they have got very less pesticides within them.
All right. All right. And just in terms of productivity given the same acreage of plantations, do you expect the increase in productivity due to these new varieties?
No. There is no increment in productivity because the scientists have worked primarily on pesticide-free or pesticide-resistant quality.
All right. All right. My second question is on the procurement strategy. You touched upon it on pricing remain the same, your procurement will be higher. But can you just highlight how do you see the procurement strategy for this year?
See, procurement this year, actually, according to the data what we have, the prices are about 15% -- 12% to 15% lower over last year. Now one thing only we are into dilemma, not we, but the whole trade, because actually we had to [indiscernible] the results, which confirm that this year, the crop size is 15% higher over last year. So we thought when the crop is 15% higher, the prices will remain quite low. But during the rain, some quantities, what we are not able to actually judge how much quantities have been damaged or yields have become lesser what we were expecting. And that is why everybody whose trades is in dilemma whether still out of 15, only 5% got damaged, 10% got damaged, how much was damaged. But still people feel the quantities are higher over last year and prices, what they have opened, they will remain to the same prices. And if the prices remain the same, we are going to buy definitely 20%, 25% more over last year.
All right. And my last question is on the regional rice. based on your experience, you've been working on it for some bit of time. So what is the progress out there? And what is the consumer impact you're getting on the regional rice?
Originally, we have planned for 3 varieties, one was gobindobhog, other was kolam and third was sona masoori. We have already started marketing sona masoori and kolam rice. And this calendar year, we'll be doing around INR 20 crores, INR 25 crores of these 2 varieties, which is basically we are doing the test marketing. And next calendar year, we are expecting a turnover of around INR 60 crores to INR 70 crores. But everything is in progress in Gujarat. Our plant has started. We have started the [indiscernible] plant machinery. And by March '23, we think the Gujarat plant will be operational. And Gangawathi, Karnataka, we have already purchased land. And it will take by March '24, it will be complete. Till the time the plants will come, but our marketing will continue. What I told you exactly when the plants will come, our turnover would be around INR 400 crores to INR 500 crores. But in next 2 to 3 years, we will deal with the private millers or buying rice and marketing in our brand. By the time the plant comes in, we'll do a turnover of around 100 plus. So we are on track. Just for gobindobhog, it will take some more time. Otherwise, for all -- both the varieties of kolam and sona masoori, we are on track.
Our next question is from the line of Nitin Awasthi from InCred Equities.
Continuing on the previous participant has asked all my questions relating to that itself, continuing on that. Currently, we see the rice market at around 100 million metric tons, out of which 7 million metric tons approximately basmati. So that is the addressable market that the company was working with until now. So with these 3 varieties of rice, what will our addressable market expand to?
Yes. We are not able to hear. Can you lower the speaker?
Yes. Nitin, I think what you are asking is that with the 3 varieties that Anoop ji has mentioned, what is the market size that we see? Is that your question?
Yes. Total market.
You were talking of the retail rice, we are looking at the top line of minimum INR 500 crores. [indiscernible].
Yes, so these 3 varieties, out of the whole rice bucket, how much would it be in India?
[indiscernible], you see these 3 varieties, it's a very, very big market, maybe in millions, but I am talking of a very aged and value-added products which is being sold to the consumer at around INR 80 to INR 100 a kilo. It is a 1-year, 1.5-year aged rice and marketed in 1 kilo pack or a 5-kilo pack. So the market for that is quite limited, and I'm looking to capture to that market around 20% of this market.
Understood, sir. So you won't be looking at the extensive reach of the whole market as such, You are saying, to convert it from non-branded to branded.
Yes, that's right, Nitin, you're right.
Our next question is from the line of Amit Doshi from Care PMS. [Operator Instructions].
Sir, you mentioned about freight costs reducing by 1/3 compared to the peak. But can you give us a guidance about what it had been sequentially? For example, what was in September quarter and what you are seeing now? [indiscernible] other expenses, it's not drastically changed.
September to now, it is not drastically came down. It started coming down from the month of April only. April was the start of these prices coming down. Let us give you an example. For Saudi Arabia Daman, the price of the container was $1200. And by that time, it reduced every month by $100 -- $2,200. And today, we are paying only $800. One time, we were paying only $300.
Okay, okay. Okay. And you still expect further reduction from this $800?
It will come to $300 to $400.
Okay. Okay. Okay. Got it. Got it. Sir, this -- you mentioned about this export duty, this 20% on the rice other than the basmati and the parboiled exemption. So has there been any impact on the price of the basmati rice because of the export duty..
In basmati rice -- basmati never came into restrictions. It has been open and government has not touched basmati rice at all. And either it is in the procurement program of the government, it is a free -- totally free trade as far as basmati is concerned. But yes, non-basmati prices, the prices are reduced to the level that if you pay the duty, it has come to the same level which was without paying the duty. So rice prices have come down by 20%.
No, my question is, was there any indirect impact because of this export duty on our basmati rice prices?
No, not at all. It's no connection, no relationship.
Okay. Okay. Okay. Got it. Sir, you mentioned that your inventory, you plan to increase that 20%, 25% compared to last year. And considering the cash that we have of around INR 1,500, INR 1,600, so do you believe we'll run into borrowing to reach that inventory level? Or we'll still go debt free, which is -- had been for last 2, 3 years?
[Foreign language].
Question is that essentially you want to buy 25% more inventory? What will happen to debt?
I mean, yes, you see we are very comfortable as far as debt is concerned. But this year, since paddy, what Anil just said, 10%, 15% lesser, that is lesser of the closing price. If we look at the opening price of last year, we are higher by 10%, 15%. That is my cost of paddy this year compared to last year would be higher by 15% to 20%. And number two, I'll be buying more quantity by not even 25%, it can go up to 30%, 35% more buying, because our demand in Saudi Arabia has gone up, our demand in domestic market and requirement of the branded rice has gone up. So we expect -- because whatever paddy we buy today, we have to take it in the next 2 years. So looking at our demand, we will be buying 30% to 35% extra. That means 15% prices more, 30%, paddy is more. So we'll be taking around INR 1,000 crores, INR 1,500 crores from the bank this year. And naturally, our ROCE will become better.
Yes, yes, that was my question. So there will be borrowing because of that higher inventory.
Naturally.
And sir, any -- HoReCa growth segment, any idea how did it grow in last quarter?
You see that is overall what is the contribution of sales.
We got a big benefit in HoReCa due to the evolution of 5% GST on a pack above 25 kg. Now our every pack which is of HoReCA is 30 kilos which is out of GST [indiscernible].
Number two, we are doing all our 30 kg sales India Gate or Unity or our distribution brands. Last -- previous year, we used to pay 5% GST and our competitors were not paying any tax because they were not branding under their vested brand. So that was a big benefit, and we are getting this benefit in third quarter. You will see in quarter 3 our HoReCa sales, especially in the domestic market, will take a jump. And I should not say, but it will take a jump of nearly 50% more in quarter 3, what I am expecting.
Okay. Okay. And last, this EBIDTA margin of 20%, 23% that we have achieved in this quarter, would you believe that we should consider this as a one-off? And historically, 19%, 20% or 18%, 20% should be considered?
I tell you, frankly, our EBIDTA, in general, in the normal term is ranging from 16% to 19%. But 22%, it has come because of inventory gains. And KRBL, we carry too much of old stocks. So there's always an inventory gain. So 2%, 3% -- 19% to 23% is the range what KRBL is working. If we have an inventory gain, it can go to 22%, 23%, otherwise 19% is always there.
Our next question is from the line of Anand Venugopal from BMSPL Capital.
So I have just a question, like could you help me understand what is the current state of basmati rice industry? And how are prices of basmati rice holding up? And what is the outlook for business? And what is the outlook for basmati rice prices going into 2023? And lastly, what are the demand and supply factors that are leading to this outlook?
Let me tell you whether it is domestic or exports, basmati consumption increasing every year over year by 6% to 7% in a normal way. When there is no abnormality -- when it is abnormal, it would raise to any level. But 6% to 7% is the normal increase every year in export as well as in domestic market. This is what [indiscernible]. But domestic can definitely grow much bigger because the consumption -- because the consumption of basmati rice is just 3% as compared to non-basmati rice. See, we consume around 95 million tonnes of non-basmati rice, where India -- of non-basmati rice where basmati rice is just 2.5 million tonnes. So that is -- you can imagine that there is a scope of increment as far as basmati is concerned. Now it's a very big question that how is the industry? Industry is fine. New plants are coming, new markets are opening up. Then the Saudi Arabia used to import only 700,000 tonnes. In 2 years, I don't know what magic has happened, in 2, 3 years, they have gone to 1 million tonne plus. Similarly, it all depends. Iran is always a big buyer. Day by day, the demand of Iran is increasing. If -- let me tell you, Iran doesn't have a payment problem or problem, Iran can import from India around 1.6 million, 1.7 million also. Because their own production is depleting day by day because of organization and because of the higher cost. Same is the Iraq. Iraq used to produce a lot of rice in their country. And day by day, there also the production -- their own production is coming and they are becoming more dependent on basmati rice. Similarly, America used to be a market of 60,000, 70,000 tonnes. In 6 months only, they have imported 100,000 tonnes. It was a surprising news, under 100,000 tonnes is a very big quantity. The only drawback today or the setback to Indian Basmati is the European countries. And I believe with the new type of seeds and the new type of experiment with the scientists have done, we will be able -- next year, we will be able to -- we'll cater the market of European Union, which would be a [indiscernible] rice. The rice industry is still good, new plants are coming, plants are under expansion programs and industry has made money last year and it's running very good.
Okay. Just in regards to prices, how is it going to go into 2023?
What price -- see, it is too early. Let me tell you tomorrow somebody asks what would be the dollar price after 2 months, nobody can say. We expect price to rise. We do not know whether they will rise or not. But in speculation, we don't do speculation in KRBL. Our margins are good. We have got -- I think who wants to give reply to this. Okay.
But he's right. We cannot say, but our expectation is looking at the crop and the demand. And the carryforward stock in the industry was practically 0 this year. So everyone is taking rice, and we expect the prices to be higher.
[Operator Instructions] The next question is from the line of Mohit Khanna from Banyan Capital Advisors.
Sir, congratulations on a good set of numbers here. I have one question, that if your cost of paddy this year, cost of procurement of paddy this year is higher by 15%, 20%, how do you decide the -- or come up with the selling price 2 years out after maturing it? So is it something that we have to deal with that type of pricing? Or is there any pricing mechanism in between?
You see, definitely, when today, I am buying paddy which is higher by 10% to 15% higher to the opening price of last year. If you look at the closing price, I am still lower by 10% to 15%. So our pricing after 2 years are comfortable. I mean, after 2 years, my certain SKUs, even if I don't think my prices, my EBITDA is very good, there is no problem. But looking at the market, we can see after 2 years, even we have to increase 5%, 7% or 10%. But the question is there is no -- even where we have to decrease the rice, looking at the -- decrease the price, looking at the present scenario. So we are comfortable as far as pricing is concerned because of our brand. It is fully shielded by our brand. Mr. Mittal will you.
Yes, I will tell you whenever we go to the ministry, we always tell that as you have whiskey and wines, we always compare basmati rice with whiskey and wines. And on that front only we have been working whether it was a [indiscernible] or whether it was the pricing, because this is the only grain in the world, older it is, better it is.
But we found out that above 2 years old, rice is not commercially viable because the cost, interest and so many things are involved. That is why we have kept it at 2 years. Last year only -- or even last to last year, we became shortage by few 100, 500, 600 tonnes of our 2-year old product. And we went to the market. And we wanted to pay INR 50 a kilo extra to the people to give us a rice which is 2 years old, and there was not a single kilo available. So that is why older it is, better it is. And the biggest thing with KRBL is, in India, up till now, I do not know of tomorrow, up till now, there is no right available except with KRBL which is 2 years old. So that is our advantage of pricing. That is our advantage to quality and attributes to basmati rice.
And I would like to add one thing in the last 30 years of KRBL history, KRBL has never done inventory devaluation. It is always higher than the market price, and that is the reason why we carry [indiscernible] price.
Our next question is from the line of Amit Doshi from Care PMS.
You mentioned that you plan to broke your 30%, 35% more quantity. As far as -- but production is concerned, you mentioned either it will be likely to be the same as last year or it will be 5% to 7% higher. So how do we believe that we'll be able to procure such a higher quantity?
See, let me tell you, we have now today about 40 years of experience of buying basmati paddy, building paddy, market sentiments, which way the market will go. No doubt that every year, you have to take that assessment, whether the prices will go down or remain the same or what will happen. There are 3, 4 advantages with KRBL, see our carrying cost is lower compared to the industry, that's number one. Number two, because of the cash payment to the farmer and to everybody, we get minimum 3% to 4% cheaper paddy from the market compared to many. I will not say the only person, maybe there may be 4, 5 people more, but our payment to the farmer is so excellent that we always get a cheaper paddy. Now given these 2 ideas -- thirdly is the brand, the premium on the brands. Given these 3 ideas, we cannot afford, KRBL at any cost, to remain without the raw material because after 6 months or 7 months or 8 months, when we require our rice to be marketed, we say we don't have right and we go to the market to buy a rice. That is why last year, we did a mistake. Paddy prices, we thought it are higher. We couldn't buy the party paddy that much which was required for milling. So this year, we have decided the price we see are okay, looking to the inflation, looking to other costs. So we have decided, I was [indiscernible], said that we are going to buy 35% higher volumes over last year.
And sir, in this Europe market that the new variety, which we you said less of pesticide, what kind of market, like, for example, Saudi today is around INR 1,000 crores plus so [indiscernible] a 3-year, 5 year once this commercialization gets, what could be the size of Europe market which you believe?
European Market for Indian basmati rice, 400,000 tonnes. 98% of this volume is in shape of brown rice because there is no duty in brown rice. And white rice has a duty of EUR 160 tonne, EUR 170 per tonne. Now that duty doesn't allow European to buy white rice but certain brands like for India Gate we are exports, but they are very small in numbers because that duty is a mismatch for the pricing. It's not massive as the brown rice. Now one good that is happening into Europe, the largest buyer out of this 400,000-plus, 150,000 alone is purchased by U.K. and 250,000 tonnes on the other markets, which is the European markets. There has been a very big pressure on both the government to come on a free trade arrangement of the trade. They want their whiskeys and wines to come without duty into India. And India want that we culture produce to go without duty over there. But since India is on a bigger loss, they are more interested and they are finding the mechanism where both countries are on win-win situation. If that happens, let me tell you, that 150,000 tonne market will straightaway come alone to India and it would be white rice and it will be back in India, and it will be like other Middle East countries, it will be going into paddy rice. Otherwise, the total market is 400,000 tonnes, and out of which 250,000 tonnes are 2 other European countries, 150,000 is U.K. But it is 400,000 tonne, whether it is white rice or whether it is brown rice, it has to be pesticide-compliant rice, both. Therefore, I think it will take 3 years. Next year, we will be able to do some quantities, maybe 100,000 [indiscernible]. The next year, it will be 250,000 or 300,000. And third it will be I think about 5 million tonnes, what we -- 7 million tonnes what we grow, 70% would be pesticide-free [indiscernible].
What is today share?
Today here in Europe is very little. It's very little today here in Europe, maybe 100,000. There may be maximum 100,000. And out of that, 75% is to U.K.
[Operator Instructions] Our next question is from the line of Manish Bhandari from Vallum Capital.
Two questions. One, your observation related to the demand in U.S., which has surprised you as well as demand in Saudi Arabia. So is it -- there is some inventory holding which is happening in any of these countries? Or the natural consumption has gone up? So one, I wanted to know from you on this.
Manish, as far as Saudi is concerned, it is not that this year they have imported 1 million. Actually, if you look at the figures for last 4, 5 years, it used 5 years back, 100,000 tonnes. It increased to 700,000 tonnes. It increased to 780,000 tonnes. Then it increase to [indiscernible]. So this year, it has been 1 million tonne. People do say they have a stock. The stocking proposition in Saudi Arabia is not of today. It is for the last 20 years. They always stock big quantities with them all the time and [indiscernible] rice over there. It is not for the first year. Maybe 50,000 tonnes, maybe due to stocking, but it cannot be a 1 million tonne of stocking base. It could be 40,000, 50,000 tonnes. They might have purchased this more rice this year, but I think for this year also, they are going to buy not less than 900,000 to 1 million tonnes.
Okay. And my second question was related to your guidance in Saudi. So FY '24 can be some INR 600 crore plus number for Saudi exports of KRBL, which may include HoReCa or may not include HoReCa?
No, we are looking at the INR 1,000 crore market by '24.
Which includes HoReCa, sir, for Saudi.
Which includes HoReCa, definitely, which includes HoReCa.
Okay. And my last question is related to this pesticide-free Europe, which may be something what you have to export to Europe. So you would do the same thing in India also, pesticide-free?
No. No. Today, whatever we are able to buy pesticide-free, it is total for exports because domestic market doesn't have those type of restrictions and bar to sell rice in India. And let me tell you, you will be surprised, Manish, there are -- this is in various countries with the government just on private to government telling them what are the pesticides that is [indiscernible] of Japan. If we will look at the pesticides [indiscernible] in Japan, they are much higher than the not fixed by the Indian government. So there is still -- I tell you this is not the [indiscernible] . It is a nontariff barrier, this issue is, but we have fight out our scientists who are intelligent and capable. They came out with the solution, and they have come out with certain quality of seed which will remain pesticide-free as if the no pesticides will be required to harvest them or to sow that.
Sure. And sir, last, maybe one more question related to long back, you had a vision of having some -- a portion of turnover in a non-rice and non-Basmati. So where are we? Is there any thoughts on that?
Yes, we are working, but we will be on a value-added product where the margins [indiscernible] is more than 40%, 50%. But we are looking at rice bran oil, which will take some time, but we are looking at it.
Our next question is from the line of Amit Agarwal from [indiscernible] Investments.
Sir, I have two questions. One is last year, at the same time, you were talking about buying a food company. But after that, there has been no discussion on that. And the other question is, sir, some e-commerce companies are launching their private labels. So [indiscernible] market share, especially [indiscernible] has their own brand. So in future is this a competition for us?
So Amit, your voice was not very clear. So I'll just confirm what you were asking. I think your first question was around what is the update on acquisition? And I think your second question was that the impact of private label launches in India on the domestic [indiscernible].
[indiscernible] has their own brand, BB Royal.
Yes, let me answer the first question. The second will be answered by Ayush. We are still looking at any food company. We are open to it. You see, there are a lot of consultants come to our office and discuss. We are open to it. If any opportunity comes, cash is already there in the balance sheet. We don't have any issues.
But sir, last year, you said that you were almost buying some company by December 2021.
No, no, that was -- it never -- I mean, it never happened. It never materialized. We were looking at it. We were hopeful we'll get by December, but it never materialized.
Okay, okay.
Yes, on the private...
Private label about e-commerce company.
Yes. On the private label e-com side of the business, I believe there are many e-commerce players right now doing private labeling, especially in the basmati rice segment, barring Big Basket, which is doing that. But even in Big Basket, we enjoy close to 45% category share. So the private label scope is very limited at the moment, and it is mainly due to their margin expansion strategy. So on private label, they are able to garner a better margin compared to national brands. So from that perspective, they have that in the portfolio. And private labeling is also more important than the regional rice category rather than basmati rice. So in the overall e-commerce space, it's a very small player at the moment, done by one player from a strategic perspective, as I said.
But in [indiscernible], that can be a big risk to our brands because e-commerce is taking more and more share, more business like of the whole market.
So e-commerce to be a very consumer-focused channel. So consumer demand and brand strength continues to be the prominent drivers to sale. So private label player does not stand to gain a lot of penetration or market share from an e-commerce perspective because the consumers are more brand-conscious and less price or -- less price conscious, I would say.
We take that as the last question. I now hand the conference over to the management for closing comments.
Thank you. We are thankful to all the investors for their patient hearing, and there were insights for us also to learn from their questions, and I hope we will try to further provide and give them better results for all times to come, I can promise that also. And we are trying our level best to make you happy and to ensure that we are the real big rice company with a tradition of doing business. Thank you.
Thank you very much, members of the management team. Ladies and gentlemen, on behalf of KRBL Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.