KRBL Ltd
NSE:KRBL
Earnings Call Analysis
Q3-2024 Analysis
KRBL Ltd
The company witnessed a stable revenue trajectory bolstered by a strengthened domestic market that offset international market fluctuations. Despite total revenue experiencing a minor 6% decrease year-over-year, standing at INR 465 crores, other income jumped significantly by 57%, supported by investment gains and foreign exchange. Domestically, the company achieved a notable 14% revenue increase to INR 1,143 crores, with basmati sales volumes contributing to a 13% rise, indicative of both volume and realization growth. The domestic basmati sales volume reached 133,000 metric tonnes at a realization of INR 76,000 per tonne.
The company's margins have been compressed with gross margin for the quarter reaching 25%, a consequence of increased basmati input costs and diminished export revenues. EBITDA fell to 14.1% from the previous 19.1%, while finance costs more than doubled reflected by a surge in bank borrowings and rising interest rates. Profitability followed suit, with profit after tax (PAT) at INR 134 crores, showing a reduced margin of 9.1% compared to 13.2% in the corresponding quarter last year. Margin contractions are attributed mainly to higher input costs and abating export volumes.
The company reported a robust 6% growth in domestic branded basmati volume during the quarter, culminating in an approximate 13% increase on a nine-month basis. Pricing has been adjusted to offset high input costs, and the company expects the increased rice prices to hold steady. However, export revenues saw a sharp 47% decrease due to limited opportunities, especially in bulk rice sales, which were significantly lower compared to the previous year. This highlights the challenges faced internationally, including disruptions in vital markets like Saudi Arabia.
In the Saudi Arabian market, the company faced complications, especially being one of the few Indian brands challenging the dominance of local private labels. The company acknowledged a previous decision error regarding the Saudi Arabian distributorship and is proceeding with heightened caution to avoid repeating past legal complications. This cautionary tale signifies the complex nature of international distribution and brand representation.
Price hikes tell another part of the company's strategy in addressing increased input costs. The company adjusted domestic prices by about 9% to 10% quarter-over-quarter, reconciling with the rise in cost of goods sold. This strategic move suggests an effort to maintain margin levels amidst cost inflation pressures.
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Ladies and gentlemen, good day, and welcome to KRBL Limited Q3 FY '24 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, Mr. Jain.
Thank you for joining us. Welcome to the Q3 FY '24 earnings conference call for analysts and investors of KRBL Limited. Today, we have Mr. Anil Kumar Mittal, Chairman and Managing Director; and Mr. Ayush Gupta, Head of the domestic division as key speakers on the call. To kick off the call, Mr. Mittal will provide updates on the business, industry and our overall strategy besides the export business. Following that, Ayush will delve into the perspectives of our domestic business. Finally, I will present the financial overview of the company for the third quarter and 9 months of current financial year. Once the management has concluded their opening remarks, we will open the floor for an interactive question-and-answer session. Please note that some of the statements made during this call may contain forward-looking information, and actual results may differ from these statements. For more details, you can refer to KRBL's investor presentation, which is available on the stock exchange website and our company website. Now I would like to invite Anil Ji share his views. The floor is yours, sir.
Good morning to everyone. Esteemed investors and analysts. Today, I'm here to share our performance for the third quarter of the financial year 2024 and provide insights into the broader rice industry both globally and within India. We find ourselves in a period of remarkable resilience and adaptation. Despite the challenges posted by El Nino conditions, global rice production has remained stable at 513.5 million tonne, mirroring the output of the previous marketing year. This stability, however, has not insulated us from elevated rice prices fueled by geopolitical tensions, policy responses from major rice producing nations and concentration of rice production and exports. Turning our attention to India. Our primary market, we observed a slight contraction in kharif rice production, which is estimated at 106.31 million metric tonnes, a decrease of 3.4% from the previous year. This had inevitably impacted the rice industry landscape in India, including both basmati and non-basmati segments. Despite these challenges, India's Basmati exports have seen an 11% increase in volume in April to December 2023, reflecting the sustained high demand in international market. Conversely, the non-basmati sector faced hurdles, notably the ban on white rice exports and the imposition of 20% export low duty on parboiled rice, resulting in a 37% decrease in export volumes. The geopolitical situation affecting the Red Sea route has raised concerns about potential freight increases, order delays or cancellations. I want to assure you that we are closely monitoring these developments and have implemented strategic measures to mitigate their impact on our operation and ensure timely deliveries to our global customers. Furthermore, as you already know, the adjustment in the minimum export price for basmati rice has not deterred our export performance as demonstrated by our average realization rate, which comfortably exceeds the revised MEP threshold. On the paddy purchase front, our paddy purchase reflects a strategic approach to managing our supply chain amidst fluctuating prices and quality variations, despite a 12.3% increase in paddy prices compared to the previous season, our agile procurement strategies have allowed us to maintain a steady supply of high-quality rice, underscoring our commitment to excellence. Owing to strong demand, we see the rice prices sustaining in the aforesaid period. I will now update you on our export business. KRBL export revenue was at INR 278 crores in Q3 of 2024 and INR 1,053 crore in 9 months period ending December 2023, a decline of 37% and 24%, respectively. Performance is affected by 2 broad factors vis-a-vis sharp drop in sales to Saudi Arabia and fewer opportunities in the bulk rice exports. With respect to former suite filed by our erstwhile distributor partner in Delhi High Court has been disposed of and the matter is in arbitration. The contract with the erstwhile distributor stand terminated, and we are in the process of identifying, appointing new distributors, one each for retail, online and HoReCa. I am, however, happy to report that sales to markets other than Saudi are performing well, showing a growth of around 75% over the preceding quarter. Bulk rice sale in the current year have been affected by regulatory factors, I mentioned earlier on the non-basmati side, the lack of attractive opportunities on the basmati side. However, we are continuously prospecting and should see some bulk basmati exports in Q4 '24 or the first quarter of the next financial year. Looking ahead, we are excited about the progress on our expansion project in Karnataka and Madhya Pradesh. These ventures are not just about increasing our production capacity, but also about announcing our operational efficiency and market reach. In conclusion, while we navigate through these challenges -- challenging times, our unwavering focus we made on delivering value to our customers and shareholders. We are committed to leveraging, embracing opportunities for growth and addressing the challenges, as on which resilience and strategic foresight. Thank you for your continued trust and support. I now welcome any questions you may have. And I pass it on to Ayush, Head of the domestic business.
Thank you. Good afternoon, ladies and gentlemen. I'm delighted to stand before you today to share the exceptional performance of KRBL Limited in our domestic business for the third quarter of fiscal year 2023-'24. In quarter 3 financial year '24, our India market sales soar to an unprecedented INR 1,143 crores, marking the highest ever quarterly revenue for our India business and a remarkable 14% growth. For the first time, KRBL's domestic branded business surpassed the INR 1,000 crore revenue mark in a single quarter, showcasing the strength and resilience of our operations. One of the key highlights of this quarter is the achievement of our highest ever general trade market share in the packaged basmati segment. We secured a 35.9% market share in general trade, witnessing a substantial 350 basis points gain over the same period last year. Additionally, in Modern Trade, we reached a commendable 40.9% market share, reflecting a 100 basis points gain over the previous year. This success is not isolated but part of a consistent growth strength in our domestic business. over the last few quarters, we have been witnessing steady progress with quarter 3 financial year '24 emerging as a highest ever quarter. Notably, our 9-month volume growth of 13% surpasses the FMCG industry's average growth of 5% to 7%. This achievement is a testament to our unwavering focus on brand building, guided by consumer insights and sustained media investments. Our commitment to excellence extends to our supply chain capabilities, and I'm proud to announce that significant improvements in this area have empowered us to achieve our highest ever quarterly revenue. our numeric distribution in the Indian market experienced an impressive gain of 1,190 basis points exiting December 2023 over the same period last year. This underscores our efforts to expand distribution channels, not only fueling growth in our existing business, but also laying a robust foundation for a multi-category and multi-brand revenue stream in the near future. The performance of our recently introduced regional rice offerings, Sona Masoori, Kolam and Gobindobhog have been outstanding. This segment contributed to 6.95% to our overall India revenue in quarter 3 amounting to INR 79 crores, reflecting a remarkable 158% growth over the previous year. The branded regional rice business has clocked a 9-month revenue of INR 105 crores, and we are well on target to reach our estimate of INR 200 crores for the fiscal year. Our ambition is to achieve INR 1,000 crore revenue from this segment within the next 5 years. Our foray into the masala segment with the launch of ready-to-cook India Gate Classic Biryani Masala range has been met with strong traction, available in modern trade source and e-commerce platforms. These products promise an authentic biryani experience at home with 3 enticing variants: Hyderabadi, Lucknowi and Kolkata Biryani Masala. While this is an ancillary product launch whose core objective is to fulfill a brand promise through an elevated cooking and consumption experience, it most definitely allows us to enter the rapidly growing INR 4,000 crores ready-to-cook market as well as the INR 30,000 crores branded spices market. As we revel in our current success, we remain forward-looking, actively exploring opportunities to expand into new categories in the upcoming fiscal year. We are poised to continue our trajectory of growth and innovation. With that, I hand over to Ashish for his commentary on the financial overview.
Thank you, Ayush. I will now present financial performance for the quarter and 9 months period ending December 31, '23. All financial figures discussed are on a consolidated basis. For the quarter, our total income stood at INR 1,465 crores, a decrease of 6% from the corresponding quarter last year. Other income saw a significant increase of 57% bolstered by mark-to-market investment gains and favorable foreign exchange gains. In our domestic market, excluding power, revenue climbed by 14% to INR 1,143 crores. This rise is attributable to a 13% year-over-year increase in basmati sales underpinned by both volume and realization growth. Specifically domestic basmati volume reached 133,000 MT with a realization of INR 76,000 per tonne. Turning to exports. There was a decrease in quarter 3, where the revenue was at INR 278 crores, 47% lower than last year's corresponding quarter. Q3 '24 includes INR 22 crores from bulk rice sales in contrast to INR 222 crores in the same period last year, partly explaining the significant movement. This reduction, as Anil Ji had mentioned, in bulk sales is due to limited opportunities in the current fiscal year. Branded rice export in the quarter was at INR 252 crores as against INR 295 crores in the corresponding quarter.
Moving to the margins. Our gross margin for the quarter was at 25%, primarily affected due to increased basmati unit cost and lower exports. EBITDA margin also experienced a decline to 14.1% from 19.1% largely as a result of higher basmati input costs and additional provisions despite some offset from lower freight on sales. Finance costs for the quarter increased to INR 7.48 crores from INR 3.46 crores, reflecting higher bank borrowings during the quarter and also higher rates of interest. PAT was at INR 134 crores or 9.1% in margin terms compared to INR 205 crores or 13.2% in the same quarter last year. Comparing Q3 to Q2 of this year, our revenue from operations increased to INR 1,437 crores from INR 1,213 crores. This increase is marked by a robust increase in both domestic and export sales, which increased by 22% and 18%, respectively. Q2 FY '24 included a one-off write-back of provision, adjusting for this, underlying gross margins between the 2 quarters are comparable and stable. For the 9-month period of FY '24, total income edged up by 0.5% to INR 4,152 crores compared to 9 months FY '23. Gross profit stood at 27%, while EBITDA and PAT were at 17% and 12%, respectively. The margin contraction is primarily attributed to elevated input cost and reduced export volumes. Nevertheless, overall revenue remained stable, underscoring a strengthening domestic market amidst international market fluctuations. On the balance sheet, as of December 31, '23, total inventory was valued at INR 4,868 crores, consisting of INR 2,156 crores in paddy and INR 2,554 crores in rice. This represents an increase from the previous year, mainly due to higher per unit costs. Net bank borrowing also rose to INR 901 crores from INR 502 crores, correlating with the augmenting closing inventory. I conclude my prepared remarks here and would like to transition to the Q&A session. Please note that we will not address questions concerning the ongoing ED matters as it is subjudice. I now hand over to the operator to begin the Q&A. Thank you.
[Operator Instructions] The first question is from the line of Karan Gupta from CAVI Capital.
And very good performance in the domestic side, at least the market share is very heartening to see. I have 3 overall questions. Number one, can you discuss the volume growth on the domestic business vis-a-vis realization and product mix? If we could just get some more details on that? Secondly, given the high-priced inventory that we are carrying now, what are your expectations for gross margins going forward over the next 2 to 3 quarters as well as a couple of years? And then thirdly, if you could just -- if Anil Ji, if could just talk about a little bit more about the time line for resolution of the Saudi Arabia distribution business, that would be very helpful?
Talk about the volume?
Yes. Yes. So overall, talking about the volume growth in the domestic business. So total rice -- total basmati volume growth on the branded side is 6% during the quarter. And on a 9-month basis, it stands at around 13%. This is -- I'm talking about branded rice in the domestic market. I think your second question was on the impact of high cost inventory and how it plays out over the couple of quarters. So I think as Anil Ji had mentioned, we see the rice price continuing. And to some extent, the realization even in Q3 has already been adjusted to the higher cost of both paddy and rice. And we see this sustaining. So not particularly concerned about the increase in paddy cost over the last season. Now over to Anil Ji for exports.
Yes. As far as branded business is concerned, overall in other markets, we are doing good, but we have to understand that distribution channel is an asset for any company. It is not just a buyer-seller relationship. Hence, if there is any disturbance in this channel in any specific country, then it takes time for things to come back to their original position, rectification or to their normal business. There are many factors that need to be considered when setting up a new distributor line in any of the countries, especially Saudi Arabia. They have to understand the brand reputation and the image of the brand. They have also to understand and build relationship with the company management and get aligned with their thinking and business expectations, not just market dynamics of prices and payment as we do in private trade business, private label business, other factors play a big role in having a strong and settled distribution network. I would like to also add that there are certain markets which are quite complicated. If you look at the global market, there are very few countries which have their own label system, except Saudi Arabia where 80% distributors, not the business, 80% distributors are having their own brands. We were the only one brand from India who are there in Saudi Arabia which was competing and which were giving them tough competition to the private label people or their own label people. Now it is taking time. I do realize I made a wrong decision last time by telling you that things have been finalized and Saudi thing has been done. But in such countries, we do not want to repeat a mistake because we have done a mistake and gone into legal complication, as I've told in my presentation also. So we are very cautious. We do not want -- if it happens second time, then our brand and our image will get stuck. So we do not want to get stuck now. We want to flow this time so that we'll reach to our original levels.
[Operator Instructions] The next question is from the line of [ Amit Agarwal ] from [ Leeway Investments ].
Yes. I just wanted to know of the price rice -- have you taken any price rice lately...
I'm sorry to disrupt you, you your voice is coming muffled. Can you please speak through the handset?
Yes, Amit, it's okay. Let me just repeat your question. I think your question was that whether we have taken any price hikes, right?
Yes, yes.
All right. Ayush, do you want to...
Yes. So looking at the domestic business realizations, quarter-over-quarter we've taken a price hike of about 9% to 10%, which is in line with the price hike of cost of goods sold over in the company.
So is it fully reflected in the quarter 3 or there will be more to see in the quarter 4?
Your voice is not clear. I don't know why it is -- it's the same, that you are muffling the voice.
Is the price rice effect totally there...
I'm sorry to interrupt you, I request you to come back in the question queue and kindly reconnect your line. The next question is from the line of [ Himanshu Upadhyay ] from [indiscernible] Capital.
Good performance on the domestic market. I have a question on our thoughts on store sourcing, okay? You have always stated that the increase of basmati paddy can be transferred to the customers. And profitability or profits can be maintained even if the prices rise because we are doing aged rice, and that is a scarce commodity, okay? But if we see this quarter's number, we have stated that we were not able to raise the prices of end product and hence, the profitability, and not just profitability, the absolute profit also fell because of the higher price of the raw material. And what we understand is, even in FY '24, the price of paddy is even higher than last year. What gives us confidence that we'll be able to transfer these higher prices of paddy to the end customer? Or you think it can lead to further erosion in profits for FY '25? So some thoughts on that and because we again have increased the value of inventory, what we are owning.
Okay. So I'll divide your question into 2 parts. Thank you for the question. So as I mentioned earlier, we have taken price increases quarter-on-quarter basis, the commodity prices. And in the domestic market, at least, the corrections or increases are in the tune of 9% to 10%. However, when we say gross margins have taken a hit because of cost of goods sold, the accounting procedures that we follow is an average of the overall stock that we have in the books. So because our inventory this year has been built up on a higher price, the average cost of goods sold have increased. So overall, hence, gross margins have reduced. But within domestic and international markets, there are different categories of products that we sell. But cost of goods sold are depleted on an average price itself.
No. See, I understand that the percentage reduction can be higher because of the higher raw material prices and again, the higher revenues. But what we are seeing is absolute reduction of 20%, okay, in the gross profit from INR 455 crores to INR 363 crores and even PAT of INR 205 crores to INR 134 crores. So it shows that we have been not able to transfer the prices and what we have also written in the note, so that is the question, okay?
Yes, Amit, I'll try and answer your question. So you're right, there's been an absolute decrease when you look at gross profit or EBITDA, et cetera, while that has less to do with our ability to pass on the price increase, which, like Ayush explained, we've already done. I think that has more to do with the fact that the overall export sales on a quarter-by-quarter basis and even on a 9-month basis are lower. So as the export sales get normalized, it will have an impact in terms of increasing both absolute as well as the margin, on both gross margin as well as EBITDA. I hope that explains your question.
And are you worried about FY '25? Because we are seeing that inflation is leading to lower growth for many of the consumer up-trading companies, can you be worried that a higher price of inventory may be difficult to put on the customers in near future? And how are you planning to take the price hikes? Or what is consumer behavior you are seeing?
Let me answer your question. Actually, until the central government election stress is there in the market, the market -- see when the paddy was coming in the market, the government had no control, nothing to be communicated to the trade. In last 1 month, you will not believe, the Ministry of Finance, the Ministry of Agriculture, the Ministry of Commerce, they are all asking to bring down the prices and we don't want the prices, including basmati, though there is no control of Government of India, neither the procurement, nor there is any MSP or nothing, except minimum export price that is INR 950. So these 2 months -- the coming 2 months, I mean to say, March and April, the prices are going to remain subdued. But I am -- we are very much sure looking to the stock, looking to the demand, the prices are not going to remain the same in April what they are today.
And one thing more I would like to add, the export quantum have jumped by about 300,000 to 400,000 tonnes from 4.5 million tonnes to 4.9 million tonnes. Similarly, the Indian consumption has also grown from 300,000 tonnes to 3.8 million tonnes. So the consumption is increasing. The demand is increasing. Only it's a psycho pressure on all the traders, all the buyers because they are worried if the government takes a strict action, the stock limit might not come or something adverse may not happen. So people [indiscernible] orders very cautiously as far as domestic is concerned. And as far as export is concerned, yes, these 2 months are a little difficult. But I'm sure that after April, the prices will increase because they are correlated with the domestic prices. It is not that only they are correlated with the export prices.
Okay. And the second question was, you have faced the challenges in Saudi market for last many years okay? But what are -- and the Saudi market is 20% of the total exports of Indian basmati, okay? And the rest, 80% is Iraq, U.S, Yemen, UAE. How -- why -- we would have rolled out in those markets? And how have those markets done for us, means, because the 20% market is strong, but the 80% is still open for us, okay? And we are still facing challenges, okay, for growth in export markets. And this is not first year. This is, say, 3, 4 years we are seeing this challenge happening. Can you elaborate that?
Sorry, you complete your question.
So, my question is, how have we done outside Saudi Arabia, okay? Because Saudi is 20% market, the 80% market is outside Saudi for basmati exports, okay?
See, let me tell you the numbers which are coming low are primarily due to 2 reasons: the first reason, our bulk export, there is a very big question mark because the European business, brown-rice basmati business has come to 0 as far as KRBL Limited is concerned because the prices in Pakistan are lower by USD 100 per metric tonne. Besides that, Iran and Iraq payment problem issue and geopolitical issues due to war has restricted good and safe business opportunities. You know there are so many people who have stuck up with their payments in Iran and at so many places. I'd say there are certain things, if you personally come, I can explain this business. It is not good to bring a few things in public domain. If I tell you there are 5 buyers who have not received their payment for last 8 months from Iran. So these are not the things to be discussed openly. These are the things to be discussed -- first of all, it's a break-bulk business. You know last year, we had a break-bulk business of about 100,000 tonnes. Now 1 lakh tonne of break-bulk business between a setback of about INR 800 crores -- INR 800 crores to INR 900 crores a year. And secondly, we are doing exceptionally well in all other countries where we are established and our brands are established. Regular orders are coming. Everything is there. The main deficiency in our export turnover is primarily the break bulk and the Saudi business. And I have already briefed you, there's no need of stating you, now we have realized, maybe sooner or later, that appointing a distributor is not that easy. You go and you see the financial position of the distributor and you say, okay, I make you. There are certain points. There are many factors which is to be determined. I do agree with you with just now you communicated, this will be my third year from 1st of April 2025 for doing not good in Saudi and not able to appoint in Saudi Arabia. We appointed a distributor in Saudi Arabia in '22 and the results are very bad. We are into -- luckily, we won the legal battle in the High Court, and now we are into arbitration. But we do not want to land the same type of problem again and again.
Okay. Okay. And 1 last question. This regional rice has grown pretty well for us. And it is now more than 5% of the revenue. How are the margins and what proportion of inventory today is non-basmati when we show the inventory value of INR 4,800 crores?
Yes. So on the regional rice, as was planned and agreed, we had done a INR 200 crore target for this fiscal year. And we're right on target, and we'll probably surpass that number. As far as margins are concerned, we don't have separate margin numbers at the moment for regional rice. But let me tell you that we are operating only in the premium regional rice market. So all the products that we have in the market on regional rice are aged product, similar in terms of basmati. And they garner a premium of over 5% to 10% compared to the normal varieties. So -- and there is also a brand premium there. So we are able to sustain our basmati margins in the regional space. I don't have the exact numbers. But there is no compromise on the margins when we are operating in the regional rice space. In terms of stock -- I think in terms of the non-basmati inventory, the total value in INR 4,800 crores of non-basmati INR 110 crores.
[Operator Instructions] The next question is from the line Anuj Sharma from M3 Investments.
I'm using a long-term data. If you look at our revenues in the past 5 years, it has increased by 32% and operating profit is flat. And if I look at pure export is down 24% absolute in the last 5 years. If you look at our export-focused competitors, their revenue is up between 75% to 100% and operating profit is up by 2 to 2.5x. The question is this loss in export market share seems sticky. And why should we are losing the shelf space? Because once you have lost the shelf space, how do you think you can win it back? That's question number one.
As far as the shelf space is concerned, the brand is so strong that in 1922 when we appointed a new distributor, he gave us a commitment to import about 65,000 tonnes, 70,000 tonnes of rice that was the agreed with him. And in next -- in that first quarter of signing the distributorship, we got an order of about 15,000, 17,000 tonnes, and we were so happy that we will soon be able to reach to our original position. But what happened, because of the strength of the brand, it was not -- it was easy for him to place the material. But what happened because his own sales team and his own knowledge on rice was so less, that he continue -- he could not continue the process. And at once given point, he came to stand still rather giving the order 2,000 tonnes, 4,000 tonnes. And we landed into legal problems. As far as in Saudi Arabia, if there is a distributor with whom we have a good understanding, I'm sure, still people during Ramadan, this is the peak time of sales. Everybody is asking everybody, "Can you get me in India Gate, can you get me India Gate." So the position of the brand is quite strong over there until today. There is no damage to the brand as far as brand is concerned.
Okay. Okay. And secondly, if we look at our margins despite us holding inventory...
Your voice is coming a little muffled. Can you speak through the handset?
Yes. The next question is if you look at our margins despite us holding inventory being a branded player and excluding to premium markets like Middle East, margins over the years have been declining. And if we compare the 9-month '24 margins, our margins are very close to commodity players, right, who buy in spot and sell to private label. Why have we lost this margin advantage? That's my question -- next question.
Anuj, sorry, I'm not sure if you're referring to the correct data. On a 9-month basis, our EBITDA margin is at 17%, and the PAT margin is also healthy at 12% So I think the commodity player profile is very different from this. I think there's probably low single digits is what at least I see in their balance sheets.
Yes, sorry. So if -- I'm not saying they have closed in, but the gap has significantly reduced. They are touching 12%, and we are closer to -- if I remove the other income. So the gap which used to be 700 to 900 basis points is now merely 200 basis points. And that's for a player like us, the margin -- and this is not 3 months, it's -- I'm talking about 9 months data and over the years, the margin gap has really come down.
I tell you, this margin gap which everybody is talking about. I do -- the investors have concern on that issue. I'm not denying the fact. It is primarily because exports are coming down. The profit of margin in export are much higher over domestic. Moreover, the export market is 100% head rice, whereas in domestic, you have about 40% to -- 40% broken rice and 60% head rice; or 50% broken rice, 50% head rice. Broken rice does not command that premium what head rice commands. So our PAT and our EBITDA coming down, the reason is the day our exports come down by just INR 200 crores to INR 300 crores a month, everything, the total scenario will change. And I don't want to say because I have told in 2, 3 quarters that Saudi is done, this is done. I don't want to make my position fall being the Chairman of the company. But the fourth quarter, you will see a remarkable growth in exports. You do not know more than the investor. We are worried. It's our company. We have to ensure to show you good results. We are trying our level best to ensure that the results come better, and we are able to achieve our position.
Sorry, I lost you in the last part. All right. And lastly, the Saudi sales will remain 0 until we appoint a your distributor, right? So you are expecting the other regions to do well to compensate? Or you think Saudi sales will come back via a different arrangement in next quarter?
I tell you, never -- I will -- see, once my export performance become good, it is wrong on any part to talk about a specific buyer or a specific country, no doubt, because 18% to -- 17% to 18% exports out to Saudi Arabia, and we are concerned about it. This quarter, definitely, the fourth quarter will be a better quarter as far as Saudi is concerned. But in third quarter, we have shown a remarkable progress in other countries where we were doing good business. We are -- we should be doing at least 25%, 30% more business over the third quarter.
[Operator Instructions] The next question is from the line of Nikhil from SIMPL.
I have 2 questions. One is on the market share. We talked about our market share increasing both in the GT channel and the modern trade. If you can just help me understand whom are we gaining market share from? Because if you look at the other listed large players, they are also talking about market share gaining -- gains. So is it like we are gaining more from private labels or regional brands? Just some sense on both GT and modern trade, our market share gaining, through which channels or which players?
See, if you look at the domestic landscape, there are broadly just 2 players who hold a significant market share in the market. Rest of the players, all fall under the 5% to 6% -- under the 5% market share slab. It's rightly portrayed by you that both the players are gaining market share. So a lot of it is coming from regional local players in the market. But also one thing to note is the speed at which one is gaining market share over the other. So that is, I would say, something which is more notable that at what speed we are gaining market share over the competition because the market is fragmented by only 2 players and both are putting efforts in terms of distribution and other spaces. There is enough -- immense area for expansion. But on what basis market share gains are coming? Is it back of distribution, is it back of brand equity or it back of pricing? That is something that quality of gain of market share is something to be evaluated I think to get a correct picture there.
And when you talk about market share, this is a value share, right? Can you talk about what would be your volume share gain?
Actually, I don't have that number at the moment with me, but we will be able to share that later after the call.
Okay. Second question I had was -- see, if we talk about the shift in the industry and staples, there is this change from loose to branded and from regional brands to larger pan-India brands. If you have to understand over the last 5 years, how has the industry shape changed from loose to branded basmati or from regional to branded? And what would be our gain versus regional brands and loose? Can you just talk about like 5, 10 minutes, how the shape of things have changed over the last 5 years?
Excellent question.
Yes. So I'll explain you over the last 5 years, the India's growth in terms of overall basmati penetration has increased significantly. And I would say it will be between 6% to 8% year-over-year that India's overall basmati consumption is increasing. Mostly, this consumption gain is coming on back of 2 reasons: one, that -- if I talk about past 5 years, almost 60% of India's basmati consumption comprised of metro cities. Metro cities, mainly 40 lakh population plus towns. 60% of basmati business came from there. However, in the last 5 years, we have seen a drastic shift now. And now only 40% of business comes from these towns. So what has happened in the last 5 years, a lot of penetration of basmati has gone down to Tier 1, Tier 2 population towns. And that's where consumption increase has been substantial. Because of that, we also see a lot of our distribution efforts being ramped up in Tier 1, Tier 2 and maybe some rural towns of North and West region where basmati is highly penetrated. So that's one part of what has happened -- I lost my path -- yes. And on the loose to packaged bit, yes, packaged basmati is also leading this growth: one, because of newcomers, I would say, a lot of -- one, because of newcomers, because a lot of modern trade and e-commerce channels have started contributing significantly to the basmati rice industry. And these channels are advocates of packaged commodity. So these are catalyzing that shift from loose to packaged. Another notable change which has recently happened is the ruling from FSSAI on 1st of August on purity of basmati rice, right? So a lot of basmati rice, which is unbranded or loose is unpure, and government has now put strict rules on adulteration. So I think that is another area which is propelling this change from loose to packaged.
See, the tailwind for the industry for loose to packaged, I think this -- before this FSSAI, there was also the GST ruling because of the rate change and where we were like the price differential between loose and branded will decrease and we should gain. And it's almost like 1, 1.5 years for that. But if we look at our volume trajectory and we are just along the lines of what the industry is growing. So are these actually helping us to become, like, takeaway share? Or is it just because the larger shift is from loose to branded and we being the larger player we are gaining? So are these tailwinds which we talk about, do really change the things in the near term? Or is it more of a structural 4-, 5-year things where you believe it will happen? That is one. And last question from -- sorry, and last question from me is, can you talk about how is the mix for us changed between mass, premium and economy segment in last 5 years? What it was 5 years back and what it would be today?
Okay. See, as far as your earlier question goes on the shift in loose to packaged. Being the category leader and a dominant market share for almost a decade now, I think it is a normal course of action that if the category moves from loose to packaged, brands like us will be preferred in an organic manner. Also, if you see our communication strategy for the last 1, 1.5 years, we are at the forefront of leading this change from loose to packaged. And this is done strategically to ensure that consumers get into the packaged basmati rice category. And we inherently feel that because our brand equities are so strong, we will be the chosen brand in the market. So definitely, market size growth is a good sign for all of us. And yes, we are riding the wave. But I would say that we are not growing at the category pace. We are growing much faster than the category because you see, very aggressive market share gains happening in this last 9 months. 350 basis points in 9 months is a huge market share gain for any brand in the consumer space. In terms of the subsegment channel mix, I think that's a bit of a sensitive information for us, and we won't be able to share it.
Next question is from the line of Amit Doshi from Care PMS.
Congrats and great set of domestic business numbers. With this respect to our export market, we were, of course, a very strong player in Saudi, and it's been quite some time that we are not on the -- in the market. So who would be filling our space? And second, you mentioned that the distributors themselves, 80% of the distributors have their own brands. So obviously, they could be selling probably more. So if we have not been able to settle with any other distributor for quite some time. So do you think it would make more sense to go direct? Or is there a possibility of that sort?
See, as far as filling the gap of Saudi is concerned, let me be very frank to you, that it is not possible to fill in the brands for a market which has 20% are of the total exports of the Indian basmati rice. So therefore, Saudi will remain a very prominent destination for all the exporters, especially for KRBL because we have remained a market leader for 20 years in that market. And it is really a setback that we are also not able to evaluate what happened to our original distributor, where they went wrong. Similarly, there are 2 markets in the world: one is Saudi and other is Iran. Iran has got a market share of about 30% -- not 30%, 25%. That market is also very important, but that market is 100% for private label. There is no Indian brand available in Iran, either it is purchased by the government of Iran or it is by the private players over there and payment has become a big problem. And these 2 problems, we have to resolve. We have 100% to resolve. We may have started doing, let us say, 100% growth in Middle East, other countries, or we may do fantastically well in U.S.A. or Japan or Singapore or Hong Kong or into African continent, that is not going to ultimately show the correct picture or the mirror of KRBL, what we were and what we are. So we have to really do a earnest effort to ensure that these 2 countries should not go out of KRBL if we have to be the leaders of this market. Let us -- I'm telling you the frank picture.
Yes. Okay. So is there a possibility of going direct rather than without a distributor in Saudi market? Is there a possibility?
It is not a possibility because there it is difficult. There are so many other difficulties. It is difficult to set up your own office. But I'm quite confident, let me tell you, I think, I will be able to more discuss on this topic after the fourth quarter. The fourth quarter will become a rear mirror are we going the right way or are we not going the right way.
Okay. Okay. Okay. Sir, this -- now that court has dismissed this matter and it is back to this arbitration. So can you just explain the process of arbitration in terms of timelines, how things work really now that the matter is with arbitration?
See, arbitration, I will see we have also not got big experience. But as per our lawyers, it will take not less than 3 years or 4 years. It can take even more because arbitrator, there are 2 arbitrators, one from their side, one from our side from India. And the third neutral arbitrator is from Singapore -- he is traveling once a week, once a month, twice a month, it can take long. And they are really -- we tried through many channels that let us sit across the table and settle this matter. But still I do not know what -- see, let me tell you when it comes to the making money by the lawyers, they always misguide their clients because lawyers are going to make at least $2 million, $3 million in the next 2, 3 years, 4 years out of this arbitration.
Okay, okay. But that doesn't stop our appointment of another distributor in Saudi in the meantime...
No, no, no. We have already terminated. The court has given the verdict -- High Court has given the verdict in our favor. That's why they have gone into arbitration. And my agreement is very clearly, once the agreement is terminated, now I'm free to do [Foreign Language] free for both HoReCa as well as the retail outlets.
Okay. Okay. Okay. With respect to our domestic business, which is growing very strong as a company, KRBL. So now that obviously because of lower export, lower Saudi market, et cetera, do you think we should start working on KRBL numbers with lower operating margins owing to more domestic sales, at least until our Saudi business is restored? Would that be a fair thinking?
Top line...
You mean lower number, meaning lower operating margins?
Operating margin numbers, yes, percentage terms.
I mean, I think that's not KRBL's DNA. And if that had to be done with KRBL, we would have been doing turnovers of, I would say, more than $2 billion. But we are purely in the business of branded staples. And our main effort and investments go into creating healthy bottom lines. It's not about delivering top line. It's about creating healthy bottom line. And I think that's the challenge any company would face in the staples space. And I think we are doing the right investments. We are putting efforts in the right direction when it comes to distribution and other GTM strategies to be able to create that equity in the market. So our DNA will always be about getting healthy bottom lines and not compromise that to deliver top line.
On the Slide 5, there is a mention of some additional provision. Can you clarify what provision is that? And there is also mentioned that there is a lower freight cost. So I'm presuming that's because of low sales to the Saudi market, just confirming that.
Yes. So I'll answer that question. That provision is -- it's a part of a policy where once the aging of certain receivables exceed a number of days, we provide for that in the books of account. So it's a standard as per policy. Yes. So you are right. The lower freight on sales is on both: one is that there is lower volume of export. And second is that even on the existing volume in export, the rates have come down as compared to last year, freight rates.
Okay. Okay. And what would be the amount of that additional provision?
Can I request to come back for a follow-up? Next question is from the line of Varun Bang from Bryanston Investments.
Congratulations for good performance in the domestic market. So first question is on the domestic market. So as a part of our portfolio expansion strategy, we had talked about flax seeds, chia seeds, idli rava, and rice flour, et cetera. So we had aggressive plans there. So where do we stand on those initiatives? And because we've not shared that in our PPT, so is there a change in the strategy?
Yes. See, those products continue to be in our portfolio. But given India's eating habits and given India's buying capacity, some of these products or most of these products are not mass -- and given that we do almost INR 3,500 crores of annual turnover in the domestic business, they are not sizable to the overall scale of business. While we continue to operate there, but they are not sizable to the overall scale of business. Hence, our product expansion strategies will differ going forward. And as mentioned, that we are taking some steps in that direction as our basmati business now is on a growth and upward trend, our product expansion plans are in place, and we will be pricing -- we will be updating you guys as and when we have concrete information on that front or plan on that front.
Okay. And in the modern trade, we have seen a lot of variation in our market share. So what is the reason for the same? I think in Q4 2023, it was 58%, which then fell to 29% in the last quarter. And now again, it is up to 41%. So is it due to our marketing initiatives? If you can just...
See, the -- if you look at the data for the last couple of years, you'll see that it's a cyclical kind of a nature. That's also because the Indian modern trade ecosystem is highly fragmented with Reliance and DMart in the ecosystem. Both of them currently contribute to 90% of overall modern trade sales, point number one. Point number two, DMart doesn't share data to A.C. Nielsen. So whatever DMart sales is actually a projection of Reliance's stores in that area, and they kind of extrapolate it from there. So Reliance performance, henceforth becomes an ultimate projection to the market share data, right? And Reliance, currently the way of working is that they have quarterly engagements with brands and which shows was a very erratic trend in the market share.
Okay. Got it. And second question is on the distributor in the export market. So once any distributor is appointed, how do you manage these relationships? And what is the employee hierarchy in the export business? So I think Ms. Priyanka, who is heading the division. So how is the hierarchy below her? And any changes that we have made in the hierarchy in the recent past? Or any changes that we think we need to make?
No, it is the same hierarchy. There is no change. One change in the last 2, 3 years have come, that we have appointed our own 1 or 2 people depending upon the size of the business in every country to give the correct feedback to Priyanka -- how the distributor is working and whether the placement, things and everything is going okay. And what are the strategies which the company should adopt to improve the sales, those type of inputs are received from our own man. Otherwise, it is the same hierarchy. He still heads the exports, and there are -- we have a head -- one Vice President sitting in Dubai. And that is the same for last 10 years, 12 years, it is the same hierarchy. .
Next follow-up question is from the line of Anuj Sharma from M3 Investments.
Yes. One is, if you look at the North America and the EU market, the recent volumes and realizations have been...
Anuj, sorry, but your voice is coming muffled.
Yes. I'm saying if you look at markets like North America and EU, the recent volumes and realizations have been better than Middle East and are becoming sizable. Historically, we have not given significant emphasis to these markets. So any thoughts out there to these markets?
Yes. North America in the last couple of years has shown a remarkable growth. And our -- one of our competitors has got a major share of it. I would say, 60% of that market has gone to our competitors because they have their own huge setup over there, and that is one reason. But as far as Europe is concerned, I think so the exports to Europe will increase because the FTAs which are going to be signed in the next 4, 5 months, 6 months, I believe that instead of brown rice, white packed rice will start being exported from India to European countries. And it's a matter of time that the FTAs are signed, the custom duty or the custom abatement which is presently going on in Europe between white and brown rice. On brown rice, it is almost 0 duty, whereas on white basmati rice is still EUR 140 per tonne or EUR 150 per tonne -- sorry, EUR 175 per tonne. So that is a big duty. If it goes away, then it will be a very, very big export from India. Number two, this year, Pakistan has taken away 65% market of brown basmati rice from India because on the price front. And once this FTA comes in place, then definitely that dent which Pakistan has given this year to India, we will be able to overcome that weakness.
All right. And 1 more question. I'm sorry, I'm digging into the distribution relationship because that's, I think, the key for us. And I remember, we have been very, very careful in selecting a distributor, right, for Saudi also -- but the HoReCa option is still open. We have not selected for the past 3 years. So my question is, where is the challenge? Are we not aware of the key distributors? Or the agreement or the terms we are not able to set? What is the real challenge in finding a distributor? And HoReCa was never subject to any, but we still haven't been able to set a HoReCa distributor there. So what is the challenge? And we deal in multiple countries, it's not a single country, but we have got it right in multiple countries. But in Saudi, we still find it challenging.
You come to our office, we will discuss these challenges with you. See, there are certain insider things which cannot be in public domain. You come to the office, we'll explain to you about the challenges and the problems we are facing.
The next follow-up question is from the line of Karan Gupta from CAVI Capital Advisors.
Anil Ji's point is very well taken regarding...
Karan, sorry, we're losing your audio. We can hear you now.
Okay. I was saying, Anil Ji's point is very well taken regarding top line versus actually collections of receivables. It's quite evident if you look at the international receivables for some of the other players. But what I wanted to ask actually was, just longer term on the pricing ones, if the cost of the raw material goes down over a period of time, given that a lot of our sales are branded, do you foresee reducing prices going forward also if raw materials were to come down? Or once price increases are taken the -- sticky for our customers?
Yes. I'll answer that. See, generally, what happens in a branded space is brands show utmost resilience when markets go down. So when prices go up, we are able to take price increments very comfortably. But when prices go down, generally, brands show resilience. So if markets go down by 8%, 10% -- 8% to 10%, brands generally put down prices by 2%, 3%. So generally, it's a positive scenario for us in that -- while that trend is going on.
Thank you very much, ladies and gentlemen, thank you very much for members of the management. And on behalf of KRBL Limited, we conclude the conference call. Thank you for joining us, and you may now disconnect your lines.