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Ladies and gentlemen, good day, and welcome to the KRBL Limited Post-Q4 FY '19 Results Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note, this conference is being recorded.I now hand the conference over to Mr. Rushad Kapadia from ICICI Securities Limited. Thank you, and over to you, sir.
Thank you, [ Bikram ]. Good evening, everybody, and welcome to the KRBL Limited Q4 FY '19 Results Con Call. We have with us from the management, Mr. Anil Kumar Mittal, Chairman and Managing Director; Mr. Anoop Kumar Gupta, Joint Managing Director; and Mr. Rakesh Mehrotra, Chief Financial Officer.I would now like to hand over the call to the members of the management to take this forward. Thank you, and over to you, sirs.
Good evening, ladies and gentleman. Welcome to KRBL Limited's Q4 FY '19 and FY '19 Earnings Conference call. Thank you, ICICI Securities for organizing this call today.Our investor presentation is available on the stock exchanges and website following [indiscernible].Now I'm talking about the performance of the first quarter first. Revenue from the operations is at INR 1,196 crore, an increase of 36.6% as compared to same period last year. EBITDA, we earned an EBITDA at INR 232 crore as compared to INR 210 crore for the same period last year. This is an increase of 10.5% in absolute numbers. [ Repeating ] for the quarter ended -- quarter stood at INR 196 crore as compared to INR 162 crore for the same period last year, an increase of 21.6%. PAT for the quarter stood at INR 137 crore as compared to INR 96 crore for the same period last year, an increase of 42.4% year-on-year.Moving to performance for the full year 2019. We reported the highest-ever revenue from operations, which is at INR 4,120 crore, an increase of 27% as compared to same period last year. EBITDA, we have seen all-time high EBITDA of INR 865 crore as compared to the INR 819 crore for the same period last year. We achieved PBT of INR 733 crore as compared to INR 682 crore for the same period last year. This is increase of 7.5%. PAT are 200 -- INR 503 crore as compared to INR 462 crore as compared to same period last year. This is an increase of 9%.Our company has very limited work for long-term loan. Most of our debt is in the form of working capital loan. Working capital just starts rising from -- with the commencement of procurement of any -- at the beginning of quarter 3 every year in the company, insignificantly low by end of Q2 in the next period of the year. This is the cycle which results in 0 debt by September every year for the company.Our peak borrowing was in the range of INR 1,600 crore, which is already down to INR 940 crore as on date and may come down to be 0 by September 2019.Because of our strong balance sheet and our cost of borrowing is low as an industry and it's lower by, I think, 150 to 200 basis points as compared to the market, we are pleased to inform that Board of Directors have recommended a dividend at the rate of 250% for the year ended on the basis of the robust financial performance of the company.With this, I hand over the floor to our [Foreign Language] Anoop Kumar Gupta for his comments on reaction on the market.
Thank you, Mehrotra. Good evening to everybody. On the macro environment, demand for rice remains strong in India. Overall, the company has achieved a 13% year-on-year volume growth on the back of our strong focus on branding, customer engagement and wide distribution network. We aim to grow at 15% in the domestic market. Our exports, as a percentage of revenue, are at 45% as compared to 40% in the same period last year. We remain aggressive in terms of our strategy on increasing volumes in both the domestic and export market. We have spent around 3% of sales on the [ achievement ] and promotional expenses for the year. Moving on to realizations. For the full year, realization per metric tonne was 8%, up year-on-year. This strong realization per metric tonne was the result of factors such as superior product mix, which comprised of high-end brands, a rise in the USD rate and an increase in the prices in the export market.We have the capacity to mill around 1.2 million tonnes of paddy. We believe that we are adequately stronger in terms of capacity.Gross profit range. Our inventory cost is lower compared to the industry. This is because of our contract farming operations. Financially, the company is really strong, and the company's procurement process is very robust as compared to previous. We have strong distributor network across India, with 484 distributors from Kashmir to Kanyakumari, and we believe that we have covered the entire country more or less in this.On the income tax demand raised a few months ago, we are engaged with the department and we are confident of this demand that is scrapped as it is erroneous and without any breaches. [ Approved ], that is post-March 2019, we have paid INR 75 crore towards that income tax demand notice.I would like to reiterate our market share expectation of 45% in the domestic market in the next 4, 5 years. Currently, we have the market share of 35%.On revenue, our expectation is to grow the top line to INR 7,000 crores to INR 8,000 crores in the next 4, 5 years.With this, I would like to hand over the mic to Mr. Anil Mittal, our CMD.
Good evening to everybody and to the investors who are listening to the call. This year has been a robust year as far as basmati rice industry is concerned because if you look at the numbers in 2000, 18 years back, India used to export around 500,000 tonnes of rice and 200,000 tonnes of [ Indian seed ]. Total was 700,000 tonnes. And today, it is at 6.4 million, 6.5 million tonnes. So you can see in last 17, 18 years, the growth has been marvelous.This year, we have exported around -- India has exported around 4.4 million tonnes of basmati rice and 2.2 million tonnes domestic. So total is about 6.6 million tonnes. And in spite of disturbances into the Middle East, there has been a segmented growth in Middle East. For example, Yemen, last year, 2017, '18 exported around 160,00 tonnes. And this year, 2018, '19, there is 208,000 tonnes. Similarly, Saudi Arabia, last year, it was 813,000 tonnes in '17, '18. And this year in '18, '19, it is 911,000 tonnes. Iraq has been little slow because of the payment problem. Otherwise, Iraq is a market of around 450,000 tonnes, 400,00 tonnes. Last year also, it went around 340,000 tonnes, and this year, it has been 317,000 tons. So there is a shortfall of about 33,000 tonnes, which is not that big. I think though in April, May it miscovered because of a ramadan season. Yet now there are 2 countries, which are the countries of concern for the basmati rice industry. First, I will -- before I come to Iran, I would like to discuss about the European market. European market in 2017, '18, the total rice exported to Europe was 4.18 -- 418,000 tonnes. This year, it is 238,000 tonnes. When we talk of Europe, actually, these numbers are comprising of 2 season -- pricing seasons. Because normally, the season is from October from April to March. Now what happens when we quote the figures of April to March to Europe, it means one is a season from April to September and the other is October to March. So the 2-year season comes into it. Now when it comes to 238,000 tons, this is also a very big question now because [ best to find ] residue compare the materials. Once the figures are showing 238,000 tonnes, we, being the largest contract farmer in the country, you will be surprised to know that out of 150,000 tonnes, we could only gather around 30,000, 35,000 tonnes of bag-to-bag comprised material. So we are ourselves confused that how this 238,000 tonnes figure has been exported that to specified comprise number.Here, we have used to export around 40,000 tonnes to European continent, which has come down to 2,000 tonnes. This is about Europe, and we will then discuss more on Europe during question-and-answer time. Now as far as Iran is concerned, the sanctions that UN applied to the import of crude from Iran, but not to the export of essential commodity like food product, medicine, et cetera, which includes basmati rice. Thus, basmati rice exports to Iran continue and there has not been any official notification. This aligns the same. Another indication that the discontinuation of waiver on May 5, 2019 has not impacted basmati rice is that the basmati rice prices have remained firm and, in fact, increased. Most the imposition of the U.S. sanction in November 2018, the rupee payment mechanism was introduced, enabling trade between India and Iran, given that India import a food from Iran thus far has been significantly higher than its export to Iran. There is still a sizable surplus of funds available in the escrow account of UCO bank. The management understands that the surplus funds are to the tune of between $6 billion and $6.5 billion, which would be sufficient to pay the Indian -- to India export to Iran for 1.5 years to 2 years. Hence, basmati rice export to Iran are expected to continue even now orders are slowing.In the past, KRBL had limited exposure to Iran. Some fears were made in FY 2019, but this was only for government tenders, which are back by LT. Payment was the same as being received smoothly. Thus, there is no adverse impact of waiver removal on KRBL. Iran typically imposes a ban on basmati rice imports from July to September every year to safeguard its own crop. However, in the current fiscal, the crop has been impacted due to floods in April in Iran. Depending on the extent of crop loss and stock levels, imports from Iran may not decline substantially into -- in financial year 2020.Despite comparatively high level of imports done in 2019, and there has been a record import by Iran directly from India to the tune of 1.42 million tonnes. And if Iran used to always import around 1 million , 1.1 million, but this year, they have done -- they exceeded by around 300,000 tonnes, 350,000 tonnes.If for some reason export of basmati rice to Iran was to stop, it is likely to have an adverse impact on the industry given the importance of Iran as the leading importer. However, alternate channels are always open for Iran, which may be exports, such as routing the export through Iraq or through Dubai. But instead of 1.4 million, it could be 900,000, 800,000. But Iran today cannot afford to stop imports of Indian basmati rice because it is just different routes. While it is early to comment on the price, that is what we have tried to say about the Iran and Europe. Now you can continue with your question and answers.
Thank you, sir. Sir, shall we begin the question-and-answer session?
Yes, you can go ahead.
[Operator Instructions] We have a first question from the line of Amit Doshi from Care Portfolio Managers.
Sir, from weeks back, we read about this order from that [ alone ] authority about the application of GI tag being restricted only to specific regions. So can you slightly explain how that it is likely to affect us or basmati rice industry in general also?
See, on GI front, the case is a still pending with -- in the Madras High Court, and I think so after the election it will come up maybe in June or July. But it has been pending for last -- more than now 2 years. We have won this case from the GI authorities, but it is -- but more it's your -- MP government has already gone into appeal and we are likely to go into appeal [ likely ]. But there has been 1 application from MP government about the production of seed of basmati rice in the non-G.I.-compliant areas. For that, court has recently dismissed the application of appeal of government of India saying that the constitution doesn't allow them to create a definition of basmati rice by the Ministry of Agriculture. It has to have a different rule. Under that intention, it was withdrawn. And I think so the government is working to come out with a legislation and an act to confirm that the seeds are also going to be grown only in the GI area.
Okay, okay, okay. Sir, on the Iran side, you mentioned that the prices were not only firm, there were increase in price. So what do you think the reason considering the issues that are already prevailing or are under discussion? And second, with respect to Iran, last year because of the flood issue, they had themself crop was impacted and, therefore, they couldn't imported more. So last year, which we speak about the delivery record exports done to Iran or record export by the company itself. Could we consider it as an aberration? Or this is likely to repeat in future as well?
So let me clarify one thing. The floods have come this year only, not -- it is not last year, number one. In April 2019. See, let me tell you the total consumption of Iran for rice is around 3.2 million tonnes. That is the requirement. They used to grow about 1.8 million, 1.9 million and 1.3 million tonnes used to be the total imports from Iran, out of which they used to import part from Thailand, part from Uruguay, part from Vietnam, and basmati rice from India and maybe 100,000, 150,000 tonnes from Pakistan. What has happened, now Pakistan has been the problem because of domestic -- because of the euro mechanism or dollar mechanism. This rupee mechanism, our government was smart enough to sign the agreement within November/December. Now they don't have the payment to wait, not because they don't have the payment, they don't have the mechanism to pay.So their pressure of buying basmati rice is totally on India, and that is why instead of 1 million tonnes, they have imported 1.4 million tonnes. And I think so the way exports are going to Iran, it will have a new history and a new record. This is what is the position of Iran today. Because they have a couple of money lines with India around $6.5 billion. This is the position.
Okay, okay, okay. And sir, there has been a significant jump in our inventory of about 30%. So can you -- the reason is some prices or volume? Or if you can throw some light on that, 30% in terms -- in relative...
I think that this price will be given by Anoop, our CMD.
You see, when we our talking about top line of more than INR 4,000 crore this year, we are expecting another jump of 10%, 15%. You have to have inventory. In basmati rice business, inventory is the main thing. The more the inventory, the better it is. And we have a record-breaking inventory. And last 12 months, the market is up by 10% to 15%. This is the total gain to [ KR ] every year. Consciously, we have a huge inventory, how can we do exports and domestic sales? The more the inventory, it is better for KRBL.
Okay, okay, okay. Sir, the realizations are improved compared to year-on-year, but our margins have been slightly impacted. Can you share some reason for the same?
See, when we are on a 17% more volumes and about 70,000 tonnes have been sold more this year than previous year, naturally, there's a pressure on price. And the price pressure we take on during lot of promotions to the consumer, lot of discounts to the distributors. So this has made some pressure on the EBITDA. But overall, 20% on the commodity of basmati rice having EBITDA of 20% is fantastic. 22% is the EBITDA last year, it was exceptional EBITDA. But in absolute terms, we are -- yes, definitely in absolute terms, that was the EBITDA.
Right, right, right. And sir, in terms of this pesticide issue, it was the understanding from us that -- because there was Saudi Arabia was also going to follow the European norm. Any development on that? Or was that just discussions? Or we should ignore that?
No, let me tell you, like Iran, Saudi, is their staple food is basmati rice. Right from the breakfast to lunch to dinner, they consume basmati rice. The consumption of bread is less compared to basmati rice, and hence, they have to be cautious that if they impose certain regulations like what USA and Europe has put, they can reach a difficulty. That's number one. Number two, according to this pesticide residue matter is nothing but it is NTB. It is nothing but NTB. And we told very categorically and we told them one thing more that is the rice -- basmati were soaked in the water and cooked, if you test the cooked rice, it will have 0 pesticides, whether it is 100 pesticides or 150 pesticides. It is not ingrained inside the rice, which is consumed by the inventory. And hence, this explanation was well accepted by the Saudis last year. And from last year to this year, they have made certain regulations that you should get them inspected and this should be the level, and the business is going more smoothly up to now. So there is no problem, and it could continue like that only.
Right, right, right. Any launch in domestic market? New products or anything, basmati, non-basmati segment?
Yes, we have recently launched with quinoa for South India. Because South India is a big market for quinoa so we have launched a consumer [indiscernible] And we are expecting good results.
So this 35% to 45% market share that we target to achieve, that then -- that additional, from where do we -- from the basmati rice itself or some new launches? Or how the product mix we aim at?
No, mainly from basmati rice only. But I tell you, recently in last 2 years, when the GST was imposed, there weren't [indiscernible] branch in the market. Only India Gate, Daawat, a little bit of Bhavani. I mean all the other 20 brands have vanished from the market because of GST. So I think the market penetration, number one, because of the market retail sales outlook; number two, because of the biryani culture; and number three, income levels are going up. There are more and more basmati packet. Basmati is going to be up.
Okay, okay, okay. Now this is the last question. On the income tax side, although you mentioned everything, on an average, monthly we are likely to pay INR 12 crore per month to the government. So basically, by next year, we'll be actually paying the INR 250 crores of whatever that is supposed to be paid. How realistic do you feel considering the amounts involved? Is that our hearings would get completed prior to this year?
No, the final days of hearing is from 3rd June to 7th June. We have given -- we have deposited all the documents. Everything has been completed. Now the final hearing date has been switched continuously from 3 June to 7 June. As on 7 June, we have...
Okay, okay. So the final hearing is going to happen?
Yes.
Okay, okay, okay. Great, sir, great. All the best, sir. Thank you so much. And if Mehrotra can separately share those inventory data, either or separately email or on the call as may be convenient.
Okay. You can write to me as well.
[Operator Instructions] We have next question from the line of Varun Goenka from Reliance Mutual Fund.
Very, very good set of numbers coming in the last 2, 3 years, sir. Just a few questions like around exports. One, by when is this Iran issue likely to get resolved? And if we have any -- we were trying several other countries. So how is the response beyond the Middle East, volume and value growth, sir?
Yes, as far Iran is concerned, today, only there was in the news that Trump has suffered down and he has come on the regulatory talk agreement with Iran. To what extent they will be successful and what they're going to happen, it is difficult to say because these are all political issue. And the picture on political issues can go haywire. But one thing is very clear I told you during my presentation also that any types of sanction will not affect food items and medicines. And you are well aware that even the biggest sanction is put on North Korea on Mr. Kim. Still, the food and medicines are still going to that country, so this is not going to stop yet. One problem can arise that also after 1.5 to 2 years when the surplus of $6 billion, which UCO bank has in escrow account, when it finishes -- and during 1.5 year, if nothing is settled with America, then after 1.5 to 2 years, we come to square one. So as far as 2 years are concerned basmati rice is going to be exported and it could be imported by Iranian and we have no problem and money is already with us. You can collect -- the money is not in advance of the exporters, but money has come in advance with the UCO.
Right. So energy exports, excluding Iran, how is that doing? Even Saudi Arabia, oil exports have collapsed. So has that caused an issue there also?
No, no, there is no issue in Saudi because last year, we exported Saudi 813,000 tonnes. And this year, up to March 2019, it was 911,000 tonnes. So it has been -- see, as far as basmati export and domestic is concerned, it has been a robust year. There is no doubt about this. So what had happened, Varun, I was recently about a week or 10 days back in Iraq -- in Doha, sorry, Qatar. And I had called my team from Dubai who would look after the sales and all. I was surprised when they told me that out of about INR 50 crores to various people, only INR 5 crores are expected because our prices are $80, $90 higher than the peers. Now I was little bit confused. I said we are already doing such a big business. Why is the competition is there with these only parties? So the biggest problem in India is that people are underquoting and taking the business. And for that, I give you a very good example. I think everybody must be listening. There is a buyer from Iran. There's very big buyers in Iran, and they tend to import about 250,000 to 300,000 tonnes of basmati rice, and they have taken the share of a company called [ Wasib ]. And they came to us to our office 3, 4 times. I met them in -- Dubai does food fair also. They say, if KRBL is ready to supply us 200,000 tonnes to 300,000 tonnes of basmati rice, we undertake that we will not import rice from anybody else. We were happy. We said it will take us 1 year to create an extra infrastructure, and we can do 300,000 tonnes and not that quantity, which is -- which cannot be handled. And when it came to the prices, they're talking of profit of margin of 3%, 2%, 3%. Now we are not brokers that we start working on 2% or 3%. You got my point? So see, we are a different type of a company. We are from the branded side, and we cannot go for 5%, 2% and 3% margins.
Just to a high-level point, in India, almost [indiscernible] price import there annually [indiscernible]. So our margin and our quality and our payment terms really next 4, 5 years [Foreign Language] ?
[indiscernible] also. CFO is also there. Principally, KRBL at any cost, the market may be anything. We will not give any goods on credit. Whatever business we do with Iran is completely on LC. Whatever we do business worldwide, it is on that. Only one party we are given little bit of deal. That is to Saudi Arabia. That also we have decided that after October, November, we might stop that. That is one party because we have a 35-year-old relationship and they wanted some credit from us, and so we provided them the credit, to be very frank. Otherwise, if there is [indiscernible] on LC or CAB-backed cash against document, we don't give credit at all. That is also one reason. Otherwise, let me tell you, Varun. Iraq is a market of 400,000 tonnes. Last year also, it went 340,000 tonnes because there is a payment constraint, and direct LCs are not accepted. They are routed by Dubai UAE or some country. Now 70% or 60% of the goods sold to Iraq is on credit. So we are not ready. See, I can get 20,000, 30,000 tonnes, 40,000 tonnes business from Iraq also. But KRBL does not give credit. Whatever may be the margin, credit is the first constraint with KRBL.
No, that's really -- has worked well for us, sir, so that is good dealing. So on the domestic business, I wanted to ask Anoop G. This year has been very, very good. Volume growth, almost [indiscernible] percent. And 2017, due to GST confusion, I think, our volumes have gone down. Sir, your [indiscernible] what is the scalability up here? Is this 12%, 15% volume growth that will continue?
Yes, we are definitely thinking of a 15% growth in the domestic market. I tell you one thing is very clear, a lot of biryani culture has come in South India. Not only in South India, all of India. And our -- I should not depend only on India-made brand. Today, our Unity brand, which had also crossed the INR 500 crore mark this year. So Unity, we are expecting in the next 5 years to be a INR 1,500 crore brand.
Great. And [ did I understand ] you were saying Classic is increasingly now getting acceptance?
Yes, Classic is increasing from last year. We had an increase of about 30% this year. And I am expecting a further 30% increase this year because our concentration and advertisement and our sales team is working very hard on the placement of Classic.
So actually, then margins should have probably held down to the 20-odd percent, right? I mean because our brands is growing. Classic as a proportion is growing. So margins are looking lower just because of the Iran business? Or is it that for volumes, we have, okay, let go of 100, 200 basis points?
Yes, it is because of Iran business also and a little bit of volume also. But I tell you 20, 21 years of baseline for KRBL. I don't think we'll go beyond this.
Okay. And the last 2 things I wanted to ask. If this Iran thing does not get solved, then will that lead to the basmati price correcting or something?
Iran, there is no problem at all. It is already solved. You see in the last 1 month, the market has jumped back by 15%. I would like to tell about this thing. So I think the media is not reporting it right.
Varun, let me tell you [Foreign Language] Let me tell you that they have no alternative [Foreign Language] . Whether it's a poor man or whether it's a rich man. Otherwise, no [Foreign Language] there is going to be no problem. I told you, we have a reserve of about $6 billion. So there is no difference to 2 being from India, one is medicine, another is basmati rice. [Foreign Language] because let us presume [ the other ]have problem. Then there are 2 borders from where the smuggling will start like anything. The first border is Dubai, the second border is [ from Paribas ] is north [ Paribas ]. [indiscernible] . And the third is Chabahar. So maybe instead of 1.4 million tonnes, they might be able to smuggle 900,000, 800,000 tonnes, but I think [ export ] to Iran has now stopped. That's fundamentally correct.
Okay. I get it, sir. And just a final question [indiscernible] I see receivables have increased from INR 250 crores to INR 400 crores. Yet I mean could power receivables be[ had here ] ? Have the state governments been...
About INR 50 crore is power, is stable. And I tell you, 1 payment of INR 150 crore we have received on 5th of April. So that was our only reason.
Okay. Okay. But these are receivables from our regular business only, not from the power side, yes?
You'll see INR 150 crore was from Iran business, which we received on 5th of April.
Great, great. So by September end, sir, approximately how much would our inventory be liquidated? Just to get a sense of the whole cycle. We haven't...
I personally feel this time we'll generally do our bank borrowing 0 by September, but I feel that we will we doing 0 by July or August for our bank borrowing. So our bank borrowing would be 0. And the bank borrowing is about INR 1,300 crore and the inventory is INR 3,100 crore. So I think by other spend, our inventory should be around INR 1,800 crores.
Okay. Great. Yes. Just wanted to congratulate the promoter family, sir. Even in this trying time, the business has been managed very, very well.
Thank you, Varun.
[Operator Instructions] We have a next question from the line of Punit Mittal from Global Core Capital.
Congratulations on the set of results. I have 3 questions. One is, can you tell us what the proportion of non-rice in your revenue and how do you see the future of non-rice business? I mean when I say non-rice, I mean non-basmati rice.
Non-rice means all the by-products of rice also.
No, no. Is talking non-basmati rice.
Non-basmati rice in India, INR 61 crore is non-basmati rice of the total sale of about INR 4,000 crore. Total rice sale is INR 3,791 crore, out of that, non-basmati rice INR 61 crore.
And the rest about INR 200 crore and INR 250-odd crore is the -- from power?
INR 128 crore from power, and the rest is from [indiscernible ] rice bran, rice and oil, seed, furfural, quinoa, de-oiled cakes, these kind of things and the [indiscernible] .
Okay. Okay. And the second question, I think historically, we have spoken about inorganic growth and that's why we are holding onto some buybacks and other things. Given the intrinsic value, like say given how robust the business is going to be [indiscernible] . And the market valuation is much below the intrinsic value of the business in the company. So what is the management thought around that? I mean given the timing is good for something like our buyback?
You see buyback, we want to have a debt-free company. Actually, debt now lets us sometimes play quite smart, and we don't want to have in that purchase and we want to have 1-day maximum debt we should borrow for 2, 3 months or 4 months. So at the moment, we are not thinking of any buyback.
Okay. Okay. And the last question is, I think, I'm taking -- I'm extending the question from the previous caller where he was asking -- so today, our exports are about 218,000 -- about INR 1,800 crores, right? And given our prices, given our terms, our [ service ] terms, this and that you mentioned, which are upside strong in the results, how do you see scaling the exports business up in next 2, 3, 4 years? Where do you think where we can be in the next 3 to 4 years?
Let me tell you first of all, today 80% of basmati export is into 45% to 50% Middle East -- 48%, 47% Middle East and 33% Iran. So this is 80% today is to Middle East, which includes Iraq also. So this is the market. Now 20% is rest of the world. We were quite hopeful and our government, even our prime minister -- for the first time, normally in last 30, 40 years, I've never seen prime minister indulging into basmati rice. But this was the first time that Mr. Modi indulge himself into 2 places, 1 with the European -- with the prime minister of the European Union, requesting him to defer this pesticide issue for 2 or 3 years. And he has been really reasonable and [indiscernible] , but the ministry and everybody have been begging to China to import basmati rice. But they are so -- what is the word, I cannot use that [ key ] word. Also they are so crooks that they do not import, they are not interested to import basmati rice. But we are trying -- African continent is becoming promising. Five years back, for example, we used to sell 2 containers to Ghana, 3 containers to Nigeria. Now these are countries have started buying 5,000 tonnes, 5,000 tonnes, 6,000 tonnes, 6,000 tonnes, each country into the African continent. Then the consumption we are trying to drum up the market in the South American market, including Brazil and all of these areas. So we are developing the market, and we were quite hopeful that Europe one day will become 0.5 million tonne market for India. But on the contrary to pesticides, it has been also a very big setback. But let me tell you one thing, I feel one thing that is in my mind, though Anoop has said today, that I am seeing a very huge market, domestic market for basmati rice in next 5, 7 years. See, we grow about 100 million tonnes of rice and basmati is just 2 million tonnes. In that 2 million tonnes also, 60% is broken rice and [ pita ] . And 40% is that rice is 800,000, 900,000 tonnes. So for a country of INR 165 crores, you can imagine the growth is enormous. The growth is enormous. I always tell Anoop, he consequently tells to everybody, 10%, 5%. But I tell you, I feel that growth should come more as far as basmati consumption is concerned in this country. This is my personal idea.
I agree and I think that makes a lot of sense. So I mean I know you have -- you are expecting for next year around [ 83% of line EBITDA ] and around 20%, 21% EBITDA margin. And let's say, everybody stays of -- the prices stay there for next year. On the domestic side, I mean, just out of curiosity, who is the next best player in this basmati apart from us?
Today, expert news and data, that would be [ Timbuktu ] [indiscernible] .
We have next question from the line of Manish Bhandari from Vallum Capital Advisors.
My question is regarding on the opening remarks you mentioned about the new product line on Italy. So if you could share some details that what -- how we are trying to position and what is the market opportunity for us in this space. And then I have a few more questions.
We have started -- we have tied up with a manufacturer in [ Karnataka ] and we'll be backing India Gate in quinoa. And now at the moment, we'll we marketing only 1kg consumer pack. And at the moment, we're calculating about 500 tonnes.
Is it going to get sold through the India Gate distribution channel? And why only South and why -- are you trying to grow prototypes now?
No, no. I said South is the main market , but definitely in Delhi, the consumption is about 200 tonnes a month. I'll be the king in North India. South India, I have a lot of competition with others. But North India, West India, I'll be marketing maximum. I'm expecting a sale of around 600, 700 tonnes a month to start with.
Sure. So are there going to be different gradations that you have on India Gate Classic, Italy and then some other variants also in this process?
I couldn't follow what you said.
You mean to say there are only one brand, India Gate Classic, or you mean to say India Gate Classic is going to be the brand for this?
No, no, no. It is India Gate, it is. However, in India Gate we have got 23 million. That is of basmati rice. We have got in non-basmati rice, we also have India Gate Kolam Rice, India Gate Jeera Rice, India Gate [ in quinoa ], India Gate Sona Masoori Rice. In basmati, we have India Gate Classic, India Gate Super. There are a lot of -- 18, 19 variants in India Gate.
That's what I wanted to ask, if you were going to have a premium and then below premium category or just one category in this.
In the quinoa? In quinoa only 1 category, which is the best quality, best possible quality. Because our thing is to get the best to the customer. Maybe it is 2 rupees higher or whatever it is.
Sure. My second question Anoop, is regarding the regional rice, which you spoke last time and you had some targets in your mind in terms of the kind of volume, which could be done. So are we on track on that regional rice and what kind of business traction we should see in next 2 years?
Yes, we are marketing India Gate Jeera Rice. It is actually the branding we are procuring from West Bengal. And the logistic cost getting the product transported to North India, then milling and transporting it to South India, there is a difference of around 300 -- 3,000 rupees a tonne to 4,000 rupees a tonne, which is creating a little bit of problem. Otherwise, we have reached to a level of around 10,000 tonnes per annum. And that, too, in a consumer pack.
So is it only just on West Bengal? Or you could have this regional rice for many other regions? Maybe something else would be...
No. West Bengal what I am talking is Kolam gold rice, which I'm marketing as Jeera Rice. We are also marketing India Gate Kolam Rice. This strategy has enabled in Maharashtra. And one is India Gate Sona Masoori Rice, this particularly we're procuring from Behar and borders of Karnataka.So we are having 3 varieties of non-basmati rice. But we are on a premium segment. You see this variety of rice is a huge, huge market in India. People are selling it at a margin of even 0.5%. I tell you, [ Patra India ] is working on 0.5% on these varieties. I am just selling my consumer brands with a comfortable margin.
Sure. I get your point. My other question was regarding the quinoa, which you didn't met with enough success, but there is a market, which exists in India. So have you changed the strategy and is there anything, ray of hope which you are thinking on the quinoa? And anything changed, which you need to do on the strategy side to make the concessions back?
So let me tell you, quinoa, see, whenever you are going for a new product, you make certain mistakes. So we made little mistakes and we realized later on after marketing the product. In exports also, we were expecting, however all our distributors worldwide were eager but how it comes into India, need quinoa. And we were thinking it will be easier for us to sell 200, 300, 400 tonnes a month and 100 tonne minimum a month into the domestic market and all. When we went into that big game, we found out that the market in India is small. Number two, our quality, which we grew under the contract farming was not to the level of the [ UVR ], which is thick and white. So this year, we have -- we did lots of labor into contract farming. We recruit the material also at many places and we have got 100 tonnes of quinoa, which we are going to make either flour or something, quinoa flour or something out of that. And we're going to market now it is -- it should be already in the market. The better quality of quinoa, which can be compared to any quinoa in the world.So now we think the real part of quinoa will be from this year -- this time onwards -- this year onwards.
Sure. Sir, my last question. Regarding the statement you've been making for quite some time regarding the market share gain from 32% to 45% in next 4 or 5 years as our wish list. And in that context, if I see the domestic growth rate for us may be, what, 7% or 8%. So does that mean -- and if you are gaining market share, does that mean that the domestic market is growing at 2% or 3% on the basmati rice side? Or if you could throw some light like that how you are working on this math around.
No. As for the latest [ the significant ] they are the package price packet, which includes non-basmati also. Today, it is $3.6 million, and as for the [ Nielson ] they say, in next 5 years, it could be $7.5 million. So he's talking of doubling the market in next 5 years. So I'm also expecting doubling my market quantities. But share, if you talk of the share, definitely in the branded segment today, I feel that I don't have much competition. And to take, I think -- I don't have the latest data, which in this and -- but I think this year FY '19, my share would have been increased by 3% minimum. Last year, it was 35%, this year I don't have the data right now. I will have it next 15 days. My share should be 38%. Reaching 45%. Our ambition of 45% is not that far.
We have next question from the line of Varun Goenka from Reliance Mutual Fund.
Just one question on the point that you made that you want to decrease the leverage to 0. But our ROEs today are probably depressed if you use only equity. And sir, to get to INR 7,000, INR 8,000 crores turnover as you are saying in 4, 5 years, so are we looking at doing it purely from equity? My question is what is the right leverage? To do it right...
You see as the temporary being -- and the temporary that was shared in the share market, the atmosphere in the banking circle, they are too much against the debt. Any company who have got a more debt has been discounted. So I want the debt to be very, very limited and the dependency on the banks should be minimum. And this is temporary for a year or so. I'm not talking longer term.
We have the last question from the line of Yashpal Madan from MainStream Consulting.
Sir, what is the status of AgustaWestland case? Is that -- any still hearing or that's closed forever?
You see, AgustaWestland case, our buyers so many bulk shares are involved. And you see they have won in the High Court,] [ AD ] went to the double bench, [ Vultura ] won in the double bench. Then there was a case in the tribunal. The order is likely to come in next 10, 15 days. And it is going to be in favor of [ Vultura ]. And AgustaWestland case, I tell so many times, here we have nothing to do. Yes, definitely our buyers were involved, KRBL shares of my buyers moderately went up or freezed. To that extent, KRBL was involved.
Okay. And the independent director who was there, I think he has become a approval. So after that, has there been any further hear -- or did they call you for a hearing or any discussions with them?
No, Mr. [ Gautam Khaitan ] was just [ simple], independent director from [ '07 to '13 ]. He becomes the approval also then, what does it matters to me and does it have any meaning to me? They have called us for certain documents related to [ Vultura ] pulling, and we have submitted that.
Okay. As such, there is no fear factor from the -- this case?
As far as KRBL is concerned, there is no fear factor.
Okay. Answer no. Mr. Mehrotra what is the average inventory cost as of now on the books?
The inventory is -- the inventory cost of [ KRB ] is 33,671 rupees per metric tonne.
33,600?
Yes.
Okay. And rice?
And rice is 49,401 rupees per metric tonne.
We have next question from the line of Chintan Desai from Param Capital.
Sir, I missed your comments on the Europe market. Can you just brief me through on the Europe market, what's happening there?
See, Europe is -- was a market for unmilled basmati rice to the tune of 400,000 tones. Because in 2017, '18, we exported around 418,000 tonnes to Europe. And that export has come down now to 238,000 tonnes because of the pesticide, that's a big issue.Now there are about 20, 25 pesticides where the tolerance limit has come down to 0.001. And for that the compliance material is not available with the Indian market because for last 20, 30 years, there has been practices of growing rice in a certain manner. Most of the farmer are poor and managing a 2 acre, 3 acre, is not educated to that level. And there are many groups also in India selling them [indiscernible] medicals to make money because they are not educated. And so these are the few reasons that we are not able to -- in last 2 years of hard working by the trade, and with the trade, I mean, even government of India will have [ treat the wounds ] of our monitoring agency, also helped us in March in organizing [ melas ] and everything. This year, we are expecting that at least 20%, 30% of the crops are equivalent to what we export to Europe 250,000 or 300,000 tonne. We might get percent compliant material. But let me tell you, Europe to the Ministry of Commerce and Europe to us is a matter of concern for 2 reasons. Is the quantities 350,000, 400,000 is not small. And second, it has always been to everybody a prestigious market because telling that we are exporting to France or this, here or there. But one thing that happened that we had quite good orders of white rice in our own brand, called India Gate Classic, and other brands. That, whatever we have compliant material that we are sending, we already exported about 3,000 tonnes to Europe.
Okay. Okay. And sir, my second question is on the domestic market. In terms of pricing, what would be a pricing differential as compared to the second number player?
You see, if you talk of the -- you see that. We did that already. Also you see that we did [indiscernible] . You see the differential.
We have next question from the line of [ Bertram Buckner ] from Sunidhi Securities.
Congratulations, sir. Good set of numbers. Sir, sorry, I joined a little late. So I'm sorry if the question is repetitive. So what was the total growth of the production during this season for the basmati rice? And how much that we have procured and what is the average price for the procurement in this season?
We have procured almost 7 lakh metrics tone of paddy, which is opposed to the 10% because this is [indiscernible] -- only 8% [indiscernible]
7 lakh and at 8%?
Yes.
Okay. And what is the average procurement price for this season?
Our average procurement price is [ 32,600 ] sir, but they won 600 metric tonne.
Okay. 32,000 rupees. And sir, the next question is what is the status of that one case, which was going on with income tax department? There was some demand that they have raised. And in last con call, you just talked about that, that we'll appeal to that. So what is the current status of that?
Since you joined late, I've already told. They waived the demand of INR 1,200 crore when we appealed to CID. And all the documents, everything has been submitted to CID appeals. And the final date of hearing is 3 June to 7 June 2019. Until 31 March, we have [ bridged ] INR 75 crore rupees against the demand. And in April also, we have [ baked ] INR 30 crore rupees. In May also, we will paying INR [ 30 ] crore rupees. And most hopefully in June, we have not to pay anything, by 7 June, we should get the relief.
Okay. And you expect that order to be in your favor for the reasons, which you cited in the last con call?
Definitely, yes.
We have the last question from the line of Mr. Manish Bhandari from Vallum Capital Advisors.
Sir, one thing on the competition intensity. [ Biryani ] have launched under Fortune brand. So would you have their market share? And are they the strategy and do they have any advantage in terms of procurement or how they are positioning this?
You see as per the missing data, the average share of 4%, 5%. But I tell you, going to the market, listening to the retailers, listening to my sales team, they are totally crop, I should use the word, as far as quality is concerned. Whatever they are selling, they are selling keg, 5 liters oil, keg -- 1kg of basmati rice free. You see there is big market of oil, and I think the 50% save is free.
So sir, this brings to another point, which you also, you were having discussions that how someone in Iran is quoting at 3% or 5% margin versus a normal industry margin. So finally, if one has to do an apple-to-apple comparison for 18-months aging product, what's another 18-month aging product? Is there any standardization, which a regulatory authority will say that both of them have got to do 18 months because you cannot easily mix a 16-months aging or 14-months aging? And are you will make -- you may mix 18 months aging with some portion of non-aged rice. So how do the consumer finally would get to the bottom of a situation where to apples-to-apples comparison regulatory, we would have a 18 months aging or whatever is claimed on the packaging side?
Previously, we could have said that consumer is uneducated or he doesn't know about it. I'll give you an example. If you grow in Saudi market, which is our biggest or go to Dubai market, the shelves are full of 50 brands or 60 brands. And on the shelves, the difference in price is maybe 60 rupees a kilo, converted. I'm telling the converted price difference.Now on the staple food, the shelf, the lady can buy that rice would be 60 rupees cheaper. In last 10 years, the housewife or the person who -- the consumer who is buying the rice from the shelf, he has tested all the rice to know which brands are good, which are eatable, which are good aroma, good taste. And after analyzing in last 10 years, now in last 4, 5 years, they have come to this conclusion that in India, there is only one company, KRBL Limited, only one brand, India Gate, which is the best both in taste, both in elongation, both in -- all in fluffiness, in all respects. So consumer is the actually -- the real teacher is the consumer and your repeated demands.
So you did not require any regulatory certification in the process?
I tell you my brother will tell you, there was a case -- they won the case that 2 years rights -- you took the case.
It was just somebody -- but actually somebody from the health who put up a case against us that they are quoting 2 years old rice, it is not. And I told them and quote with my books of account that I carry the inventory 2 years and actually, my rice is 2 years old. I tell you Manish, there is no barometer or there is no signs, which can prove that this rice is 2-year old, only the consumer when he cooks, he can make the difference. I tell you as far as you are talking about FSSAI. FSSAI is coming up very heavily on the basmati rice. Whatever now we're mixing, somebody is mixing 20%, 30%, 40%. Now if FSSAI is coming then you cannot mix more than 20%. And if you are mixing 20%, you have to write on the back that it is branded basmati rice. If you are writing the word basmati rice, that mixture cannot go beyond 5%. But these rules will be coming in another 6 months.
Sure. Sir, another question, which came in my mind, if the time permits, was also regarding the European issue, what you had -- that how you don't have or you have a limited pesticides residue paddy. Now I just reflect back, there's a lot of controversy, which happened on the origination of cotton. And now what has many of the companies have done is the certification of the origination and where you can track the whole packet from where it has been originated from all the [ antique ] point of view. So is there some technological advantage we could use in this whole process on terms of our procurement of paddy to the final consumer in terms of the whole chain and what would be the certification?
Yes. The government is desperate in going to the backward linkage, we call them a backward linkage, from the farm to the port. So right from which farmer you purchase, what was the date, what was the age it is, everything has to be recorded. And because we have a pending GI case in the court, with our -- and the Ministry of Commerce, they are trying their best, already they have started writing that how to backward link the basmati trade. And it is -- let me tell we have to watch like champagne in the GI area, then we have to backward link it over basmati rice also. It might take another 1 year or 1.5 years, but it will be backward linked to the farmers.
So have you made any technological advancement on that in the company irrespective of how government thinks? So there are technology available, which would do this because I see that happening in the bed sheet business?
No, no. I think that we have given those all and that's a choice. That's how operated and electronic-operated, on the spot market when our purchaser goes to buy the right name of the bag, how many bags, which farmer, which area. That has been transmitted to us. When it comes in the truck, we are also -- we're not 100%, I should say, but slowly, slowly, we are improvising and the time will come within 1 year we acquire the backward linkage will be there from which city, which part, which farmer and all and we can say that this 1 kilo rice will be from this farmer and this land.
Sure. Sir, my last question is regarding the portfolio of -- the energy portfolio, what we have in our balance sheet. So looking at the tax advantage what we have used in last few years, when do -- when is the time frame when it crosses where we can send this energy portfolio and we don't need to do any other changes in the taxation matter and overall balance sheet matter? Is there a possibility, which could release a lot of capital for us?
See, you'll see today, all the PPAs of the state governments have 20 years, 22 years, 25 years. And only 2, 3 years and some machines may have 5 years, 7 years or 8 years. The first one was 2006 that was 13-years and the last one was 2017, it is only 2 years. So I don't think as for the PPA rates, PPA rates are ranging from 4 rupees to 6 rupees and today, they are talking of 2 rupees, 2 rupees 10 paisa. You should talk of IRR today, it is more than 19%, 20%. There is no question of liquidating them. It will be scrapped after 22, 23 years. That's all.
And you don't see any risk of resetting of this PPA because some disputes have happened in some states, and I keep on hearing it's happening in sugar industry in UP, where the state government has...
See, there are certain disputes on PPA, which are 12 rupees, 13 rupees, 10 rupees. I am talking of PPAs of 4 rupees to 6 rupees and at that time wind power was also expensive. I mean it's a government contract, how can you cancel it? We'll go in the court.
Thank you. Ladies and gentleman, that was the last question. I now hand the conference over to the management for closing comments. Sir, over to you.
Thank you very much for participating in our conference.
Thank you very much, sir. On behalf of ICICI Securities Limited, that concludes this conference call. Thank you for joining with us. You may now disconnect your lines.
Thank you.
Thank you, sir.