KRBL Ltd
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NSE:KRBL
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Ladies and gentlemen, good day and welcome to KRBL Limited Q2 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, sir.
Hello, everyone. Thank you for joining us. Welcome to the Q2 FY '24 Earnings Conference Call for analysts and investors of KRBL Limited. Today, we have Mr. Anoop Kumar Gupta, Joint Managing Director; and Mr. Ayush Gupta, Head of Domestic Division, as key speakers on the call. To kick off the call, Mr. Anoop Kumar Gupta will provide updates on the business, industry and a overall clarity on behalf of Chairman and Managing Director, Anil Kumar Mittal. Following that, Ayush will delve into the perspectives of our domestic business. Finally, I will present the financial overview of the company for the second quarter Q2 and H1 of FY '23, '24.
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 the 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 Anoop ji to share his views.
Thank you, Ashish. Dear investors, good afternoon. The world rice production in marketing year '23, '24, despite El Nino condition is estimated at 518.14 million tonnes, which is higher by 0.87% against previous year. In spite of higher production, global rice prices continue to be high on account of El Nino threat. The situation is further escalated by geopolitical conditions around the world, which have raised good security concern for many rice importing countries.
Furthermore, the policy responses by many of the exporting countries, especially India, have not been favorable to the global scenario, which has led to further panic and uncertainty into the global trade. According to the latest FAO Rice Price Update report, the FAO or rice price index averaged 18.9 points in October '23, which is higher by 24% than its level a year ago.
Just to give perspective, Thailand's [indiscernible] local rice is today quoted at above $560 per tonne, which is up by about $149 per tonne from 1 year ago. The Government of India has extended its restriction on rice exports as part of its effort to prevent an increase in inflation. India banned the export of non-basmati white rice in July this year amid concerns of a decline in production as well as to lower domestic prices.
It is not known as to when the restriction will be eased out. According to some report, for the first time in 8 years, India's rice production is expected to fall this year. That is July '23 to June '24 by about 8% despite an increase in the area plant -- planted mainly due to uneven monsoon. India's rice production in the crop year '22, '23 is at around 135.75 million tonnes. The '23, '24 rice production is estimated to drop by 7% to 8% from the previous year.
The Government of India estimated that '23 higher rice production -- declined by about 4% to 106.3 million tonnes. The total production estimate will be released in February '24. Basmati production for the year '23, '24 is expected to be around 14.5 million tonnes of paddy as per the final satellite mapping report, which is about 8% to 9% higher than over to last year.
Despite the overall increase in rice production in the basmati segment, we have seen a general price increase of about 10% this year, which indicates growing demand of basmati globally, including in India. The government has imposed MEP on basmati rice at USD 1200 on 25th August, '23 and later revised it down to the USD 950 FOB effective 26th October '23 before the start of the new crop sales.
The current level of USD 950 is appropriate for export of basmati rice. KRBL continues to be unaffected by these developments as we are working with our own brands and our price realizations are much higher than the MEP levels discussed. Before the arrival of the new crop, we were of the firm belief that the prices will remain almost the same as that of last year due to higher production and lower exports to Iran due to payment issues.
But when the new crop prices opened were 10% higher and there was a buying demand from the millers, including exporters. The reason behind it was the sentiments that there is a global shortage of cereals due to El Nino and prices of all commodities will remain soft. It is still too difficult to predict the pricing behavior of the balance 60% crop, which is still to come, whether the price will go down or they will further firm up. KRBL has taken a position to divide this total purchase into 90 days and accordingly, our purchase department did a study on a day-to-day basis to avoid any shock of price increase or decrease.
To update you on Saudi Arabia, we are in the process of normalizing the distribution in Saudi. As I had mentioned in earlier calls, Saudi market is a INR 1,000 crore opportunity, of which we hope to attain up to INR 700 crore in the first year once both the retail and HoReCa distribution is stabilized. Our Iran business was impacted by the restriction on that country. We are trying to find solution and we are confident that we will be able to resolve this issue.
Iran is a big market and we cannot neglect this country. In the last 3 months, we were working quite hard to finalize a distributor in Iraq as well. But in the coming year, should see some positive developments in export to that country. Regarding our new expansion program, we have already acquired land in Karnataka and civil work has already started. We have already purchased land in Madhya Pradesh and other formalities are underway for us to start the civil construction.
As we have shared earlier, Kandla project has already been commissioned, has started. For any other clarification or information, we will be happy to discuss and elaborate during the Q&A session. Thank you.
Ayush, over to you now.
Good afternoon, ladies and gentlemen. It is with great pleasure that I present to you the results of our India business for the second quarter of the fiscal year 2024. Our unwavering commitment to excellence and our strategic acumen have borne fruit, propelling us to new heights in the market.
Let us commence with the highlights of our quarter 2 financial year '24 performance, where our revenue, excluding power increased to INR 940 crores. This represents a growth of 35% compared to the same period last year, underscoring the strength of our financial performance.
In the core facets of our operations, the basmati business registered a strong 26% growth in volume, under which the consumer pack business and bulk pack business experienced noteworthy growth rates of 13% and 52%, respectively. These double-digit growth figures affirm the robust expansion of our brand's retail presence across geographies.
Our market share in the traditional trade sector increased to 34.5%, a significant increase of 310 basis points compared to the previous year. Particularly noteworthy is our achievement of highest ever monthly market share of 35.9% in the month of September, giving us the confidence to aim higher and soon breach the 40% mark.
Modern trade continues to demonstrate robust performance, maintaining a strong position with a 33.5% market share in September 2023. Our moving annual total for September 2023 stands at a dominant 41.7%, reflecting a remarkable growth of 190 basis points. Our success can be attributed to the synergy of our 3 strategic pillars, each contributing significantly to our performance.
Household penetration levels of the India Gate brand are experiencing unprecedented growth with an 11% increase over MAT September '23, now reaching 11 million households. Our media outreach program operating at a dominant 57% share of [indiscernible], coupled with a strategic brand communication are key drivers behind this enhanced penetration.
Numeric distribution, a crucial element of our strategy, has reached an industry-leading 54.4%, marking a substantial growth of 650 basis points compared to the same period last year. Our carefully planned distribution expansion measures continue to strengthen our brand's foundation.
Simultaneously, as we expand our retail footprint and household penetration, we are diversifying our product portfolio. Our venture into regional rice products has been enthusiastically received by both retailers and consumers alike, resulting in a remarkable 105% increase in sales, reaching revenues of INR 55 crores in the quarter. While year-on-year growth appears high because of our small base in non-basmati, we believe we are merely scratching the surface with significant growth potential in this segment.
In conclusion, our India business demonstrates outstanding performance quarter after quarter, underscoring the effectiveness of our well-executed strategy. Our strategic pillars are guiding us towards a promising future and we eagerly anticipate to the journey ahead. We thank you for your continued trust in our company and we look forward to yet another quarter of sustained growth.
I will now hand over to our CFO, Ashish Jain for further updates.
Thank you, Ayush. I will now take you through the performance of the quarter and H1 ended 30th September '23. All figures mentioned by me will refer consolidated financials of KRBL Limited. Total income for the quarter stood at INR 1,246 crores, lower by 7% over the corresponding quarter last year. Other income in the quarter increased by 61% on account of mark-to-market investment gains and higher yield on investments.
Domestic revenue, excluding power, increased by 35% over the corresponding quarter last year to INR 940 crores. Year-on-year basmati sales increased by 35% in the domestic segment, driven by 26% growth in volume, which was at 117,000 MT and 7% growth in basmati realization. This was at INR 71,400 per tonne. On the export side, Q2 revenue of INR 235 crores which includes some one-offs declined by 60% over the corresponding quarter. Outlook for this segment has already been covered in commentary of Anoop ji.
Gross margin in the quarter was 29% and was affected by higher basmati unit costs and changes in product mix, primarily lower exports. EBITDA margin for the quarter was at 18.3% as against 22.8% in the corresponding quarter. EBITDA margin was marginally lower, primarily on account of trend in gross margin but partially benefited from lower trade on sales. Finance cost for the quarter was at INR 0.83 crores as against INR 1.5 crores on account of lower notional interest in [indiscernible].
PAT for the quarter was at INR 153 crores or 12.3% as against INR 213 crores or 15.9% in the corresponding quarter for the reasons that I have just explained. I will now share an analysis of Q2 versus Q1 of this year. Revenue from operations in Q2, as I mentioned, are at INR 1,213 crores as against INR 1,414 crores in the preceding quarter with domestic sales higher by around 11%, while export sales declined by 56%.
Domestic basmati volume is higher, vis-a-vis, the preceding quarter by around 10,000 MT due to higher bulk pack sales as well as consumer bag sales, while export basmati volume was lower by around 39,000 tonnes, largely because of no bulk basmati export in Q2. Q2 gross margin is steady at 29%. EBITDA margin declined by 107 basis points due to higher proportionate fixed costs.
Now I will discuss H1 '24 performance. Total income for the period stood at INR 2,687 crores, marking a growth of 4% against H1 FY '22. Gross profit of the company stood at 28.9%, while EBITDA and PAT margins stood at 18.8% and 12.9%, respectively. Margin dropped mainly due to higher input costs. Revenue from operations grew by 3%, led by domestic sales with year-on-year growth of 26%.
Moving onto balance sheet highlights. Total inventory as of September 30, 2023 was INR 2,703 crores, comprising INR 439 crores of paddy as against INR 160 crores in September '22 and INR 2,110 crores of rice as against approximately INR 1,751 crores in September '22. In volume tonnes, paddy stocks were at approximately 114,000 tonnes and rice at approximately 332,000 tonnes.
These numbers were 50,000 tonnes and 300 -- sorry, I just covered that. Inventory is higher primarily to meet higher expected demand. Total cash and bank balance, including all investments but excluding equity shares as of September '23 was at INR 1,268 crores as against INR 1,596 crores as of the same period last year, lower primarily due to buyback of INR 325 crores concluded in quarter 2 FY '24.
With that, I come to an end of my prepared remarks. I would now like to hand over to the moderator for opening the Q&A session. I would just like to mention that as the ED matter which is sub judice, we will not be in a position to respond to queries on this matter. So over to the moderator now.
[Operator Instructions]. The first question is from the line of [ Karan Prem Chand Gupta from Karvy Capital ].
The domestic performance has been very impressive and congratulations to your team on that. I just wanted to focus a little bit on the export side. I know there were some remarks initially but if you could just delve a little bit deeper. Specifically in the last quarter's call, we discussed that a new distributor has been appointed in Saudi Arabia. So if you could just shed some light on how that relationship is going. Particularly, I noticed that there's a recent announcement on the stock exchange regarding some litigation from the distributor who had been appointed prior to that.
And then secondly, if you could just talk about the brand strength in Saudi Arabia, we've been out of the market or not as prevalent in the market as we had been earlier. So what are the expectations and once the distributor has been streamlined, whether we'll be able to regain our market share and how you think about that.
Yes, sure. So just to clarify, I think we had mentioned on the last call that we are in the process of identifying the new distributor. So having said that, so as we mentioned in earlier calls, so from our point of view, Saudi on the branded side is roughly INR 1,000 crore opportunity. And we are currently -- we currently have a distributor there. However, we are in touch with the existing distributor and we are also in the -- because there were performance issues with the existing distributor, we were also prospecting for a new distributor. So that process is currently on. And like you mentioned, the existing distributor has filed some litigation, so I will not be able to go into more details considering the matter is sub judice. But we are hoping that we will conclude this swiftly.
I'll tell you, as far as the brand is concerned, India Gate brand and Bab Al Hind in Saudi Arabia is a very, very great brand. Even after 6 months or 3 months we go into the market, to achieve INR 700 crores, INR 800 crores will be a cakewalk for us. It is a -- the brand recall in the consumer is to the top level. It is only a question of time. I mean the brand is at the -- in the consumer mind is at the top level.
Right, sir. I appreciate that. Just a little bit more granular as to what is the current status exactly. Like with this litigation, are we -- are sales still happening in Saudi Arabia, is that at a standstill till this matter solved, whether it's the existing distributor or a new one or however you may proceed.
Yes. So we currently have a live agreement with the existing distributor. However, there has not been any offtake by the distributor in recent times. So -- and subsequently, there has been a litigation that has been filed very recently. So that is the current status. As and when there is an update, we will get back to you.
Okay. And just one last thing. Was there a presentation that was uploaded for this quarter to -- I didn't see anything on the stock exchange. So just wanted to clarify.
Yes, I think it should have happened. Let me just check or what must be in the process. But I think it's in the process of upload.
The next question is from the line of Himanshu Upadhyay from O3 BMS.
I think it's 60% fall in exports, is it only because of Saudi Arabia or other geographies also did not do pretty well for us?
Yes. I think 2 points. One is, it's not just because of Saudi. There were some exports in the same quarter last year. There were bulk exports to China of non-basmati rice. So as you know, that non-basmati export is not possible currently. So there are dual impacts. One is of the Saudi market and the second major impact is of non-basmati bulk exports, which happened last quarter -- last year.
Okay. Okay. And I think the time government first export ban was at USD 1250 and then they reduced it. It led to some price volatility, so earlier the price of basmati for procurement was low and then it increased. Did you benefit out of it? Or are we -- did we buy more inventory at that point of time or did not do anything?
Yes, let me just clarify the question. He is asking that the government policy on the basmati export side has been changing. So USD 1,200 MEP, then down. What is the impact on paddy prices? Did we benefit from this?
Yes, yes. Right now, when government announced USD 1,250 exporters boycotted the mandis by and farmers and exporters are on the strike. And for 8-10 days, the market got -- the prices were down. And when government announced USD 950, the prices shoot up. And today, they are 12%, 13% higher to the last year. And prices are higher and it is expected that it will go further 2%, 3% more higher. I think market will close around 20% higher to last year. If you talk to December end, we are anticipating that market should close around 20% higher to last year.
Okay. Okay. But when the prices were down, we did not buy much quantities?
No, at that time, we all exporters said we should not buy. We have to say to the government, we will not buy if you don't reduce the MEP. So no one has bought in the market.
Okay. Okay. And one more thing. See, we had bought inventory and when we are seeing the price increase so significantly further, why our margins have gone down, okay? And last year, when -- what we exported to China was not basmati, that was the -- where the margins are -- non-basmati where the margins are generally lower. So our expectation was that in gross profit terms, at least the margins should have improved in Q2 FY '24 because whatever we are selling is all basmati and the price of basmati has increased quite significantly. So I could not understand that even when the proportion of basmati is higher, my gross profits are reduced by nearly 5% in the quarter. Can you explain that?
Yes, I'll just explain. So I think 2 things have happened. One is, you are right, in the same quarter last year, there was bulk exports of non-basmati. However, I think the key difference this time is that lower export branded sales, which tend to be the higher margin. So with overall export revenue lower than last year, that is one major impact on the margins. I think -- and the second aspect also -- especially to Saudi Arabia. And the second aspect also is that post last season, which is the purchases that were made in October to December '22, the average basmati input cost is also higher. So both these factors have affected the margin in the current quarter.
Okay. But generally, the prices are now higher. So would not the margins increase...
You're right. See the prices are -- compared to last year are higher but the key thing is that for volume sales to happen, especially on the branded export side, that's been muted this quarter.
Okay. And see, one more thing you stated in the starting commentary that this year the production for basmati maybe 10% to 12% higher than last year, okay? The prices are also higher -- but can it happen that after 3 months, 6 months, the paddy prices may fall. And in that scenario, what will be our strategy if that happens? You said that you'd like to buy complete in the next 3 months. Beyond 3 months, if farmers start hoarding because this is what we saw in cotton. The farmers were hoarding and post season, the price of cotton fell.
No. See we have directed our purchase department to divide the purchase into 90 days. Generally, 90% of the crop, 95% of the crop comes in 90 days. So we have divided into 90 days and we will cover the stocks in 90 days, whatever our requirement is. So we'll average out everything. And what your question is the crop is more. So overall, the consumption overall in India, overall globally, it is increasing. And due to the El Nino factor and other security factor, every importing country wants to import more rice for their security reasons, especially Middle East, especially Middle East region, they want to import more of basmati rice. So our estimated rice export figures will go up by 7% to 8% and even domestic consumption will go up by minimum 10% to 12%. So whatever -- and the most important thing is carryforward stock of basmati rice was practically 0 this year. So going forward, if the carryforward stock is also there, 7% to 8%, 9%, there is no problem. So I don't see any fall in the prices.
Okay. And you are not seeing farmers hoarding the rice because you yourself are saying the price may increase paddy?
At these levels, farmer partner will never hold the paddy. You see the speed, the way the farmers are getting paddy in the mandis. They are getting a very good price. They are getting about INR 1 lakh per acre. They have never got such amount in their life. They will never hold such -- they are getting a good price. .
Okay. I'll join back in queue for further queries.
The next question is from the line of Subhankar Ojha from SKS Capital and Research Private Limited.
Sir, so I wanted to understand for exports for the second half of the financial year, I mean, first half, we had a sharp fall in the overall sales. What is the outlook for exports for the H2?
Yes. So I think what Anoop ji had mentioned in his speech is that, the key factor that is -- that has affected the export side is the Saudi distribution. So I think once that is -- have normalized, we are looking at gradually building up to a INR 700 crore revenue line. Now in terms of timing, we are hoping that we are able to conclude all the existing discussions by the end of this quarter. And therefore, see a ramp-up back in quarter 1. But we'll be able to sort of give you -- sorry, quarter 4, we're able to give you more updates on this as the discussion progresses.
Okay. And secondly, with respect to this non-basmati piece of -- on the revenue, we had a INR 55 crores for the domestic market. What is -- and how is that business progressing in terms of -- and do you have a internal target for some sales figure?
Yes. So we've taken up a target of 5% of the overall domestic revenue for the first financial year, which is this FY '24. And we are quite on track to achieve that. So till H1, we achieved about 4.8% of the overall domestic revenue, with our regional rice revenue. And we are seeing very good response from the market of certain varieties, especially India Gate wada kolam, India Gate jeera rice and gobindo bhog. So we continue to promote that, open new distribution networks and expand our retail footprint with these products in the market.
As I said in my speech also that we are at a very small base compared to the overall size of the market. So we see a huge headroom for growth. So maybe INR 200 crores this year is our targeted top line. I mean, I would say in the near short term, which is 3 to 5 years, midterm, I would say we are targeting at least INR 1,000 crores with regional rice as a revenue stream.
Okay. Great. And finally, I missed out the inventory breakup in terms of the value, paddy you said 140,000 tonnes and rice [ 330,000 ] tonnes. And what is the value of this?
Yes. The value of paddy inventory is INR 439 crores and the value of rice inventory is INR 2,110 crores.
[Operator Instructions]. The next question is from the line of [ Koushik Sekhar from Vermilion Value Advisors ].
My question is regarding your export sales. Actually, if you see in the first quarter of last year, you had mentioned that there was INR 441 crores of sales, which got moved over to, sorry, last quarter of this year, it moved out to the first quarter of this year. So if you remove that, then the export drop seems to be further. Now you have explained as far as the Chinese the bulk sales and the Saudi go. But if you remove this on the other markets, how are we doing? Removing these one-off factors on the other markets where there is no discontinuity, what has been the trend in volume as far as exports [indiscernible]?
Yes. So I think the other markets continue to perform well. We are not seeing any challenges there. In fact, the demand continues to be strong even in some of the other Middle East markets. So not seeing any challenges on other countries.
And any indication what the growth in those markets would be in the first half of the year versus last year?
So it's difficult to give market-wise numbers. We generally don't share.
The next question is from the line of Abhishek Maheshwari from SkyRidge Wealth Management.
I have only one question with respect to risk mitigation. I went through the BSE announcement for intimation of the initiation of a case against the company. So I just wanted to know, does it help us to have exclusive distributors? For particular geographies, market is big enough. Why not have multiple distributors to capture the market, just wanted an understanding on that.
Any good and a big distributor wants exclusivity. That's a prime thing -- any big distributor, if you want to have a very big distributor who is already doing $1 billion, $2 billion business, he wants to be a exclusive dealing with, dealing with [indiscernible].
Yes. And just to add to that, it is -- I mean, it's not that we have a policy of having exclusive distributors. In fact, there are markets in which there are multiple distributors in the HoReCa side, right? So it just -- it really depends upon the distribution landscape of that country.
Okay. So there clearly is not much of a choice when it comes to Saudi, you have to go with a big exclusive relationship.
And it was only a retail distributor. HoReCa is -- we always diversify retail in HoReCa. It's always through different distribution channels. .
Any chances of settlement with the existing distributor or too soon to comment?
No, there is no question of settlement. He has put a very bogus claim. There is no question, we will have to appoint a new distributor. There's no question of any settlement. 100% bogus. Now he has gone to the court. There is no question of going to the same party. We have to appoint a new distributor.
The next question is from the line of Sahej Grewal from Dabur India.
Just had a question regarding the litigation that the company is undergoing from [indiscernible] with the party which we had appointed. So is [indiscernible] the party which we -- here? And what is our current existing relationship with the distributor that we have appointed this year? And are we selling to them right now or that -- those things are also not happening right now?
Yes. [ AQM ] was appointed in January 2022. So we continue to have a live agreement with them. However, there is not -- there is no offtake by them for the last several months. So that's really the update.
Okay. And this was -- [ AQM ] as the retail distributor, right? Have we appointed a separate HoReCa distributor then?
No, not yet. So that, I think search process is currently on.
Right. Any expected time lines on that?
Yes. So I think that we are in close discussions with several parties in terms of -- and I think pretty close to finalization for the HoReCa side.
The next question is from the line of [ Jaspreet Singh from VE Capital ].
Sir, as far as I recall, in last call, you had mentioned that by 15th of August, this HoReCa distributor would be appointed and it seems that still the HoReCa distributor is not there. Any particular reason for that?
Yes. Jaspreet, I think what we are looking for is to identify a long-term partner. So we met with several parties but I think we don't want to rush on this decision. So that's really the status of that particular side. But we are -- like I had mentioned, some parties have been shortlisted. We are hoping to conclude this quickly.
Ashish, it seems that your Saudi is totally decimated right now. Nothing is being sold there. And you have not -- do you think you should have made a disclosure on the exchange regarding on appointment of HoReCa or litigation with the retail guy?
No. So I think we have made an announcement on the litigation with the retail distributor. I think that that's been done. On the HoReCa, the status is really the same as what we had explained on the last call. So no significant update.
And can you not bypass this litigation, can you not still send your material through somebody else?
Yes. So the -- as Anoop ji had explained, the [ AQM ], who is the party which has filed a litigation, there was an exclusive relationship, right? So -- and that matter has now become sub judice. So we'll be in breach of conditions if we bypass.
Ladies and gentlemen, we will take that as the last question for today. Thank you very much, the members of the management team. On behalf of KRBL Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.