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Edited Transcript of KRBL.NSE earnings conference call or presentation 2-Aug-19 6:30am GMT

Q1 2020 KRBL Ltd Earnings Call

Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of KRBL Ltd earnings conference call or presentation Friday, August 2, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anil Kumar Mittal

KRBL Limited - Chairman & MD

* Anoop Kumar Gupta

KRBL Limited - Joint MD & Executive Director

* Rakesh Mehrotra

KRBL Limited - CFO

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Conference Call Participants

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* Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director

* Aniruddha Joshi

ICICI Securities Limited, Research Division - Research Analyst

* Shailesh Kumar

Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst

* Varun Goenka

* Varun Goenka;Reliance Mutual Fund;Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to the KRBL Limited Q1 FY '20 Earnings Conference Call hosted by ICICI Securities Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities Limited. Thank you and over to you.

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Aniruddha Joshi, ICICI Securities Limited, Research Division - Research Analyst [2]

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Yes. Thanks, Steven. On behalf of ICICI Securities, we welcome you all to Q1 FY '20 Results Conference Call of KRBL Limited. We have with us the management team: Mr. Anil Kumar Mittal, Chairman and Managing Director; Mr. Anoop Kumar Gupta, Joint Managing Director; and Mr. Rakesh Mehrotra, CFO.

So now I hand over the call to the management of KRBL Limited for their initial comments on the company and the quarterly performance. Thanks and over to you, sir.

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Rakesh Mehrotra, KRBL Limited - CFO [3]

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Good afternoon, ladies and gentlemen. Welcome to KRBL Limited's Q1 Earnings Conference Call. Thank you, ICICI Securities, for managing this call today. Our investor presentation is available on the stock exchanges and website for your easy reference.

Talking about the performance of the quarter. Revenue from the operations is at INR 1,218 crores, an increase of 64% as compared to the same period last year. We achieved an overall volume growth of 20% in the Indian market at the back of strong focus on the branding, customer engagement and strengthened distribution network. Export contribution to our revenue increased to 51% in Q1 FY '20 from 36% in the same period last year at the back of a strong demand environment. EBITDA is at INR 240 crores as compared to INR 183 crores in the same period last year. That's an increase of 31% on its new numbers.

PBT for the quarter is at INR 199 crores as compared to INR 149 crores for the same period last year, an increase of 34%. PAT for the quarter is at INR 136 crores as compared to INR 100 crores for the same period last year, an increase of 34 -- 36% year-on-year.

I would like to conclude by saying that we are excited about the long-term growth opportunities for our business and are confident of taking the company to greater heights. With this, I will hand over the floor to Mr. Anoop Gupta for his comments.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [4]

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Thank you, Mr. Mehrotra. On the macro front, I would like to reiterate that demand for the rice remains strong. The rice production for the country has also reached a record high of 116 million tonnes. Rice exports in India have also reached a record high. Basmati rice exports are also developing and are clocking the highest ever number. This is also reflected in our export contribution, which is 51% for this quarter as compared to 36% in the same period last year. Our strategy on increasing volumes, along with a favorable demand environment, is yielding results.

We have spent 2% of sales on promotional expenses for the quarter. On the sanctions applied by U.S. on Iran, we would like to reiterate that sales would not affect KRBL Limited and Iran continues to be the largest importer of Basmati rice from India. Exports to Iran have reached a level of 1.48 million tonnes in FY '19 as compared to 0.79 million tonnes in the previous year. This is a growth of almost 87%. We are capitalizing on this opportunity and continue to remain unaffected because of rupee-driven mechanism introduced sales backed by LTs and the history of good payment terms.

We remain committed to grow our business in domestic and international markets and expect to grow multifold over the next 5 years. Our expectation is to mark our top line at INR 8,000 crores at the back of our strong and widespread distribution network across India, our huge contract farming network covering 2 lakh 50,000 acres, strong R&D capabilities and global presence.

Talking about the IT demand notice, I would like to reiterate that we are confident that is being in our favor. As on 30th June, 2019, we have paid INR 116 crores towards the tax demand notice. We remain committed to grow our core business in domestic as well as international markets and continue to deliver similar results.

With this, I now open the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Shailesh Kumar from Sunidhi Securities.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [2]

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Sir, I have a couple of questions. First thing is our export realizations have gone down by almost 8% on Y-o-Y basis. So if you could help me understand the reason behind the same?

And second one is by when do we expect our income tax dispute to be over -- I mean to be settled properly?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [3]

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So you see, this year -- this quarter, we had exported -- how much quantities did we have?

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Rakesh Mehrotra, KRBL Limited - CFO [4]

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We have exported 44,000 (inaudible).

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Unidentified Company Representative, [5]

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Just a moment, Shailesh. Just a moment.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [6]

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Shailesh, this is Anil Mittal, CMD.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [7]

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Yes, Mr. Mittal. Please go ahead.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [8]

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Actually, in basmati exports or even in domestic market, there are various segments of the market. One is the high segment where we sell India Gate (inaudible) Super. They're very highly priced, right? Then comes the second segment, which is priced around INR 70 to INR 80 segment. Then the third is between INR 60 to INR 70. Then comes the local rice, which is INR 35, INR 40 to INR 60. So these are the 3, 4 segments in which domestic and international business takes place.

And as far as exports are concerned, we took a conscious decision that we have to be quite aggressive because of 2 reasons. One was Ramadan period was there and there was a demand in Middle East. And today, also 70% of our rice exported, the country's rice exported, is to Middle East. So we focused, clearly, we took the advantage of Ramadan, which fall between April and May.

Secondly, to become aggressive and to sell the market, we knew that the middle segment will buy more rice than the upper top segment, which is again, India Gate [Kolam] or India Gate Super. So the main sales which have come out is from the middle segment, and that is why the prices and realization that indeed has come down.

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Rakesh Mehrotra, KRBL Limited - CFO [9]

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And as far as IT is concerned, we have submitted now all the documents and we are awaiting orders. And we are quite hopeful that the orders will be in our favor.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [10]

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Sir, because what we have seen that of late, the IT department has gone very aggressive and they are targeting every possible nook and corner to garner revenue. So I mean what is the probability then in this case that...

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Rakesh Mehrotra, KRBL Limited - CFO [11]

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If we talk on merits, our case is very, very strong, very strong. And I hope minimum 90% to 95% relief would be given in the -- at a later day.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [12]

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And by then, do we expect the matter to be over? I mean...

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Rakesh Mehrotra, KRBL Limited - CFO [13]

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I mean our submissions are complete. Now we are awaiting the order, it can be any day.

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Shailesh Kumar, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [14]

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Okay. And I may like to squeeze one more question. I mean what is the update on this ED case, which a couple of weeks back was declared?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [15]

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Yes. ED case, we have taken a legal opinion, we have taken from 2, 3 lawyers, and the opinion is this case is not sustainable in that (inaudible) authority only, this attachment will go away. It is a matter of another 3 months.

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Operator [16]

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(Operator Instructions) The next question is from the line of [Akash Shah] from Asian Market Securities.

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Unidentified Analyst, [17]

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What was the debtor level as on June '19?

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Rakesh Mehrotra, KRBL Limited - CFO [18]

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What is the data level?

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Unidentified Analyst, [19]

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Debtors and net debt level.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [20]

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On June '19?

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Unidentified Analyst, [21]

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Sir, yes, June '19. The quarter 1 '19, FY '20.

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Rakesh Mehrotra, KRBL Limited - CFO [22]

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Just a second. Yes. This is around INR 397 crores it would be. Hello?

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Unidentified Analyst, [23]

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The same that was there on March '19?

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Rakesh Mehrotra, KRBL Limited - CFO [24]

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Yes. I would say, probably here and there, because in power division, the debtors will go a little higher because it was a peak season period. So debtors of the power segment goes up.

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Unidentified Analyst, [25]

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Okay. And the net debt level?

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Rakesh Mehrotra, KRBL Limited - CFO [26]

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Our net debt in the segment is net of the advances. And as I said, INR 50 crores, INR 60 crores is the net debt.

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Unidentified Analyst, [27]

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Can you repeat? I couldn't hear you.

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Rakesh Mehrotra, KRBL Limited - CFO [28]

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Pardon?

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Unidentified Analyst, [29]

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What was the net debt level? Can you repeat?

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Rakesh Mehrotra, KRBL Limited - CFO [30]

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Net debt level will be around INR 340 crores, INR 340 crores, absolutely.

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Unidentified Analyst, [31]

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So we expect it to come at -- be negligible by the end of Q2 FY '20?

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Rakesh Mehrotra, KRBL Limited - CFO [32]

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The debtors will continue because we had a business of INR 4,000 crores plus, so the ranges will grow in the quarter, so the debtors will always be there.

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Unidentified Analyst, [33]

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No, sorry. I was asking about net debt leverage, leverage, what is there?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [34]

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No, what do you mean by -- you mean the bank finance?

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Unidentified Analyst, [35]

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Yes, yes, bank finance.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [36]

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Yes. Bank finance, debt is the top, as on the -- as on date today, the debt is -- net debt is INR 280 crores.

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Unidentified Analyst, [37]

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INR 280 crores, okay.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [38]

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As on date. And...

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Rakesh Mehrotra, KRBL Limited - CFO [39]

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It's down from peak level of INR 1,800 crores, INR 1,900 crores to INR 280 crores today.

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Unidentified Analyst, [40]

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Okay. That is good to hear.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [41]

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And it was 0 by the month end.

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Unidentified Analyst, [42]

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Great. I wanted to ask one more question. In the con call -- last con call, we had said that we were expecting the final hearing for the IT case on 7 June 2019. So what has led to the delay of the order?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [43]

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Now the hearing and submissions are complete, we are awaiting the order. Now it is up to the officer when he issues the order. From our side, everything has been done.

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Unidentified Analyst, [44]

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Okay. So we -- do we expect any clarity in this quarter or it may take a few more months?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [45]

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No, no, definitely within this quarter. Definitely, within this month.

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Operator [46]

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(Operator Instructions) The next question is from the line of Varun Goenka from Reliance Mutual Fund.

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Varun Goenka;Reliance Mutual Fund;Analyst, [47]

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Very good presentation this time and great set of results. My question is, sir, the vision that we pulled off INR 8,000 crores approximately in 5 years, it would just help if you could break down how we're looking at volume growth, value growth, pricing in our exports, domestic. If you'd just give us directionally some idea as to how we are going to get to this aspiration?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [48]

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Varun, we have mentioned many times that basmati rice exports out of the country were just 500,000 tonnes in the year 2000. In last 19 years, from 2000, it has jumped to 4.4 million tonnes. Once -- the 2 countries which are responsible for this increase are Iran and Iraq. Iraq has started buying around 350,000 tonnes and Iran has started buying about 1.4 million tonnes. Now these are quite huge quantities because Iran itself is about 33%, 34%.

Looking to the volume growth in last '19 years, and if you look at the KRBL pattern of rising, it has also moved in the same pattern what it has moved in the global and international market. But there has been a tremendous volume and value growth in domestic market, which credit goes to our domestic team headed by Anoop. That definitely requires a bridge because we are today at 36%, 37% of the total blended market.

Now there is one question mark in the rice industry is that players are many, creators are many, entry point is very low, so there are some substandard traders or manufacturers or you can name them anything, which are selling substandard basmati rice at a very low price, which disturbs our branded and top-quality basmati rice.

Still, 50% of the consumers do not know the difference between a good and a bad basmati rice and they go on a price war and a price trend. And that is why we are not able, in domestic, we could have done much better, even what we have done now, if that knowledge would have been there, which we feel that in next 4, 5 years this trend will change. Looking to the price norms, looking to the quality norms, looking to the new technologies coming, the consumer will be more educated what is the real basmati and that share will go to the quality players, and one of them is KRBL.

So therefore, we feel that this global market will come to 6 million, 6.5 million tonnes, all Middle East. There is a population jump everywhere. If you look at the growth, it is 6% every year, with an exception of Iran and Iraq. Domestic market is, at the present, at 2% of the total rice consumption in the country, which we believe it would multifold into as far as consumption is concerned. So we feel that INR 8,000 crores reaching in 5 years or it could take 6 years or it could be early also this is a commodity after all, but we are sure, looking to the growth into this segment of basmati rice within the rice segment, we are going to grow.

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Varun Goenka;Reliance Mutual Fund;Analyst, [49]

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Yes, got it, sir. So just if I may, a quick question, sir. Iran exports are 1.4 million tonnes. What is the provision? I mean what is the outlook there to increase or it will remain at this level? It has increased from 1 million tonnes to 1.4 million tonnes.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [50]

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Good question. See, Iran total consumption of rice is 3.2 million tonnes to 3.3 million tonnes. One time was there when Iran used to grow 2.5 million tonnes and only 500 million, 600 million tonnes used to be imported that too from 3, 4 sources. It was Pakistan, it was Vietnam, it was Thailand and a part of Uruguayan and American rice.

As the time passed, they have started importing -- the first time, Iran imported Indian Basmati rice in 2007 and '08. Just see, from 2007 and '08, within 10, 11 years, we have reached to 1.4 to -- 1.3 million to 1.4 million tonnes. And the reason was that, due to sanctions, Iran could not import any rice, either from Vietnam or Thailand or from Uruguay. And because we have to tell you, otherwise Pakistan was our very big competitor because that was all smuggled through Afghanistan the total Pakistani rice. And in the open market, the value of toman, which is against $1, you get IRR 4,500 for the import out of India, which is official import, you get about IRR 10,000 to IRR 12,000 for $1 if you go into the black market. So it is not workable as far as that smuggling, which used to be 100,000 or 200,000 tonnes a year.

So we believe looking to the sanctions, looking to the demand, depleting their own production every year because of the urbanization of the area where basmati was grown, I feel that the time will come when Iran will import 2.2 million tonnes from the world, from the globe. Until these sanctions are there, India would be the biggest gainer.

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Varun Goenka;Reliance Mutual Fund;Analyst, [51]

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Okay. That's good to hear, sir. Just one final thing on -- so basically, I think we are one of the most respected food companies today in India. And in terms of size and scale also we are dominant in every way, back end and in distribution and in brand. But last 12 months, there have been several setbacks, both from the industry and, of course, KRBL-specific.

So today, our company is trading at extremely low valuation. So have the promoters thought of, again, anything shoring up our holdings in any way or reallocating resources between our power capital versus our core consumer company? Have we -- any plan that we foresee over the next 12 months?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [52]

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I think Anoop will answer this question.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [53]

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Varun, we are discussing this thing within ourselves, we have not decided anything as on day, but we are discussing the matter.

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Varun Goenka, [54]

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Sure. Sure. Sir, any other deals that could possibly comfort that you foresee?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [55]

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What are -- pardon me?

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Varun Goenka, [56]

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Any other news in the industry or in the company which could be a possible headwind to us?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [57]

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There have been many good news, I tell you. See, one thing is that definitely, once you are in a scanner of ED, it's not a good sign for any company. And that is the reason the stock prices have come down. There's no doubt about it. And in our, whatever, 50, 60, 70, 50 years we are into business, we realized one thing, that one mistake of yours can destroy the whole effort, the whole transparency, the whole goodwill. Everything can go away.

And let me tell you, Varun, we were in Bombay, we told you that the mistake what Khaitan did, that was one, and we always tell by taking off Gautam Khaitan as our independent director. Other than that, we have no -- we are in the picture. It is a matter of time. You also know anything coming in the time of ED, they will never leave you. It will be the court and the judicial, and this will be the rule of the country, rule of the law, which is going to make us out of all these problems. Might take 2 months, might take 3 months, might take 4 months. But we will be out.

We are -- again, I am telling you on oath that directly, indirectly, in any scale, we are not involved into those criminal matters, what they are trying to involve us. I'm talking on oath.

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Varun Goenka, [58]

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Right. So in this season, if we could help us what the outlook is. And how will our bank debt strategy change? I was discussing should we become more diversified in our banking channel because right now, we are quite concentrated. Or how do you think the banking channel might behave because of the ongoing crisis? And our industry outlook on tariff for this season, sir?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [59]

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On the banking, there is no problem. We have a consortium of banks and they're about 11 banks. We are not concentrated to one bank. What we have is a lead bank. And we don't find any problem in the banking. You see, there is only -- the total outstanding is about INR 280 crores, which is going to be 0 in next 1 month. I don't see any questions on the bank or any credibility issue.

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Varun Goenka, [60]

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Sure. Sure. Sure. If, Mehrotra, you can give us the inventory data? That will be all for myself.

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Rakesh Mehrotra, KRBL Limited - CFO [61]

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We are having total package stock of 222,685 metric tons of paddy valued at INR 766.46 crores. Average price is INR 34,400 per metric ton. And we are having the rice stock of 325,315 metric ton valued at INR 1,612.82 crores. Average price is INR 49,577 per metric ton.

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Varun Goenka, [62]

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Sorry, sir, average cost?

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Rakesh Mehrotra, KRBL Limited - CFO [63]

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INR 49,577 per metric ton.

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Operator [64]

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The next question is from the line of Amit Doshi from Care Portfolio Managers.

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [65]

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Sir, the exports, which has been doing phenomenally well since last 2 quarters, crossing INR 600 crores, as you mentioned, we wanted to go aggressive, and probably Iran is also under consent to buy more from India. What portion of this do you believe is sustainable of this? And what were one-off basically of this or that, which are probably done there to lower the realization?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [66]

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First of all, as far as Iran itself is concerned, it is a sustainable business because the consumption is going to increase. And we feel, this is our personal feeling as a company and as a rice export association also that we have seen in the past whenever the sanctions or such problems that come, the food commodities are always kept out of the sanction as in case of North Korea. There are very heavy sanctions on North Korea except the food. Food is still being imported by various parts of the neighbors and other countries.

So therefore, as far as basmati rice is concerned, because they consume basmati rice now mostly, instead of using long-grain rice, the total consumption has shifted to basmati rice and therefore, it is a sustainable business.

As far as KRBL is concerned, at present, let me tell you, in that case, there is a problem that about INR 1,000 crores of export money has been detained in Iran because of the currency fluctuation. That is why KRBL in last 30 years have been quite choosy in selecting the business and the process. Every business which KRBL has done with Iran is against letter of credit and all the payments have come to us. So as far as that part is concerned with Iran, we are quite safe.

It is your decision that how you want to conclude. I can export a much larger quantity to Iran. Then we have to see the pricing. We have to see the payments. We have to see so many other consequences like dealing with Iran.

We are now more interested to expand our business more into Middle East, more into Iraq and other countries, but not too much into Iran alone. So let me tell you, we are expecting this year the exports will -- the quantum of these exports, they will increase to 5 million tonnes, and we also expect that would be a 10% growth in our exports.

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [67]

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Okay. So there is nothing that is kind of one-off done at a lower realization. This -- even if it continues, I mean which we believe is sustainable, so this lower realization could continue basically?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [68]

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It can continue also. Otherwise, our EBITDA will remain the same of 24%, 25%. Still, if you look at our -- if you look at our premium sales, still the realization are much better, which is around 1 lakh 2,000 tonnes, which -- 1 lakh 2,000 tonnes per metric ton. And there, if you calculate the EBITDA, it will come to 24%, 25%. That's our premium -- premium segment sales have not been dropped, and they're increasing by 4%, 5% every year. That cannot increase by 10% or 15%. If we have to show increment of 10% both in top line and bottom line, then we have to be aggressive in selling to countries like Iraq, Iran, 2 medium segments.

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [69]

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Right, right, right. Sir, in terms of this monsoon, which is now doing fairly well, can you give some idea about acreage and the basmati acreage or some sort of -- on the input, raw material side, some scenario or some guidance on that, how parmal -- yes.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [70]

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Yes. There was less monsoon. The monsoon never came in time. They had late monsoon. And still the monsoon in Punjab, they are not up to the mark. The people are growing groundwater. One of the best part of basmati is that it requires practically 40%, 45% or 50% water compared to non-basmati long grain. And the reason is that non-basmati is sown in the month of -- end of May, first week of June and the monsoon starts from 15th of June.

So for 1.5 months, people have been abstracting the groundwater, whereas basmati sowing starts from 15th, 20th of June. And it will continue to be sown up to 15th, 20th of August. And that is the monsoon period. Therefore, no groundwater is required. Being -- because the monsoon came very last, even the people who wanted to grow non-basmati rice, they are partly shifted to basmati rice. That's number one.

According to my information, the estimate this year, there will be 10% land in Punjab and Haryana we will ship from parmal to basmati rice, 10%. But the real figure will come from where about 15th of August. These are estimates. And definitely, we are expecting a bumper crop this year. Farmers got a good -- good returns last year from basmati sowing, especially 2 crops, that is 1509 and 1121. So I think there will be a sufficient and good crop, and prices will also remain comparatively low.

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [71]

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Okay. Okay. Okay. There was some news of some more variety of basmati. I mean I just read in some magazine. Any item or anything that you would want to highlight on that? 1121 and 1509, some specific variety. I honestly don't remember much detail.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [72]

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There are 3 varieties, which have been -- which were developed last year. This year also. You cannot say that it will come into big commercial production. Yes, we are expecting a crop of about maybe 100,000 tonne of that. There are 3 varieties. One is 1738. One is 1689. And there is one more. I'm forgetting the number. These are the 3 varieties. Again, these varieties, the test results were very good. Last year, we recommended to the institute that these are recommended varieties, and that's why the seed was distributed. Seed has been distributed. But the commercial results will be known this year. It was not known last year.

But this year, after we know the commercial results, there are 3, 4 benefits. First of all, the yield per acre is much more by about 20% in these varieties. Again, they are short-duration varieties, which will require maybe 90 days -- 85 to 90 days for growing and cultivating. And it will require less water. That is also the third thing. And the best important part in these varieties are that they are disease-resistant, pest-resistant. So we have not to spray the pesticide on them. And we require -- the time required, 2, 3 years, India requires a big change that the total basmati production has to be pest-free. So these 3 varieties because they will not have any disease like that [glass], greenhopper, so many diseases, we don't require to spray on the plants and there will be no pesticide residue in the paddy.

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [73]

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Okay. Okay. Okay. Great. Great. Sir, any non-basmati plans for growth in the current India -- I mean India segment growth that we have seen?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [74]

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Let me tell you, India...

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [75]

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Our contribution is very low, I know, but just as a plan because of INR 8,000 crores, anything on the non-basmati that we are targeting or...

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [76]

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Non-basmati, we do a very small business. We do only value a decent minimum profit, has to be 7%, 8%. Otherwise, we don't test any product. Whereas basmati profits are -- long grain and non-basmati profit are 3%, 4%. We have concluded with the total commercial commodity if somebody gets 3%, they calculate likely 30,000 (inaudible) into 3% into this (inaudible) for INR 4 crore, okay, let us sell like what we do in the local, domestic market.

But let me tell you, as far as exports are concerned, India has been badly, badly hit by the exposure of non-basmati rice. At one time, we have seen non-basmati rice to the tune of 8 million to 9 million tonnes primarily from South India. Because of the minimum support by the government, we have become uncompetitive. Most of the market has gone back to Vietnam, Thailand, Pakistan and other countries, which have got a much cheaper, non-basmati rice over us.

Up until March 2019, India provided us 5% subsidy on the export of non-basmati rice. At that time, we did a business of -- we in the country did a business of about 3 -- about 2.5 million to 3 million tonnes. And thereafter, I feel that there is no parity in the global market and exports have tremendously come down.

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [77]

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Okay. Okay. Okay. Fine. Fine. Just one last question. In terms of income tax, everything is clear. Just wanted to know the cases which has been opened [over there]. Were they under normal scrutiny during those years -- I mean in those prior years? The normal, regular scrutiny, regular assessment. Or they were open for the first time?

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Rakesh Mehrotra, KRBL Limited - CFO [78]

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No, no, no. They're all assessments, so it was a search in our premises. So because of the first -- last 6 years, cases were opened.

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [79]

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But those years are open, I understand, but I'm saying in -- so those years were otherwise under regular assessment. In those years, whatever, '11-'12, '12-'13, '13-'14, where they were conducted normal assessment or they were scrutinized...

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Rakesh Mehrotra, KRBL Limited - CFO [80]

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They all were scrutinized under 143(3). All were assessed under 143(3).

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Amit Doshi;Care Portfolio Managers Pvt. Ltd.;Director, [81]

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Okay. Okay. Okay. All were assessed under 143(3). Okay. Understand. Understand. And I really must put on record considering despite of whatever challenges over last 1.5 year, 2 years, the performance has been exceptionally well. And really, you have responded very calmly and steadily.

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Operator [82]

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The next question is from the line of [Amber Takresia] from [Waji India].

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Unidentified Analyst, [83]

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My question is, a, any update on the non-rice product, how they are doing? Any plans for them? And b, on the rice business, because here, we are carrying substantial inventory, and of course, sell throughout 12 months, from time to time, we hear that the paddy price is moving up, moving down. And I think nobody really knows how to correlate the difference in the paddy price with the product price that you are selling, especially for the lower grade rice. I'm just saying for the higher grade price, there is a lot of brand that (inaudible) towards, so you don't move around pricing that much. But for the lower grade price of rice, I wonder if there is any correlation with what the current paddy price is. Any updates on -- or any guidance would be appreciated.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [84]

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Yes. First of all, let me tell you, in the next 2 months, whenever -- see, first of all, we have to look at our inventory. KRBL's main strength is its rice. We may be 90% or 80% of the total basmati segment selling white rice untreated, neither steam nor part-boiled, not -- 80% of our business of white rice or 90% is nonsteam. So we do natural, natural rice, and it has been a certain SKUs for 1 year and certain SKUs for 2 years.

So as far as the stocks are concerned, we're required to keep that stock. That is our strength of KRBL, and that is the reason we get so high a premium in the market, whether in domestic or whether in export. That one thing should be clear.

And it is a chain you see. A time comes when our inventory cost is INR 70, market price is under INR 50. Sometimes, the inventory cost could be INR 70, and we are holding at INR 70. It has never been negative, let me tell you. So it's that outcome.

In spite of those type of fluctuations, our price remains constant. When it comes back down, then also our selling price is same; and when it goes very much high, then also our selling price is same. And that is the level of 25% EBITDA, number one.

Number two, let me give you one information. July, August and September, in next quarter, we are going to offload minimum 1 lakh tonnes of rice, minimum 1 lakh tonnes of rice. So whatever are the quantities today showing as on 30 June, they will be lesser by 1 to 1.25 lakh tonnes. About 60,000 tonnes will go in export and about 50,000 tonnes will be sold in domestic. So we will be lesser by 110,000 tonnes. That is also quite a substantial quantity, and that is why we say, as on 30 September, our debt will be 0. Not only 0, we might be having INR 100 crores, INR 200 crores surplus in the bank also for that time. That is point number one.

Now, everybody -- this is a question in the whole trade. It's not your question as an investor. Everybody says how KRBL is able to sustain, when the new crop is coming, we are having such [all] prices at a higher cost. Because they do not calculate, that our selling prices are much, much more on a premium.

See, you have to understand. You go to Dubai or you go here in India also. India, again, Classic, there are 20 other brands lying and I'm getting 50% higher realization than others. So that is our strength. You have to evaluate that.

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Unidentified Analyst, [85]

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All right. Got it. And any news on the nonrice business, the quinoa business that you had started? Any plans on that?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [86]

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Yes. Quinoa business, actually, we were expecting that from every -- we will get a good response. But definitely, we couldn't get that good response. But it is progressing now. It is progressing, and we are quite hopeful for one simple reason: that the quinoa grown in [Bolivia] is much superior over the Indian quinoa. And that was one of the reasons that we could not succeed in a very big manner in exports, and Indian market also was quite slow.

Number two, we were expecting that Indian markets will accept the product because of the cost and because of its niche market and total consumption of India. We could not get those numbers which we were expecting. So quinoa is a -- we are still hopeful. It might take 2 years, it might take 3 years, but we will achieve because it is our -- let me tell you, it is too much hard to give up the people who started contract farming. And this year, our production is excellent. It is as at par with Bolivia . So we expect to do this year very, very good. This year means from January -- from December, January, very good on quinoa business. At least we should double it this year. This is my feeling.

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Operator [87]

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The next question is from the line of [J. D. Singh] from [BA Capital.]

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Unidentified Analyst, [88]

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[Anoop], I just wanted to ask you, the quantities of rice in the domestic market. Although they are very good right now, but we had -- we used to have a time when we used to sell almost 1 lakh, 1.25 lakh kind of metric volumes around demonetization time. So how long do you think it will take to reach that kind of volumes?

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Rakesh Mehrotra, KRBL Limited - CFO [89]

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85,000 tonnes.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [90]

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This quarter, we were at 85,000 tonnes, and we are expecting the year to close at around 370,000 tonnes, 360,000 tonnes.

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Unidentified Analyst, [91]

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Okay. 360,000 to 375,000 tonnes. Okay. And as far as this growth is concerned, is it coming from Classic? Or is coming from (inaudible) times in domestic market?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [92]

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No. Classic is also increasing, but Classic is increasing at a low pace, but tying within growth from the lower segment and middle segment. Because you see, you have to feel the social-economic things of India, also.

In India, if you want to sell INR 200 kilos of rice, the takers are very less. So if you have to grow your numbers, you can grow in the middle segment only. Upper segment, yes, we are growing, but not at that speed. We are growing. Definitely, we are growing.

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Unidentified Analyst, [93]

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So how much would be the growth in Classic as far as -- because you had conducted these 2 rice campaigns, one in Diwali and one in Eid, which was focused mainly on Classic.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [94]

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Yes. Yes. We were -- actually, it was 15% to 20% increase over last year if you talk of only Classic because of the campaign. And the retailer penetration has increased by more than 40%, 42% because of the sales team efforts and above-the-line advertisement.

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Unidentified Analyst, [95]

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All right. All right.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [96]

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So let me give you one answer to your question, which is important. We sell the majority in domestic. In head rice, our sale is of Indian Gate family: Indian Gate Super, Indian Gate Premium, whatever you call it. That's a big sale. It's a big number, big quantity. The price, if you look of that variety of -- in the market, it is equivalent to the sale of other people of 1121. Just imagine, see, profit is there and India gets Classic, I believe. As a note, that it was at [INR 200], selling as a staple fiber is -- staple food is not an easy chore. But if you look at the strength of India Gate, it's on India Gate Super.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [97]

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Tibar, Dubar.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [98]

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Tibar, Dubar and head rice. All the 3. And if you look at the head rice of our Super, that is Pusa basmati rice, the price in the consumers will be -- you will find more of that equivalent to other people selling 1121. That is the strength of India Gate.

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Unidentified Analyst, [99]

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Okay. Okay. Okay. Sir, my second question is that I've heard that Punjab government is pushing for this MSP for mills, and they want farmers to ship to mills. So do you think, going forward, maybe [continuous] down the line, if MSPs keep -- a viable MSP is given, do you think it might lead to reduction in basmati production?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [100]

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Still, let me tell you, first of all, we have given objection to the government that in last 5 years, I did just now a speech in (inaudible), also here at (inaudible), that we have been discussing since Modi became into power in 2014, that we have to make farmer income suitable. And I made a chart, whereas, today by growing basmati rice, the farmer income has already increased to double.

When I say income, it's not the revenue. Income is the net profit to the farmer. Let us say, he grows 1 acre of parmal rice, and his lakh income, after certain downgrade, fertilizer and everything, he has, let us say, 20,000 -- INR 10,000 rupees an acre net profit after [declared], after everything what he spent in the year. Basmati rice gives him INR 20,000. So there is a 100% rise as far as the net income is concerned. So basmati rice, day by day in Punjab, Haryana, it is increasing, number one.

Number two, nothing is going to convince the farmer, neither you or me, not the government, not the media. It's still his last year returns. He has 3-years returns, whether sugar cane give me a better return? Or the mill gave me a better return? Or basmati rice or non-basmati rice? Based on that, he decides that next year I'm going to sow basmati or non-basmati. That's number two.

Now as far as basmati is concerned, the prices of basmati totally depend upon demand and supply. Every commodity has, but basmati also. Let us say if the export of basmati goes to 5 million tonnes and domestic, instead of 2.2 million tonnes, goes to 2.5 million tonnes, definitely, we'll pay a very good price for basmati because the area is limited, the quantities are limited. But let us say that remains stagnant and the production becomes 20% higher, next year, the farmer will not grow. He will grow 20% less. So this is a demand-and-supply thing.

As far as maize is concerned, the government has given subsidies and quite encouraging because of one issue: that is the ground level water. It was -- it used to be 20 years back at 40 feet, 50 feet which has come down in some areas to 150, 160 feet, in some areas up to 250 feet. That is a matter of concern to the government, and they can't do anything to save that. But in the same bracket, our basmati also falls in the same bracket in conserving the ground level water.

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Unidentified Analyst, [101]

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Okay. Okay. I also want to understand that in Haryana, they have blacklisted sowing of this rice -- I don't know about basmati, but rice in certain areas. Is it correct?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [102]

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Yes. I tell you, Haryana is in more difficulty where the water level has gone down to 400, 500 feet.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [103]

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Non-basmati.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [104]

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Non-basmati rice, they have definitely -- not blacklisted. They have tried to curtail and be more strict on the farmer not to grow rice over there. But not in a big area, the small areas, especially towards Hansi -- Hansi side. Hansi is in (inaudible)? Hisar, Hansi, these are the areas that water levels are going down. And it's not that big a news, but there are certain areas that government is quite particular about it.

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Unidentified Analyst, [105]

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Okay. Okay. But anyway, last year, you were mentioning that you were working with farmers to reduce this usage of pesticides, fungicides. Is there any marked shift which has happened this year?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [106]

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Yes. There have been a lot of improvement. Last year, we were not so much successful. We did this type of contract farming for about 40,000 tonnes of [paddy field] and we will be receiving as part of our farm extension services and all that. But when we received the goods, it was hardly 30% of the total what we expected. So as far as our program was concerned of KRBL, we were not quite successful.

In spite of spending money doing (inaudible), doing so much effort -- it was not with me only, it was 90% of the people who really worked hard on pesticide conservation or the removal the pesticides. But this year, in Punjab in special, not in Haryana, government itself is taking very part. The agriculture sector, Mr. Pannu, if you must have gone -- if you would have gone through various articles, the Punjab government this year in Punjab is very, very active through the Ludhiana Agriculture University. And I feel that Punjab will just give us a very good quantity of pesticide-free raw materials.

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Unidentified Analyst, [107]

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Okay. Okay. Okay. Last question with...

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Operator [108]

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Sorry to interrupt, sir, but if you have any follow-up questions, request that you rejoin the queue, please. The next question is from the line of [Isha Marathe] from ICICI Bank.

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Unidentified Analyst, [109]

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Yes. My main question is it the ratings are downgraded from AA to AA-?

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Rakesh Mehrotra, KRBL Limited - CFO [110]

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Yes.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [111]

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Yes.

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Unidentified Analyst, [112]

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Yes. So what is the main reason for that?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [113]

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It was the ED adjustment of the INR 15 crores property. That was the main reason for that. Otherwise, as far as the financials of the companies are concerned, there is no issue at all.

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Unidentified Analyst, [114]

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Okay. But that matter will get over, you said?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [115]

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Yes. We have obtained legal opinions, and the matter should be over by next 3 to 4 months.

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Unidentified Analyst, [116]

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3 to 4 months, okay. So by that time, the ratings are supposed to get again updated?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [117]

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By that time, they are in the watch.

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Rakesh Mehrotra, KRBL Limited - CFO [118]

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Our annual turbulence is due. So looking at our performance, we are hoping to -- for a better rating in this time.

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Unidentified Analyst, [119]

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Okay. And second question is the reduction in basmati...

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Operator [120]

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Sorry to interrupt, ma'am, but if you have any follow-up questions, request you to rejoin the queue, please. The next question is from the line of Varun Goenka from Reliance Mutual Fund.

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Varun Goenka;Reliance Mutual Fund;Analyst, [121]

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Sorry to come back. I just want to clarify actually. You mentioned 3 lakh 67,000 tonnes approximately of domestic sales this year, right?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [122]

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About -- yes, about 4 lakhs in this year, yes.

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Varun Goenka;Reliance Mutual Fund;Analyst, [123]

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Has 3 lakh 67,000 tonnes to already last quarter or in the whole year? So are you saying by March '20, we can reach 4 lakh tonnes, right?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [124]

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Yes. By March '20, 4 lakh tonnes.

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Varun Goenka;Reliance Mutual Fund;Analyst, [125]

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(foreign language) And I think (inaudible) mentioned you have 5 lakh metric tonnes -- or 5 million tonnes of exports (inaudible)? I think I didn't hear that properly, what was that?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [126]

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No. I told that when we can reach from 500,000 tonnes in 2000, and we have reached today at 4.4 million tonnes in 2019. Then I expect that in a year or 2, we will be reaching to 5 million tonnes. Export market is going to reach 700,000 tonnes for export market to reach this year or next year, and one of the main reason is that the behavior -- the sanction on Iran. And Iran requires 2.2 million tonnes of rice. It doesn't have money, neither euro nor dollar. Any money we have an advantage of the rupee payment mechanism, that is a very big advantage. And we feel 90% of the rice will go from India, whatever, it will paid on demand. The demand alone can increase by 200,000, 300,000 tonnes.

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Varun Goenka;Reliance Mutual Fund;Analyst, [127]

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Absolutely. Absolutely, sir. Sir, non-Middle East, we're receding our market. How are we seeing the traction there? We are leaders in other areas also in other geographies also.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [128]

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That's -- I'll tell you, other markets are doing well. They are growing with the right pace of 6% to 7% every year. South Africa is a good market. All Eastern Africa have started importing rice. West Africa also started importing rice. Mauritius, Seychelles, they are big markets. America before, the market of 30,000, 40,000 tonnes; this year, they will be doing about 1 lakh 25,000 tonnes.

Only concern, if there is one, the European market. Europe used to import 300,000 tonnes from India, 325,000 tonnes. That has fallen due to the pesticide restrictions, which we think, if we get the crop of 200,000, 300,000, 400,000 tonnes, then we will capture that market back again from Pakistan. In spite of those challenges, today, also we have done a very good business of 150,000 tonnes with the European countries.

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Unidentified Analyst, [129]

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Okay. Okay. (foreign language) My best wishes, sir. I hope these next 4, 6 months, all the issues are resolved so that we can entirely focus on growth.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [130]

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We require your blessings also. We have (inaudible)

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Operator [131]

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The next question is from the line [Amir Golgalhni] from [Gandel Investments].

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Unidentified Analyst, [132]

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Congratulations for a very good set of numbers. I was able to join a little late, sir. So I wanted to ask what is the status of the IT tax demand, sir, that we had?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [133]

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IT demand, our submissions to the CIT is complete, and we are awaiting the order. And we are quite hopeful, as per our lawyer started the campaign, that we should get a favorable order. An order is expected any day. Within this month, we should get the order.

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Unidentified Analyst, [134]

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Okay, sir. The hearing is complete, is it?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [135]

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Yes. The hearing and our submission is completed.

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Operator [136]

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Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing comments.

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Rakesh Mehrotra, KRBL Limited - CFO [137]

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Thank you very much for participating in the conference, and you are most welcome to write to us if you need any more information on KRBL. Thank you very much.

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Operator [138]

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Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.