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Edited Transcript of KRBL.NSE earnings conference call or presentation 29-Jan-20 6:30am GMT

Q3 2020 KRBL Ltd Earnings Call

Feb 3, 2020 (Thomson StreetEvents) -- Edited Transcript of KRBL Ltd earnings conference call or presentation Wednesday, January 29, 2020 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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* Anish Jobalia

Banyan Capital Advisors Private Limited - Senior Research Analyst

* Manish Bhandari

Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager

* Nitin Awasthi;East India Securities;Research Analyst

* Prateek Giri;Emerge Capital;Equity Research Associate

* Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst

* Siddharth Rangnekar

Citigate Dewe Rogerson Communications Private Limited - IR Manager

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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 Q3 and 9 months FY '20 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I now hand the conference over to Mr. Siddharth from CDR India. Thank you, and over to you, sir.

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Siddharth Rangnekar, Citigate Dewe Rogerson Communications Private Limited - IR Manager [2]

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That you. Welcome to KRBL's Quarter 3 and 9M FY '20 Earnings Conference Call For Analysts and Investors.

Today, we are joined by senior members of the management team, including Mr. Anil Kumar Mittal, Chairman and Managing Director; Mr. Anoop Kumar Gupta, Joint Managing Director; and Mr. Rakesh Mehrotra, Chief Financial Officer.

We propose to commence with an update on the financial performance by Mr. Rakesh Mehrotra. Thereafter, we will have Mr. Anoop Kumar Gupta, sharing his perspectives. After the opening remarks from the management, the forum will be open for an interactive question-and-answer session.

A cautionary note. Certain statements that may be made on today's conference call could be forward-looking in nature, and actual results could vary from these statements. A detailed statement in this regard is available on KRBL's quarter 3 and 9M FY '20 investor presentation, which has been shared to you earlier.

I would now like to invite Mr. Rakesh Mehrotra. Thank you, and over to you, sir.

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Rakesh Mehrotra, KRBL Limited - CFO [3]

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Thank you, Siddharth. Good afternoon, everyone, and thank you for taking out time to join us on our Q3 and 9 Months FY 2020 Earning Conference Call. I'm sure all of you would have gone through the results, the original documents circulated earlier, which are also available on the stock exchanges and our website for easy reference.

During the quarters under review, we demonstrated a strong performance where our consolidated revenue from operations stood at INR 1,329 crore as compared to INR 936 crore in the same period last year, representing a growth of 42%. Export contribution to the top line stood at 49% as against 36% in the corresponding period last year.

EBITDA came in at INR 243 crore, higher by 17% versus INR 208 crore in Q3 of the same period last year. Previously for Q3 FY '20 increased by 29% to INR 211 crore as compared to INR 164 crore in the same period last year. PAT stood at INR 159 crore rupees in Q3 FY '20, up by 48% as against INR 107 crore in Q3 FY '19.

Moving to the 9-month period, we reported the consolidated revenue from operations at INR 3,437 crore, a growth of 18%. Export contribution to our revenue stood at 46% versus 42% in 9 months of FY '19. EBITDA came in at INR 655 crore as compared to INR 631 crore in the same period last year.

PBT for the 9-month period stood at INR 557 crore as against INR 536 crore in the earlier 9-month period FY '19. The PAT was also at INR 409 crore, higher by 12% as compared to INR 364

(technical difficulty)

Sorry for the disruption due to some issues.

Okay, I'll (inaudible) the cash generated over the last 12 months has helped us significantly reducing our working capital debt as of 31st December 2019, which has stood at INR 820 crore rupees as compared to 1,520 crore as on December 31, 2018. Whereas, our inventory levels peaked at INR 3,072 crore at the end of Q3 FY '20, owing to paddy performance between October and December 2019. This compares to INR 3,365 crore at the end of the same period last year.

The road ahead appears promising for us, and we'll continue to drive sustained performance

(technical difficulty)

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Operator [4]

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Ladies and gentlemen, kindly stay connected. We seem to have lost the line of the management.

Sir, we are back in the call. Please go ahead.

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Rakesh Mehrotra, KRBL Limited - CFO [5]

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The road ahead appears promising for us, and we will continue to drive sustained performance with focus on maintaining a strong balance sheet and further leveraging our brand.

With this, I now hand over the call to the Joint Managing Director, Anoop Gupta, for his prospectus.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [6]

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Thank you, Mr. Mehrotra. I welcome you all to KRBL's Quarter 3 and 9 Months FY '20 Earnings Conference Call.

We reported increasing performance during the quarter under review led by our team focused on business fundamentals. Performance in quarter 3 was further supported by shift of some shipments from quarter 2 to quarter 3, which was stopped at the port due to delay in upgrading their [receipts].

Overall, I believe that we are best positioned to deliver solid performance over the next few years, given the opportunity. India has been one of the top exporters in the globalized market, accounting for more than 20% of the global exports, and this is expected to increase going forward.

As you would be aware, we have set a milestone of achieving INR 8,000 crore of top line in next 4, 5 years. And I'm glad to share that we are moving in that -- in the right direction, led by healthy demand in both domestic and international markets as well as our unique positioning within that.

With that, I would request the moderator to open the floor for questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question from the line of [Jan Momonia] from Care Portfolio Managers.

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Unidentified Analyst, [2]

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Sir, congratulations for a good set of numbers.

Yes. Sir, domestic sales has grown by 12%. So what was the volume growth? And how is the outlook for the coming quarter?

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Rakesh Mehrotra, KRBL Limited - CFO [3]

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The volumes have -- the domestic volumes have grown from 95,541 metric tons to 1,08,007 metric tons so by almost 12% in the value services segment.

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Unidentified Analyst, [4]

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How is the expected volume growth going forward?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [5]

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First, this fourth quarter of FY '20, we are expecting the same as we have done in the third quarter, and we are doing very well.

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Unidentified Analyst, [6]

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Sir, in case of exports, our average export on quarterly basis, around INR 300 crore, INR 330 crore. So before we exit some quarter because of shifting of the -- one of the consignment. So what kind of export growth we are expecting going forward?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [7]

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So export growth actually, to give the absolute numbers or percentage would be difficult because there are 2, 3 disturbed areas as far as export is concerned. One is Europe and other is Iran. Iran has always remained, for last 10 years, the

premium place for exports, and we export around 32%, 33% of the country's export.

Whereas in Europe, the total exports were to the tune of about 340,000, 330,000 tonnes, which has come down to 120,000, 125,000 tonnes. And from October, November, there were no shipments which have gone to Europe because day-by-day, they are becoming more stringent as far as pesticide residue are concerned.

As far as Iran is concerned, let me tell you, in the next quarter, there is a good news. There is a shortage in the market. Prices are going high in the domestic market. They require rice, and except India, today, because of our payment mechanism, nobody can supply them any type of grains. They have acquired some grains from Russia of 2 million tonnes, but I've been given to understand that payment also went by squaring the Russian rupee payment with the Iranian rupee payment. Because we had to give to Russia some rupee payment, it was going to that mechanical.

So if today, let us say, this money -- money or mechanism is opened and Trump doesn't give any negative remarks, I'm 100% confident that, this year also, Iran will buy because they require rice. They require minimum 1.4 million, 1.5 million tonnes for their consumption. And they do not have any other source. The biggest question mark where the numbers cannot be mentioned or told is that, what will happen in next 2 months, 3 months, 4 months with Iran. Otherwise, things are everywhere -- let me tell you, this year, for example, looking to the prices, as we understand that Saudi is going to import 20% more, same as the whole Middle East. Everybody is thinking that whatever are the today's prices prevailing in the market, they will not come again. And we have -- we are doing exceptionally well in rest of the Middle East countries.

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Unidentified Analyst, [8]

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Sir, there were -- total export for 9 months is higher by 30%.

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [9]

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Yes.

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Unidentified Analyst, [10]

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From INR 1,230 crore to INR 1,590 crore. So is it because of Iran, or we have achieved growth in the Saudi Arabia and other Middle East countries?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [11]

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No, no. It is altogether. We have done -- because of -- our brands are doing very good, and we are a FMCG company, the demands of the brands are also good. We are doing Iran business also. We are doing other businesses also. We were quite aggressive. We were aggressive quite because the ultimate aim of the company was that to ensure revenue growth, along with the bottom line, which I think so, bottom line also we have done good by achieving an increase of 17% in (inaudible) number.

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Unidentified Analyst, [12]

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Sir, how are the paddy price this year?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [13]

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Paddy prices this year are -- add on debt is INR 28,000 to INR 29,000 a tonne for Pusa 1121, INR 36,000 to INR 37,000 a tonne for Basmati, and Pusa Basmati 1401, they are around 24,000, 25,000 tonnes, and they are lower by a minimum 20% over last year.

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Unidentified Analyst, [14]

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Sir, I could not get that stock of inventory figure. Sir, can you repeat that? As of 31st December, this quarter and next (inaudible) quarter.

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Rakesh Mehrotra, KRBL Limited - CFO [15]

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Yes. The -- we're carrying paddy stock of...

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [16]

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(foreign language)

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Unidentified Analyst, [17]

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Figure will be fine. Yes.

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Rakesh Mehrotra, KRBL Limited - CFO [18]

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The technical for this total number is, I think, 2,900 -- we're carrying a total inventory of 3,072 crore as on 31st December 2019.

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Unidentified Analyst, [19]

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And what about 31st December 2018?

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Rakesh Mehrotra, KRBL Limited - CFO [20]

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31st December 2018 was 33,363 crore.

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Unidentified Analyst, [21]

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33,300 crores?

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Rakesh Mehrotra, KRBL Limited - CFO [22]

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Yes. As Anil said, the prices are down, though, we have almost same quantity, but the value is less. The purchase cost has been bad.

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Operator [23]

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[Operator Instruction] We have next question from the line of [Akash Shah] from [AMS Securities].

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Unidentified Analyst, [24]

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There has been a drop -- consistent drop in the gross profit margin. The reason for that?

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Rakesh Mehrotra, KRBL Limited - CFO [25]

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Drop in the margin, if you see -- if you really see the stock valuation, the valuation of the stock has come down by 20% in this quarter compared to the last year crop. And my (inaudible) down by 1.5% to 2%. You see, we have done so well in a market where the prices are less by 20%. And our (inaudible) dip of only 1.5% and 2%. According to us, we have done a remarkable job.

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Unidentified Analyst, [26]

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So is this the new normal? Or do you see any revision or upward movement?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [27]

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Now definitely, the stock is valued at the current price. Now the -- naturally, in the coming quarters, our (inaudible) will be again 20 plus.

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Unidentified Analyst, [28]

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Okay. And my second question was, there's a sharp drop in the price realization of the -- in the export market. What was the reason behind that?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [29]

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Yes. There were 2 reasons. First of all, if you compare to last year, the prices have been dropping since January, February of the last year and continue up till now. If the prices in the international market are dropping too, you have to many times realize -- sell the goods as per the market trend. But in our case, our majority share is -- majority share is of the branding, so there should not be so much of difference, but the main difference came because we sold this year wide bulk quantity to Iran also and to many other countries also to the government of those respective countries. And that's why the prices -- the realization are -- drop. And that is the reason of EBIDTA also coming down. There were 2 reasons.

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Unidentified Analyst, [30]

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Okay. So the composition was of the lower-priced product and the overall market price has also decreased?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [31]

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No. It's a quality also. Let me tell you, today also Basmati has being sold, right from $800 to $2,000, my India Gate classic is sold at $2,000, and there is a variant of Basmati rice which is sold at $800 to $900. It all depends upon you -- we cannot generalize in Basmati because there are blends of Pusa with 1121, traditional with Pusa. Basmati versus Basmati. I'm not talking about mixtures. So there are 2 things. One is overall price pressure because of the new crop. And other is that there are various variants and various brands which price different prices at different profit or margin.

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Unidentified Analyst, [32]

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That's what I'm asking, sir. Composition -- in the sales composition, the contributions from the lower-priced product has increased compared to higher-priced products?

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Rakesh Mehrotra, KRBL Limited - CFO [33]

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Yes. Some percentage, you are right. If you compare it to (inaudible) fully -- the lower sales, the percentage would be higher.

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Unidentified Analyst, [34]

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Okay. Okay. And what -- have we exported anything to Iran in Ghee?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [35]

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Yes, we have exported to Iran. We have exported to Iran. And you will be surprised in spite of so bad news is coming in the media as there is not a single dollar which is pending in Iran of KRBL. We have received 100% payment.

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Operator [36]

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We have next question from the line of Nitin Awasthi from East India Securities.

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Nitin Awasthi;East India Securities;Research Analyst, [37]

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Sir, just one question I had was regarding the noise which was being made from -- in a few newspapers about a tax which will be levied on Basmati rice being that the development of Pusa, government had a hand in the development of Pusa rice but could not benefit in form of royalty on that rice. Any thoughts? Sir, your thoughts on the same, sir?

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

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I'm listening for the first time what you are telling. There is no control whatsoever, neither there is any MSP. There is nothing of the government. It's just completely free trade (inaudible) commodity. There is no government interference, not at all. Neither have I heard the news, what you are telling me, neither in the media, nor in the ministry. I go to the Ministry of Agri, but I've not heard this, what you are telling me.

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Operator [39]

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Your next question from the line of Prateek Giri from Emerge Capital.

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Prateek Giri;Emerge Capital;Equity Research Associate, [40]

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Firstly, sir, congratulations for good set of numbers.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [41]

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Pardon?

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Prateek Giri;Emerge Capital;Equity Research Associate, [42]

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Sir, congratulations for good set of numbers.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [43]

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I'm not clear.

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Rakesh Mehrotra, KRBL Limited - CFO [44]

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Congratulations for good set of numbers.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [45]

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Thank you.

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Rakesh Mehrotra, KRBL Limited - CFO [46]

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Thank you.

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Prateek Giri;Emerge Capital;Equity Research Associate, [47]

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Yes. Sir, we recently saw a brand positioning from KRBL in the trendy YouTube segments, sir. There we have been seeing KRBL, I guess, some high metabolism rice or that vital variety being advertised there. Which is very commendable, sir, actually. So I just wanted to get your sense on this that has there been a change in strategy of our brand positioning? Because prior to this, we were mostly into this Biryani segment, and we used to advertise ourselves as Biryani leaders, kind of, Biryani rice leaders. But now we have been seeing a very positive advertisement or this brand positioning strategy change. So sir, some color on this, sir? Are we targeting youth or whatever strategy in this segment?

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

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No, this is a health segment. It's not that Biryani is going separately. This is a brown rice segment, which we are advertising, and we are getting a very good response. We are marketing this product in a 1 kilo jar, and the response is phenomenal, and we are selling in the [gyms] also. And there are 2 types of brown rice. One is Basmati and one is non-Basmati. So we are advertising that. It is not the strategy. It is the strategy of a particular SKU. It has nothing to do that Biryani, we have lost Biryani. We are doing very well in Biryani also.

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Operator [49]

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We have next question from the line of Varun Goenka from Nippon Mutual Funds.

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [50]

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Yes, sir. I have 3 questions. One, of the non-Middle East volume growth, how is that trending? Or how is that responding?

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Anil Kumar Mittal, KRBL Limited - Chairman & MD [51]

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Let me tell you. See, if you look at -- to the India's total exports, as on date, including the Persian Gulf, we have about 76% share of the Middle East, including Persian Gulf. And 24% is rest of the world, which includes Europe, America, Africa and Far East and part of the African East Coast and West Coast. So that is the total quantity what we are doing.

It means our focus, of KRBL, as far as export is concerned, it is always on the Middle East, including the Persian Gulf. So -- now into -- now the only concern, which I told you into export is the Iran and Europe business. Iran is quite positive. We sometimes get so good news because, recently, 15 days back, there is a shortage of rice in Iran. People are demanding rice. Prices have increased in the domestic market for which the Iranian government is also concerned. So they cannot afford to not to import rice, whether they import from me or from somewhere else. Now Basmati is not available somewhere else. So their eyes are only in India. The only thing is they want to request the Indian government to buy something to create that buffer, what they had 1.5 years back of about INR 13,000 crores, INR 14,000 crore against the import of crude oil. Now those negotiations are going on, and I do not know how Trump is going to help India to help Iran or whether what will happen. That is the only question mark.

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [52]

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But if prices are so attractive, and given our cash flows and balance sheet is so strong, if like

it's not procurement maximum (inaudible) sir?

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Rakesh Mehrotra, KRBL Limited - CFO [53]

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We (inaudible) about 670,000 tonnes of paddy. And this year, we have procured about 80,000, 90,000 tonnes of rice as well. And still, we are buying. We are looking at another 70,000, 80,000, 90,000 tonnes of paddies.

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [54]

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Okay. That's great. And just 2 more things, sir. In the power side, I'm seeing our EBIT going down. And I think there are some receivables also coming. So as we may about kind of tax benefit and return that we were making, maybe over the next 5 years or 10 years, we may not make the same, including receivables, including lower margins. So how are we seeing that?

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Rakesh Mehrotra, KRBL Limited - CFO [55]

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Are you talking on 9 months or for the quarter?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [56]

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Nine months.

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [57]

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For the 9 months. Yes.

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Rakesh Mehrotra, KRBL Limited - CFO [58]

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For the 9 months, there was -- in the power generation channels, the generation is a little bit down in the generation of the wind and solar because of the monsoon and these things -- highest -- longer monsoon and a lot of longer winter also. And there was some REC sales last year, which were not there in this year with REC being [fast]. So apart from that, we are all on track almost on the same level.

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [59]

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I think the ballpark of prices there, what was the EBIT level annually for our total business that we should expect and inside receivables status, sir? (inaudible)

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Rakesh Mehrotra, KRBL Limited - CFO [60]

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Varun, we are expecting INR 110 crore to INR 120 crore as our revenue from the -- our results, out of which we have to just give annual maintenance contracts to Suzlon. That may -- and what was next question?

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [61]

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Right. So just a final thing, sir, at -- you're talking about INR 8,000 crore of sales in 4, 5 years. So anything that you can share maybe on what are we doing on investing in middle management to be strong or distribution. Our branding continues to be very, very good. It's visible on YouTube and other areas. But we see across all other companies, they are heavily investing in very strong middle managements, which can take the company next 10, 20 years so...

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Rakesh Mehrotra, KRBL Limited - CFO [62]

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Varun, we are investing a lot in logistics warehousing and lots of processing and packaging plants. We are investing -- this year also, we are going to invest for next 18, 20 months regularly. Because that is the only way where we can reach to that type of a top line, number one.

Number two, our distribution level from Kashmir to Kanyakumari, there is not a single place which is left empty. Our distribution level is very strong. And in the last month only, December, we have created 60 new SKUs in Unity brand. This is a very average-priced thing which can be very well afforded by the Indian community. I am expecting this Unity brand to be about INR 1,000 crore, INR 1,200 crores in next 1 or 2 years.

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [63]

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Okay. That's great, yes. So the Unity brand, the institutional brand, you're also taking it to retail?

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Rakesh Mehrotra, KRBL Limited - CFO [64]

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To the consumer, yes.

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [65]

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Right, right. And sir, GST rate, say, is there any improvement now because the GST rates might go up, then that might deteriorate our position, if that happens at all, for the institutional segment?

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Rakesh Mehrotra, KRBL Limited - CFO [66]

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A lot of representations have made, everybody has said that you should test grain at even 1%, everybody from now to south, everybody is saying that 1% or 2%, how can they increase? I don't think [it will increase].

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Varun Goenka;Nippon Mutual Funds;Sr. Research Analyst, [67]

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Yes. Great. Yes. Fine, I mean, our results have been fantastic for the last 2 years. So even in the more difficult environment, we've done exceptionally well. I'll come back in the queue.

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Operator [68]

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We have next question from the line of Manish Bhandari from Vallum Capital.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [69]

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I have a few questions. This is regarding the target of INR 8,000 crore, which you have put to yourself for 4 to 5 years. So how much will be from the rice, and how much would be the non-rice business in this? And does it include any kind of inorganic growth rate, which you would have assumed?

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Rakesh Mehrotra, KRBL Limited - CFO [70]

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This is totally, I think, 95%. This is -- we are not investing anymore into energy. So whatever energy, we are getting INR 120 crore per annum. It won't be increased by -- from that. So 98% of the revenue will be from rice only.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [71]

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So when you mean the -- your efforts in sooji or any of those areas...

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Rakesh Mehrotra, KRBL Limited - CFO [72]

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I mean rice and allied products, there's -- we have achieved (inaudible). It's a rice product.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [73]

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Okay. Sure, I get your point. And sir, one metric which you keep on giving is about the -- your volumes, which has grown in the domestic market. Can you also share how much is the market share gain in the domestic market? And how much the domestic market has grown in this quarter?

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Rakesh Mehrotra, KRBL Limited - CFO [74]

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You see, we don't get the report from (inaudible) prediction on a quarterly basis. I will get on 31st March. So I cannot tell the numbers, but as for the market feedback, we have -- we are above 35%, 36%.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [75]

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Sure. I have another question regarding the silica. So I'm told that there is a process from where the rice husk can be used to make silica and that is one product which goes into the tire industry. And many of these companies are using to mix it with the carbon black. So do you make it? And are you planning to make this product and how innovative it is? Have you ever evaluated?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [76]

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Yes. No, actually, we at KRBL are working on this project since 2004. We went to Japan. We went to Arkansas in America also to find out how to create silica. We even collaborated with one German guy but could not succeed. When it comes to a lab model, it is a successful process, but when it comes to commercial models, it is not a viable project. The amount of water, amount of electricity and so many things, then it becomes a nonviable project. Yes, you are right.

I have recently understood. No, we gave certain -- as to the tire industry, but they could not -- they took our 1 or 2 lots, but they could not work or they could not succeed on that. But recently, I've been given to understand, we call it amorphous silica. Now this amorphous silica, I've understood that, in China, somebody's succeeded, and we are planning to go and see if somebody can show us the plant. It is in our mind for one simple reason that we are the only company, today I would say, in the world, not in India or Asia, in the world, which, like sugarcane, we utilize all verticals, for example, husk, you know, we convert into furfural, furfural into furfural alcohol, then we make power. Bran we use Rice bran oil. DOC we use with cattle feed. Everything is utilized. Only one thing is left, that is the amorphous silica, and we are desperate. We do not want -- we should be -- it should be 100% byproduct utilized company.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [77]

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Sure. So I would have something to send you across, and I did got to know about how people are doing it. And sir, my another question is regarding a year back on the...

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [78]

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Are they doing in India? Or they're doing outside India?

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [79]

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No. They are doing in India.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [80]

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Making silica out of rice?

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [81]

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Yes, I will share with you. I'll drop you an e-mail on this. So one question was regarding the -- 1 year back on the conference call, you did make a point about the GI certification or maybe a certification where we could have a distinguishing between a 2-year age-old Basmati versus a 1-year-old Basmati on the -- on our selling proposition. So is there anything which you have done on this?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [82]

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See, GI issue is open subjugate. There are various cases filed. One is at Delhi High Court. Another is in Madras High Court. Another is in Bhopal -- Indore High Court. And people who have invested in it, they put one case after another to ensure that whatever is the originally GI area, they want to expand that area. We -- which is a subsider.

As far as 2-year aging is concerned, we are the only company who is doing this 2 years of aging. But there is no -- there cannot be any scientific recognition or a certificate which can confirm that this rice is 1 year or this is 2 years or this is 2.5 years. About 4 years back, this (inaudible) company, they filed a suit against us that they are telling wrong -- that they're putting wrong declaration on the pouch that they're 2 years old. And we went all the way to Bombay, to the registrar...

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Rakesh Mehrotra, KRBL Limited - CFO [83]

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Advertising council.

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [84]

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To the advertising council, and we proved with the chartered accountant letter of our storage pattern and everything that, generally, KRBL products are 2 years old.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [85]

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Sure. So there can't be any technological innovation in this?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [86]

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There is no technological innovation.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [87]

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Sir, I have another question on -- regarding the loss of market share of Basmati in Europe. So is there any other thing what you can do to regain the market share in Europe, which is non-pesticide seeds and from their paddy onwards to back -- working the chain backward?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [88]

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No. Right, a lot of work is being done. The Ministry of Agriculture is doing its best, what it can do. Every 10 days, they call us, there are various meetings at the state level, at the center level. The only remedy and the only way is that we start producing the rice that is pesticide free. If we are not able to do it, Europeans are not going to agree to it, number one. And this stringent control will slowly, slowly, maybe in next 3, 4 years may come and spread to other continents of the world.

So therefore, it's a matter of concern for the rice industry. We are spending crores and crores rupees. This time, a big job was done by the Punjab government. It's that the secretary of agriculture, Mr. [Puma.] He did a remarkable job being in the government. He became proactive and really did a remarkable work at the field level, and we got sufficient material of pesticide free also but not to the numbers of quantities which are required to be exported. Maybe I could -- I have today, about 10,000 tonne. I required 50,000 tonne. So there is still a gap of 40,000 tonnes, so we are working hard, I think, so within 2 years, there will be a solution that our 25% to 30% crop of what we produce will be pesticide free.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [89]

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Sir, you made a comment about the size of Unity brand to be INR 1,200 crore. Is it at the company level or the retail level?

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Rakesh Mehrotra, KRBL Limited - CFO [90]

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No, I'm talking at the company level.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [91]

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And how much will be the India Gate as of today?

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Rakesh Mehrotra, KRBL Limited - CFO [92]

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India Gate is -- balance, I think, India Gate, it's about INR 1,200 crore, INR 1,300 crore rupees. If you talk of -- only domestic I'm talking.

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Manish Bhandari, Vallum Capital Advisors - Founder, CEO & Principal Portfolio Manager [93]

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And you have to include domestic and our export?

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Rakesh Mehrotra, KRBL Limited - CFO [94]

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Well, our 70%, sale -- 65% to...

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [95]

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65%.

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Rakesh Mehrotra, KRBL Limited - CFO [96]

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65% of our top line is India Gate.

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Operator [97]

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We have next question from the line of Anish Jobalia from Banyan Capital.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [98]

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Yes. Congratulations for good set of numbers. Sir, I just wanted to speak a bit on the volumes, like just looking at our inventory levels, which is flat as of December as compared to last year. And there was a shift of the orders from Q2 to Q3 as well as there are some bulk orders in Q3. So if you can provide some guidance around how do we see the volume growth in Q4 and FY '21? That will be very helpful, considering all the factors which are hitting us.

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Rakesh Mehrotra, KRBL Limited - CFO [99]

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So we are doing well. If you see quarter 4 of FY '20 would be same as the quarter 3. We would be -- I think it will be a repetition. And as far as next year is concerned, we are quite positive and minimum 15% to 20% we'll like to have increased in the top line.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [100]

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So can one assume then that the volumes that we did in Q3 will also repeat in Q4? Is that what you're trying to say?

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Rakesh Mehrotra, KRBL Limited - CFO [101]

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Yes. Volume would be -- more or less would be same. From -- actually, there was around INR 200 crore shift from quarter 2 to quarter 3.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [102]

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Right. So if you were to adjust for -- there were some 52,000 metric tons you had mentioned in last call. So when you adjust for that...

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Rakesh Mehrotra, KRBL Limited - CFO [103]

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It was around INR 200 crore. So we are left with INR 1,130 crore, INR 1,140 crore, which we are 100% sure of achieving that number in the fourth quarter.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [104]

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Okay. And then in FY '21, we'll get a value-wise growth of 15% to 20% is what (inaudible).

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Rakesh Mehrotra, KRBL Limited - CFO [105]

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Yes. We are looking at that only.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [106]

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And could you, if possible, split this? Like how will this be growth-wise in FY '21 for domestic as well as the export market share?

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Rakesh Mehrotra, KRBL Limited - CFO [107]

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Generally, if you see our 7-year -- last 7-year trend, it is always like 50%, 52%, or 53% here and there.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [108]

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Okay. So growth would be equally split between the domestic and export market?

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Rakesh Mehrotra, KRBL Limited - CFO [109]

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Yes, yes, it will be equally.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [110]

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And second question around the margins. Like you mentioned that the stock has been revalued. I mean, the inventory is now at lower price. So with Q4 as well as FY '21, we should see like more than 20% EBITDA margins. Is this what you were trying to say in your initial comments?

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Rakesh Mehrotra, KRBL Limited - CFO [111]

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Yes. We are looking at that only because now the prices -- according to us, today the price in the market is the lowest in last 2, 3 years. So we think it is the time to build up the inventory. And I think, going forward, our EBITDA will increase.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [112]

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Okay. And one question around the business model is, like whatever we are buying today, sir, that start -- gets reflected in the gross margins, say, 2 to 3 years down the line only, right? I mean is that the right way to understand, like if you're buying paddy at INR 28,000, INR 29,000. So that impact will come 2 to 3 years down the line? Or how should we...

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Rakesh Mehrotra, KRBL Limited - CFO [113]

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No, no. It will come after 1 year. Not 2 to 3 years. 1, 1.5 years, it'll start coming.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [114]

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Okay. And if possible -- is it possible to give some update around the tax liability that is spending, like you mentioned, like we are very confident of getting our favor. So is there any update around that?

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Rakesh Mehrotra, KRBL Limited - CFO [115]

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Yes, we are hopeful that orders should come by maximum within this fortnight. And as far as tax is concerned, we have already deposited INR 193 crore. And we are very hopeful that order will come in our favor.

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Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [116]

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Okay. So in the next 15 days, there should be some clarity around the tax level?

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Rakesh Mehrotra, KRBL Limited - CFO [117]

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Yes. Hope so.

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Operator [118]

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We have next question from the line of [Dara Muchala from Elusive Advisory.]

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Unidentified Analyst, [119]

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I actually wanted to understand something about how India consumes broken rice. So in terms of percentage of our sales, approximately how much should be broken rice? And two was, are we seeing a trend of people -- like how good is the trend of people moving from unbranded, the loose broken rice to branded broken rice?

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Rakesh Mehrotra, KRBL Limited - CFO [120]

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You see India -- the total consumption in India is about 2.3 million, 2.4 million tonnes out of which around 35%, 40% is broken rice. So for KRBL also, of my total sales, 30%, 35% is my broken rice and 65% is head rice. But slowly, slowly, people are moving. The person who was eating Mogra has shifted to Dubar. A person who was eating Dubar has moved to Tibar. A person who was eating Tibar has moved to Super or -- these are head rice I'm talking. So people are shifting on the grade. And it depends upon the price also. If you compare the pricing from last year, it is lowered by 5% to 10%. The shift is more on the upper, upper scale. The person who is consuming Mogra has shifted because of the price. So there's a shift from the -- from broken to head rice.

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Unidentified Analyst, [121]

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Okay. And what is the trend like in the markets outside India? Do people consume a lot of broken rice? Or is it largely head rice.

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Rakesh Mehrotra, KRBL Limited - CFO [122]

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Broken is not allowed to be exported outside the country. It is only to be consumed within the country. As per the government policy, we are allowed to only export head rice.

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Unidentified Analyst, [123]

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Okay. And another question more on our future growth plans. So even outside of Middle East, are there any other big markets that we can tap? Because like you explained the Europe problem for now, but apart from that, are we seeing any trend towards Basmati consumption outside of Middle East?

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

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Yes. Yes. See, let me tell you, if you look at the 5-year chart, there has been a tremendous growth for countries like Mauritius, Seychelles, South Africa. These have started importing quite good numbers compared to what they used to import about 5, 7 years back. Similarly, African continent also. Countries like [Congo] who are big markets of non-basmati, they've started importing some basmati rice. The African continent is importing basmati rice. Then there are markets which you have -- we are developing that is Argentina and Brazil, they both are also going to -- Argentina is already importing, but Brazil, there is not yet customer of ours. I do not know whether something is going to Brazil or not.

Then one of the biggest market which we were dreaming we could develop was China. And there is a good demand in China for Basmati rice, but because of the government's controls, and -- most of the rice is controlled by the government of China. That is becoming what hinders to us, otherwise, China can become another importer of about 300,000 to 400,000 tonnes of basmati rice.

And you will be surprised that we have done already a good contract with Japan. Japan has started importing about 700,000, 800,000 tonnes, which was a market of just 100 tonnes 5 years back. So the markets are developing and increasing. We're actually working more towards Europe. Europe is a market which I feel looking to the Asian population and even the local inhabitants like U.K. U.K. is a place where the locals also eat a lot of basmati rice, not the other parts of the Europe, but specifically U.K. So what I feel that in -- if we are able to produce pesticide-free, this market is going to develop -- a good share of the market will come from Europe also. It is -- so we are trying all the fronts to enhance this, to enhance the quantity from 4.4 million tonnes to 5 million tonnes.

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Unidentified Analyst, [125]

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Okay. And you also -- about Europe. The fact that we are so well-connected with the farms. What is preventing us from reducing the pesticide-residues in our produce?

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Anoop Kumar Gupta, KRBL Limited - Joint MD & Executive Director [126]

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Yes, it's -- there are 2 things. First of all, is that we -- our habits die hard. For the last 50 years, farmers have been growing their produce with a particular mindset. And to change their mindset is not very easy. That's number one. They're always worried that what will happen if my crop becomes affected with the disease or with -- so they start using too much of pesticide because the cost of the pesticide per tonne if you look or per hectare, per acre, if you see, it's not that much compared to the crop size. So to enable to save them from any disaster of the crop, they use too much of pesticide, which is slowly, slowly, we are making them understand, no, this is the wrong philosophy. And if you continue to do like that, not only you're spoiling the crop, but you will spoil the soil of the country. You will spoil the water of the country because the same -- when the rain comes, the same pesticide, it flows inside the earth also. So there are many things which we are educating to the farmers, and I'm quite sure I told you, it might take another 1, 2 years, maximum 2 years that we will win over this situation.