KRBL Research Report By Karvy

Growth Story Continues…

KRBL Limited posted consolidated revenue of Rs. 7835 mn in Q3FY18 which is down by 1.8% as against Q3FY17 on YoY basis, but 9MFY18 revenue of Rs. 23705 mn is up by 6.1% against corresponding period of FY17 on YoY basis.

The shift in preference for branded rice, increased restaurant cultures and rise in personal income contributed in domestic sales’ growth, while export growth remains subdued amidst volatile international price.

However, basmati exports could rise in FY18-19E due to steady global demand and strengthening of economies in Gulf region following rise in crude oil price.

We believe that global and domestic conditions are supportive for basmati rice. Hence, we rate “BUY” on the stock with TP of Rs. 635 which gives a potential upside of 21%.

Segmental Performance:

India agri business in Q3FY18 at Rs. 5036 had flattish growth on YoY basis. However, 9MFY18 India agri business moderated to -3% on YoY basis.

India agri business contributed 67% while rest of the world contributed 33% in total agri business in Q3FY18 on YoY basis, whereas 9MFY18 India agri business stood at 56% while rest of the world stood at 44%.

Thus, the company witnessed to good pick up in the domestic demand, while export demand did not pick up proportionately mainly because of volatile international price.

Energy business is purely a domestic play which came at Rs. 503 mn in Q3FY18 registering 74.7% growth on YoY basis. 9MFY18 energy business stood at Rs. 1538 mn, registering growth of 33.9% on YoY basis. Further, government’s thrust on power is expected to stimulate demand for energy. The company has long term contract with state governments for Solar and Wind power.

Outlook & Risks

With growing demand amidst lower harvest, value added products, extensive distribution channel and sound financials, likely export order from Iran and improving gulf economies – the key basmati rice consuming region price realization for the company will further improve.

The stock is currently trading at P/E 19.9x which is at discount to industry P/E of 35.

Seeing business potential, we value the stock at 1 Yr Forward P/E 24x of FY20E EPS which gives TP of Rs. 635 with potential upside of 21% and rate “BUY” on stock for next 9-12 months.

However, already high basmati rice price may prove to be deterrent to the overall demand.