Anil, Anoop, Arun: the basmati barons
And probably the most interesting pitch would be in the domestic non-basmati segment where the company would like to make a mark in the premium regional space. So even in a dark hour, KRBL is claiming it has spotted new gates of opportunity which will expand its profile.
Brisk scoring post-century mark
From a meagre 67,000 tonnes of exports in 1978-79 valued at Rs32 crore (when basmati rice exports were allowed for the first time) to over 4 million tonnes of annual exports in recent years valued at $4-$4.5 billion), India is the leading exporter of this long, aromatic rice – a formally recognised Geographical Indication (GI) product grown only in the Indo-Gangetic plain in India and Pakistan. Gulf countries like Iran and UAE are the major importers, with the product now also becoming popular in Europe and the US, especially in those pockets where there is a large Indian or South-Asian diaspora.
The massive leap in the international shipment of basmati rice in the last four decades has seen the arrival of a spate of specialists riding the wave of a rising demand in this high premium business. With trading as the key constituent of their DNA, these companies gradually also created a domestic constituency for their branded basmati offerings. The current top two players with basmati as their core strength – KRBL and LT Foods (of Dawaat fame) – have clearly been the major beneficiaries of this trend.
In a historical sense, KRBL has several interesting elements to its journey. Founded by two brothers, Khushi Ram and Bihari Lal (the KRBL abbreviation derives from their names) who originally hailed from Rajasthan and set up a commodity trading unit focusing on edible oil in Lyallpur, Faisalabad in 1889, the family had to bear the brunt of partition and set up its base in Punjab and Delhi.
“The company was established by our great-grandfather and it was so successful that when partition happened, we were the richest business family in Lyallpur,” says Anoop Gupta. Rebooting the business in the early 50s in India, the family again opted for commodity trading, focusing more on cotton with a small exposure in rice. However, the real growth opportunity came in the 1980s when it began selling a premium basmati brand. “In 1979, the then Janata Party government lifted the ban on basmati exports and we took it as a big opportunity, given our exposure in rice.
The current top two players with basmati as their core strength – KRBL and LT Foods (of Dawaat fame) – have clearly been the major beneficiaries of this trend
But for the first six years, we were mainly supplying to big exporters in Mumbai, which included Subhas Goyal of Zee Group who was then expanding his commodity business,” he adds. The most decisive change happened around the mid-80s when the company decided to take the export route on its own and that changed its fortunes forever. “The company ventured into the international market with a modest order of 1,000 tonnes of basmati from the UAE in 1985. Since, then, KRBL has developed a strong network of distributors in 82 countries across the globe and it is a household name in several international markets, especially the Gulf,” says Akshay Gupta (31), head (international business), who is part of the young brigade (fourth generation) of leaders from the family.
In a chronological sense, the company’s major take-off actually happened after the mid-90s (it got publicly enlisted in 1995 after its first milling plant near Ghaziabad was set up). From a Rs322 crore topline in 1995 to reaching close to the Rs4,500 crore mark at the end of 2019-20, KRBL has come a long way and the last 25 years of its 130-year journey have seen it achieve new highs. Since 1995, its CAGR has been in the double-digits – 11.12 per cent, something for which the company is admired from all quarters, including its peers. “There is no doubt that KBRL and its India Gate brand has been a pioneer in several respects for players in the basmati space,” says Atul Garg, MD of GRM Overseas, a Panipat- headquartered firm which is among the leading basmati exporters in the country.
And maintaining a modest double-digit annual CAGR in its topline for nearly two-and-a-half decades has seen the addition of several milestones in KRBL’s profile. Today it is counted as the largest basmati exporter in the country, operates the world’s largest rice milling plant in Punjab (which has a capacity of 195/MT per hour) has 14 brands sold nationally and internationally under the basmati rice category, has a domineering share in the domestic market, and claims to be India’s first integrated rice company which has a presence across the value chain – from seed development to contact farming and from production to marketing. The enormity of the scale of its operations is well explained by Kunal Gupta (34), procurement & operations head. “During the procurement period over 60,000 trucks move in and out of KRBL plants. If all these trucks were to line up together, then they would go all the way from our plant in Punjab (Dhuri) to New Delhi, a distance of over 343 km!”
KRBL is the world’s leading basmati export brand
Ask Anoop Gupta what has primarily worked for KRBL as a unit and he will tell you that focus on quality and financial discipline are the major attributes. “There are certain basic rules which we have strictly adhered to. We have been excessively conscious in maintaining quality at any cost and have never taken the route of diverting available funds for non-business requirements. Every year, in September, we tend to become a zero debt or near zero debt company after meeting our own financial obligations and we have been fairly successful on that front,” says he. For any rice company, debt is mostly incurred in the form of working capital loans meant for procurement and then storage for maturity purposes (in the case of India Gate, the average storage works out to be one year).
This usually starts rising with the commencement of procurement of paddy at the beginning of Q3 every year and drops by the end of Q2 in the next financial year. And on the former point of sparing no efforts to maintain quality, the turnaround of the Dhuri plant in Punjab is a case in point. The company had bagged this sick plant in a court auction for Rs16 crore in 2004 and then pumped in Rs200 crore to push it to the optimum production level by installing state-of-the-art machinery. The result is: Dhuri is today the world’s largest rice milling plant.
KRBL has added to its many strengths over the last couple of decades and they do somewhat validate its claim of being the country’s largest integrated player in the rice space. For instance, the large-scale ecosystem for partnership with basmati rice farmers in the Gangetic plains comprising Punjab, Haryana, Uttarakhand and parts of Jammu & Kashmir.
Says Ashish Mittal (39), head, operations, “We call it contact farming operations, which ensures consistency in quality. We are in touch with around 25,000 farmer families for providing them best practices to grow top quality crop covering around 1.5 lakh hectares of agriculture land.” Considering the strict restrictions on pesticide usage which Indian basmati exporters have to face, particularly in the EU and the US markets, KRBL also runs a specific programme to educate farmers to grow organic and pesticide-free paddy for the EU and US markets. The company now also operates around 700 acres of farms where it collaborates with farmers to grow basmati seeds in sufficient quantities.
The company registered a topline growth of 9 per cent and EBITDA rose to Rs894 crore as compared to Rs865 crore in 2018-19
And its seed-specific focus is quite a success story as reflected in the large-scale adaptation of the revolutionary PUSA 1121 seed. The company claims to have single-handedly grown its stock of 1121 seed from one kilo to 15,000 tonnes and this resulted in a significant spurt in productivity, giving it a clear leadership position. “They understood the potential of this seed much before anybody else and have made the most of it in changing their fortunes,” Vijay Setia, former president, All India Rice Exporters Association, testifies.
World’s largest exporter
A very critical element of the basmati rice business is storage, where the produce is aged and matured and here the company has acquired a scale which not many middle rung logistics firms will have on their report card – today, it has more than 2.8 million sq ft of warehouses, which is the largest capacity in its category. These warehouses are filled with basmati in gunny bags and they are constantly taken care of, depending on their calculated maturity period. On the basis of these elements, KRBL has created a large-scale operational base which, as per 2019-20 figures, entailed sales of over 6 lakh metric tonnes of rice cumulatively (both domestic and international) with a portfolio of 14 brands under the KRBL banner.
“KRBL is the world’s largest exporter of basmati rice with nearly a fourth of the branded basmati rice export from India, while also being a prominent name in domestic circles with nearly 30 per cent of basmati rice sales. Almost a third of Indian households preferring India Gate Dubar rice as part of their daily consumption speaks volumes about its strong brand recall and loyalty among rice consumers,” observes Karan Chechi, director, TechSci Research, a Noida-based business consultancy firm, while commenting on the market positioning of the company. A recent report by market research firm Nielsen endorses this fact with more graphic details. The report, which largely captures sales trends of packaged rice in the country this March, pegs total sales close to 1,14,900 tonnes, out of which the share of basmati rice stood at 59.4 per cent. KRBL is at the top of the list with a sales figure of 28,000 tonnes (available in the market in the basmati segment only). The second slot goes to LT Foods which sold close to 26,000 tonnes with a small mix of non-basmati offerings.
The other two major players in the list are far behind: Adani Wilmar (7,300 tonnes) and Kohinoor Speciality Foods (5,900 tonnes). In the ranking list of sales of packaged rice through modern trade banners, KRBL again has a leadership share of 40.09 per cent followed by LT Foods at 31.6 per cent. In pack size analysis, KRBL has an upper hand in the fast evolving 10 kg category while LT Foods has a comfortable lead in the five-kg bracket. For its large-scale consumer connect, KRBL today also boasts of successful distribution partnerships with the likes of global retail giants like Walmart, Carrefour, Al Meera, Lulu, etc on the international side and all top-notch physical retailers and e-commerce firms for domestic distribution.
In the domestic FMCG sphere where packaged rice is being seen as a fast-growing category, the likes of Adani Wilmar and ITC (which made a small beginning with Sona Masoori non-basmati rice) are now also present in the market with their offerings. So, does this indicate that established leaders of the rice business like India Gate are facing tough competition going ahead as FMCG majors like Adani have better financial muscle and distribution networks? “Bigger firms have certainly joined the fray but it does not mean they will pose any serious threat to the established companies in the near run. Adani Wilmar is basically an edible oil leader and ITC has a dominating presence in the branded atta category. For them, branded rice (basmati or other superior quality) is an add-on to their portfolio. It takes time to develop a vertical in a market like India,” says Ankur Bisen, senior VP, Technopak Advisors.
More domestic action
Despite the domestic economic slowdown in evidence since the early part of 2019-20 and the uncertain bilateral trade situation with the country’s biggest basmati rice exporter Iran (serious payment delay issues following India’s decision to stop buying Iranian oil last year), KRBL has once given a stellar performance in the last fiscal. The company registered a topline growth of 9 per cent, where revenue from operations stood at Rs4,499 crore as compared to last year’s figure of Rs4,120 crore and EBITDA rose to Rs894 crore as compared to Rs865 crore in 2018-19.
And the company is convinced that despite turbulence in the initial months of the year due to the Covid-19 lockdown (its plants were shut briefly), the year 20-21 will again deliver positive results and take its topline close to Rs5,000 crore. “Due to the current situation, our HoReCa sales have dropped drastically, but this will eventually recover. However, at the end of the year, we may have to take a hit of 10 per cent in domestic sales. This would, however, be compensated by a rise in exports,” Anoop Gupta explains.
Even as KRBL maintains it is distancing itself from trade with Iran (which has traditionally been consuming one-fourth of Indian basmati exports) committing only to consignments based on a strong letter of credit, marketmen approve the theory that basmati exports may rise in the near run. “Major importing countries like the UAE are looking at creating additional buffer stock for basmati due to the Covid-19 crisis. I won’t be surprised that in the next couple of years, we get close to 5 million tonnes of basmati export figures despite uncertain trade equations with Iran,” says Setia.
A timeline of the company's progress
The more critical issue, however, is that of the mid-run target: Rs8,000 crore, topline. In terms of contribution from its traditional mainstay exports, KRBL is clearly looking to expand its footprint in the nearly half-a-million tonne current market opportunity offered by the EU and the US. In these markets, characterised by pesticide-led restrictions, LT Foods has done much better, with the acquisition of the Royal brand (in the US) and setting up a milling plant in Europe. “We are the clear market leader in these two important markets. The Royal brand, which we had acquired for $30 million earlier, is a $200 million brand now, accounting for over 30 per cent of our revenue,” says Monica Chawla Jaggia, VP (finance & strategy), LT Foods.
Anoop Gupta admits that having a plant, especially in the EU, is important. “We know being present there with a processing unit is critical, but we are yet to decide on opening a unit there. We have a small market share (10 per cent in the US) but it will definitely grow, considering our global brand positioning. In small quantities, we are also noticing a surge in our exports to some African countries and we expect this momentum to grow,” he replies.
Even as KRBL officials say that the broader ratio between their exports to domestic sales would continue to maintain the present equal share trajectory (51 per cent share in favour of domestic sales), there are clear indications of more action being witnessed in the domestic space which may become the major cushion for the company’s future growth. Interestingly, KRBL with its export orientation in the 1980s, had entered the domestic market around 1999 and first-year sales were just Rs88 lakh.
But today, this vertical has outpaced its export operations. And now, the company board has cleared the decks for a foray into the non-basmati premier rice segment popular in different pockets of India. “KRBL intends to expand into various regional rice varieties, which are generally available as loose rice, only because customers are moving fast towards packaged products. In these special varieties, we will concentrate on jeera rice, Gobindobhog rice grown in selected areas of Bengal, and Sona Masoori rice in the south.Along with this, we are also planning to launch grain flour like rice atta, idli rava, ragi flour, millet and gram flour,” Ayush Gupta explains.
For companies aligned with the branded and packaged rice segment, getting into the premier, regional non-basmati rice category is now a key mantra and KRBL is likely to make an aggressive move here. “Our plans have been somewhat delayed because of the Covid crisis. But we have taken the decision to move into the segment with three dedicated units in Karnataka, West Bengal and Maharashtra. They will be small units, used mainly for grading and sortation. We expect this vertical to begin contributing Rs500 crore to our kitty from the first year itself and gradually it will grow in size,” adds Anoop Gupta.
Falling paddy prices will eventually give them good margins even if prolonged storage cost is added
According to Ankur Bisen, playing it out on a larger scale in the regional packaged segment would be easier said than done. “In India, packaged rice is synonymous with basmati sales and there aren’t too many examples of non-basmati rice being sold in a packaged format even if it is of premier quality. So, if KRBL wants to play big time in this segment, it will have to set new rules,” he reasons.
However, players like GRM Overseas which are planning a foray into the domestic segment, say non-basmati premier rice will be the next frontier for existing players. “Varieties like Red Matta, Samba, Sona Masoori and Govind Bhog are premier non-basmati rice available in the price range of Rs30 to Rs85 per kg in the market. There could be plenty of action in this space as established and new players tend to add more variety to their premier packaged portfolio,” Atul Garg of GRM points out.
KRBL, meanwhile, is also giving a push to another vertical, though on a smaller scale. “We have also introduced a health range under the India Gate product portfolio which comprises of brown rice, sprouted brown rice, quinoa, chia seed, flax seed and amaranth. We intend to aggressively market this product range,” says Akshay Gupta (31), business head (international). The company is targeting this vertical and hopes to reach close to Rs100 crore soon.
According to Anoop Gupta, the company is looking at doubling its domestic sales (going well past 6 lakh tonnes) in the next four-five years – this itself is reflective of KRBL’s intention to tap more opportunities on the domestic front. Incidentally, KRBL’s nearest rival, LT Foods (with a topline in the vicinity of Rs4,000 crore) has a 65:35 international to domestic ratio and Monica Jaggia says this trajectory will stay put for quite some time.
Meanwhile, for branded rice players like KBRL, there are some cushions for their future growth plans. For instance, the falling paddy prices in recent years which will eventually give them good margins even if prolonged storage cost is added. With acreage for rice cultivation on the rise, an estimate suggests the average paddy procurement price for basmati is in the vicinity of Rs30,000/MT in recent years. As against this, KRBL’s domestic sales realisation in the last fiscal had stood at over Rs53,000/MT while realisation from exports had stood at over Rs80,000/MT. And marketmen do not envisage any serious pricing pressure building at the procurement level in the near future. Its efficient working capital management is also cited as a strong supporting factor for the company as it leaps ahead (refer to graph: Working Capital Management).
KRBL, meanwhile, has also developed a small renewable power business with over 100 MW capacity (with the main contribution from wind) which contributes nearly four-five per cent of the company’s topline. At the recent investor meet, the top brass indicated the demerger of this unit in the near run which would possibly pave the way for a much larger play for this unit. “Despite recent turbulence, we are on a strong growth path and we will do our best to maintain the momentum we have seen since the mid-90s,” Anoop Gupta says reassuringly. And there aren’t too many who would be reluctant to take this statement at face value, given the leap the company has made after hitting the century mark.