Buy KRBL; target of Rs 246: IDBI Capital Market

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Buy KRBL; target of Rs 246: IDBI Capital Market

Broking IDBI Capital Market has recommended buy rating on the KRBL with a target price of Rs 246.

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Broking IDBI Capital Market has recommended buy rating on the KRBL with a target price of Rs 246.

IDBI Capital Market report on KRBL:

KRBL, the biggest rice miller in the world and largest basmati exporter in the country, has attained burgeoning size with acquisition of rice milling unit from Oswal Agro enhancing its aggregate capacity to 198 MTPH. This acquisition will not only contribute to its topline but also boost its operating margins substantially by FY08.

Going forward, with strong brands, enhanced capacity and foray into value added products, KRBL is expected to grow at 27% CAGR over the next 2 years. Induced by topline growth and escalating margins, PAT is expected to witness more than 60% CAGR over the next 2 years.

The current market price of KRBL is 7.0x FY07E EPS of Rs.24.2 and 4.8x FY08E EPS of Rs.35.2. In past two years, KRBL has been trading above 10x P/E. Assuming a conservative PE of 7x its FY08E EPS of Rs.35.2, we recommend a 'Buy' with a target price of Rs.246, which is 4% discount to our DCF valuation.
 
Investment highlights:

Burgeoning size

KRBL has acquired the largest rice mill in the world from Oswal Agro in Dhuri, Punjab for Rs.158m. This mill, with initial capacity of 130 MTPH, is now revamped to 150 MTPH with an additional cost of Rs.1,000m. In addition, Dadri plant's capacity is increased from 38 MTPH to 48 MTPH taking their total capacity to 198 MTPH. This is expected to boost the topline by 25% CAGR over the next 2 years.

Value adding byproducts

Dhuri plant is becoming a fully integrated plant producing bran oil (42 MTPD capacity), furfural (10 MTPD capacity) and cattle feed. This is expected to contribute additionally around Rs.713m/annum to topline alongwith boosting its margins from 11.4% in FY06 to around 15% in FY08.

Powering growth

KRBL has the capacity to generate 10.5 MW of power using rice husk as fuel at a very low cost. The company will export 50% to the grid and the rest will be used for captive consumption. Besides the company has set up 12.5 MW windmill in Dhulia, Maharashtra for which it has signed a PPA (Power Purchase Agreement) with MSEB (Maharashtra State Electricity Board).

Exports with strong brands

KRBL has strong foothold in exports market with 52% share of basmati rice market of USA and dominant presence in Middle East. KRBL owns strong brands like India Gate, Doon, Bemisal, Nur Jahan, Al Wisam, Lotus, etc. Branded rice contributes around 83% of KRBL's revenue.