Chaman Lal, KRBL: Firm demand to keep rice shares steaming, say analysts

Analysts expect global and domestic rice demand to remain firm, which they believe, would keep the stock prices piping hot going ahead

Shares of rice exporters such as KRBL, LT Foods and Chaman Lal Setia Exports (CLSEL) saw a stellar run in the calendar year 2022 (CY22) with gains of 61 per cent, 54 per cent and 35 per cent, respectively, on the back of improved realisations and strong exports due to surging rice prices and high global demand. 

Analysts expect global and domestic rice demand to remain firm in 2023 as well, which would keep the stock prices piping hot going ahead. Given the run-up, any fall in the prices will be a good opportunity for investors to buy these stocks, they say. 

“Tight global supply due to geopolitical tensions led to higher rice exports from India and a rise in prices, which helped LT Foods, CSEL and KRBL post strong numbers last year. We are bullish on the stocks and expect their financial performance to continue given firm demand ahead, companies' expansion in export markets, improving basmati rice consumption in India and negligible impact of the government's export curbs,” said Vinit Bolinjkar, Head of Research, Ventura Securities. 

As per industry experts, competitive pricing of Indian rice vis-a-vis other nations has also boosted demand for the staple in the global market and its price will likely remain elevated in the next fiscal. 

Besides, higher predictions of El Nino's impact on the southwest monsoon between June-September 2023 remain a key monitorable as it may impact kharif production including paddy and drive prices higher. 

Meanwhile, CRISL Ratings expects the basmati rice sector to clock a 30 per cent sales growth in financial year (FY23) to over Rs 50,000 crore on higher realisation and domestic demand. The staple's exports are also estimated to rise 11 per cent to 4.4 million tonnes (mt) on strong demand from key markets such as the Middle East and the US.  India has already exported 3.2 mt of basmati rice, up 16 per cent year-on-year (YoY), during April-December 2022.  

“Growth in export volume is driven by increased food grain demand amid geo-political issues, and India benefitting from lower basmati exports from flood-affected Pakistan, a key basmati exporter ”, it said. 

In terms of realisations, CLSEL’s basmati rice realisation in the first half of FY23 rose to Rs 95 per kg from Rs 70 in FY22, while this was 31 per cent up YoY for KRBL in the recent quarter (Q3FY23).  

For the first 3 quarters of FY23 (9MFY23), KRBL, CLSEL and LT Foods’ net profit rose 66 per cent, 88 per cent and 24 per cent YoY, respectively, while revenue grew 27 per cent, 65 per cent and 31 per cent respectively. 

That said, AK Prabhakar, head of research at IDBI Capital says that inventory levels are another crucial metric that investors should track for rice companies. 

“Generally, rice as a commodity has to be older to be priced higher so companies that stock it for long enough get better prices. Huge inventory also benefits them when prices are moving northward. KRBL looks good from a 3-6 month time frame given its large inventory and inexpensive valuation. It can be bought on a decline,” Prabhakar said. 

As of December 31, 2022, KRBL’s total inventory (rice and paddy) was 40 per cent up at Rs 4,435 crore over last year. The management said this has been higher due to their expectation of higher demand and ageing requirements of rice. 

On the other hand, CSEL said that of its total stock of Rs 439 crore as on December 31, 2022, about 80-85 per cent is pre-sold.