The strong balance sheet and consistency in strong operating performance makes stock value buy but then caution needed to be exercised till the name of the company is absolved from all kinds of charges. We have valued the stock at PE 12x of FY21 EPS (giving discount to 5 years average PEx of 14.8) and have arrived at the TP of Rs. 290 with 29% potential upside. Key risks to valuation are growing concerns on pesticide residue issue and reduced import demand from Iran following economic sanctions imposed by the USA.
Given the staple food status of basmati rice in Middle East region, its demand continues to be strong there. We believe that KRBL with great brand recall and huge penetration in the region (which accounts for 80% of export from the company), it is well positioned to capitalize on the opportunities. Moreover, increasing trend of basmati consumption demand in domestic market, augurs well for the company with 36% of domestic market share. We value the stock at PE 15.9x of FY21 EPS which gives TP of Rs. 403 with potential upside of 18%. Risk to valuation could be escalating of pesticide issue in Saudi Arabia and Europe.