Dharmic Bull

New Portfolio Entry: Chamanlal Setia Exports Limited

Buy Price: 255

Reasons for buying:

  1. Company is a leading Basmati rice exporter deriving 90% of its revenues from over 50 countries. About 10-15% of company’s revenues come from their own brands and rest are supplies to brands.
  2. Company buys from mills and farmers and then cleans and packages the rice as per client requirements. They have US FDA approved facilities.
  3. In case of future drought or water preservation efforts, Basmati won’t be affected too much because unlike normal rice, it doesn’t need a lot of water.
  4. Basmati is also GI protected. Company has won cases around the world against fake producers. Due to economic crisis, Pakistan’s market share has gone down.
  5. They want to increase share of domestic branded business as there are only 2 serious competitors – India Gate and Daawat. They have taken the initial steps by selling on e-commerce website.
  6. Company is cash rich with minimal debt on its books.
  7. As per concalls, it appears that promoters are baniya and know their dhandha.
  8. Company’s future direction is more value-added rice, branded rice and possibly other food products which they are currently evaluating.
  9. Company is available at a cheaper valuation than other listed peers like KRBL and LT Foods despite having better return metrics than them.
  10. Company has resumed doing regular concalls after a Covid induced hiatus.

Risks:

  1. Cash flows are average and inconsistent. Need to see improvement as they grow into a larger sized company.
  2. They claim to be asset light, but this also means their margins are relatively more volatile than fully integrated producers like KRBL.
  3. As with any agricultural product, output is affected by climate. Diversification into other crops can reduce risk but not eliminate it.
  4. This sector is also prone to government intervention which can be both positive or negative. It’s just unpredictable.

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