Chaman Lal Setia Exports Ltd

Initiation Report

Enhancing investment decisions

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process –
Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental
grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The
valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to
grade 1 (strong downside from the CMP).

CRISIL Assessment CRISIL Assessment

Fundamental Grade Valuation Grade
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest
that can bias the grading recommendation of the company.

Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL
(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for
any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without
any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes
investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold
any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this
Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be
reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or
published or copied in whole or in part, for any purpose.
Polaris Software Limited
Chaman Lal Setia
Business momentum Exports Ltd
remains intact
Measured moves for future growth March 04, 2011
Fair Value Rs 39
Fundamental Grade 2/5
4/5 (Moderate fundamentals)
(Strong fundamentals)
CMP Rs 31
Valuation Grade 4/5
5/5 (CMP has upside)
strong upside)
CFV MATRIX
Industry Information
Food technology
Products Excellent
Fundamentals

Chaman Lal Setia Exports Ltd (Chaman Lal) manufactures basmati rice. We
5
assign Chaman Lal a fundamental grade of ‘2/5’, indicating that its

Fundamental Grade
fundamentals are ‘moderate’ relative to other listed securities in India. The 4
grade reflects the company’s small-scale operations and lack of aggression in
business expansion. 3

Management lacked aggression in the past 2

Despite manufacturing basmati rice for more than 25 years, Chaman Lal has
1
not capitalised on the growth potentials due to less focus on expanding its
business. This has resulted in muted volume growth during the past five years, Poor 1 2 3 4 5
while the overall industry export volumes have grown at a CAGR of 14.7%. Fundamentals

Also, the company’s 14 tph (tonnes per hour) production capacity is one of the
Valuation Grade
lowest amongst organised players.

Downside
Strong

Strong
Upside
Measured moves for future growth
With the entry of second generation promoters, Chaman Lal has renewed its
focus on expanding the business. The company has ventured into new KEY STOCK STATISTICS
geographies like Australia, New Zealand and Singapore. It is also planning to NIFTY / SENSEX 5516/18417
increase marketing spend for its brand ‘Maharani’ to increase retail presence. BSE ticker CHAMANSEQ
However, the management is taking measured steps, whereby volumes will Face value (Rs per share) 10
pick up slowly and steadily. Shares outstanding (mn) 5.8
Market cap (Rs mn)/(US$ mn) 1804
Diabetic rice may be a game changer
Enterprise value (Rs mn)/(US$ mn) 505/11
Chaman Lal’s strong R&D has developed rice with low Glimex Index suitable
52-week range (Rs) (H/L) 53/27
for diabetics. The company is currently marketing the rice in export markets
and has entered into an agreement with Marico to supply diabetic rice which Beta 1.09
will be marketed as ‘Safola Arise’. Chaman Lal plans to market the rice locally Free float (%) 25.3%
under its brand ‘Maharani’ in 2HCY12. With the larger populace becoming Avg daily volumes (30-days) 34,316.7
highly health conscious, diabetic rice holds huge potential and can be a game Avg daily value (30-days) (Rs mn) 1.4
changer for the company.
SHAREHOLDING PATTERN
Revenues to grow at two-year CAGR of 5%, EPS to be Rs 12.9 in FY12 100%
CRISIL Equities expects the company’s revenue to grow at a CAGR of 5% to Rs 90%
25.3% 25.3% 25.3% 25.3%
2 bn during FY10 to FY12, supported by increased volumes. PAT is expected to 80%

increase at a CAGR of 3.3% to Rs 74.3 mn over FY10 to FY12. EPS is expected 70%
60%
to be Rs 9.5 in FY11 and Rs 12.9 in FY12.
50%
Valuations: Current market price has upside 40%
74.7% 74.7% 74.7% 74.7%
We have used the P/E multiple approach to value Chaman Lal and arrived at a 30%

fair value of Rs 39 per share. We have assigned a P/E multiple of 3x to the 20%
10%
company as its lack of focus on volume growth can impact profits adversely,
0%
should basmati prices fall. We initiate coverage with a valuation grade of Mar-10 Jun-10 Sep-10 Dec-10
‘4/5’, indicating that the market price has ‘upside’ from the current levels. Promoters Others

KEY FORECAST PERFORMANCE VIS-À-VIS MARKET

(Rs mn) FY08 FY09 FY10 FY11E FY12E Returns
Operating income 1,209 1,538 1,861 1,827 2,061 1-m 3-m 6-m 12-m
EBITDA 100 96 144 129 162 Chaman Lal -3% -8% -28% 9%
Adj Net income 50 35 70 55 74 NIFTY -5% -9% -2% 12%
Adj EPS-Rs 8.7 6.1 12.1 9.5 12.9
EPS growth (%) 123.1 -29.3 97.6 -22.1 36.2 ANALYTICAL CONTACT
PE (x) 3.6 5.0 2.6 3.3 2.4 Chetan Majithia (Head) chetanmajithia@crisil.com
P/BV (x) 0.7 0.7 0.6 0.5 0.4 Amit Kawle akawle@crisil.com
RoCE (%) 14.3 11.3 18.8 15.6 19.8 Suresh Guruprasad sguruprasad@crisil.com
RoE (%) 20.3 13.4 24.1 16.2 19.4
Client servicing desk
EV/EBITDA (x) 6.4 5.0 3.5 3.7 3.0
+91 22 3342 3561 clientservicing@crisil.com
NM: Not meaningful; CMP: Current Market Price
Source: Co mpan y, CRISIL Equ ities estimate

CRISIL EQUITIES | 1
Chaman Lal Setia Exports Ltd

Table: 1 Chaman Lal Setia Exports: Business environment

Key business activity Processing and selling of basmati rice

Revenue composition (FY09) Agri sales (basmati rice): 100%

Geographic presence • Revenue contribution: Exports - 64%; domestic – 36%;

• Export markets (Top five): UAE, Mauritius, Saudi Arabia, Malaysia, Kuwait
• Domestic market: Pan-India distribution

Market position • Small player in the industry

Key competitors • Domestic and export markets: KRBL, REI Agro, Kohinoor foods, LT Foods, unbranded
basmati and private labels

Sales growth (FY06-FY10) 23%

Sales forecast (FY10-FY12) 5%

Demand drivers • Lifestyle changes: With increasing Indian middle-class population, mall culture and
growth in hotels and restaurants, domestic demand for basmati is on the rise.
• Increasing preference for basmati rice in export markets
• Food scarcity across the globe with restriction on normal rice exports

Margin drivers • Purchase of paddy at lower prices instead of purchasing semi-finished rice
• Process improvement and change in product mix

Key risks • Regulatory risks in the domestic and export markets

• Agri business is dependent on rainfall

Source: Company, CRISIL Equities

CRISIL EQUITIES | 2
Chaman Lal Setia Exports Ltd

GRADING RATIONALE
Basmati rice industry: poised for strong growth
India’s basmati rice industry is poised for strong growth following an increase in
India’s basmati rice
demand for basmati rice both locally and internationally. India’s basmati rice
exports have increased
exports have increased at a CAGR of 24% between FY07 and FY10 supported by at a CAGR of 24%
between FY07 and FY10
strong demand from countries such as Saudi Arabia, Kuwait, Iran and the UK.

The industry has greatly benefitted from global acceptance and increase in

demand for the new hybrid basmati varieties such as Pusa – 1121.

The basmati rice industry is attractive, primarily because:

• Premium pricing: Basmati rice is premium long-grain rice with a fine

texture and is one of the most expensive varieties of generally available rice
in the world.

• Lower regulations: Due to its premium nature, basmati rice is not subject

to strict regulations as in normal rice, which is the common man’s food.

• Strong growth in exports: International demand for Indian basmati rice

has grown at a CAGR of 12% since FY00, while the market size has grown

at a 20% CAGR from Rs 17 bn to Rs 109 bn between FY00 to FY10. With

volumes rising at a 24% CAGR since FY07 and pricing at 26%, the industry

CAGR is pegged at 57%. We expect the long-term average of 12% volume

growth to continue over the next three-five years.

• Lifestyle changes: With the increasing Indian middle-class population,

mall culture and growth in hotels and restaurants, domestic demand for

basmati is on the rise.

• Increasing land under cultivation for basmati: The area under

Area under basmati
cultivation in Punjab, Haryana, Uttar Pradesh and Uttarakhand, the basmati
cultivation has increased
belt of India, has increased in FY10 as basmati rice (in particular, the Pusa in FY10
1121 variety) requires lesser water for cultivation and is more lucrative for

the farmers vis-à-vis normal rice.

Figure 1: Manifold increase in basmati rice exports from India

in the past few years
('000) (Rs mn)
2250 109 120

2000 95
100
1750

1500 80

1250
60
1000 43

750 28 30 28 40
22 21 20
500 18 18
20
1163

1167

1046

1182

1556

2017

250
771
849

709
638

667

0 0
FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

Volume (LHS) Value (RHS)

Source: APEDA, CRISIL Equities

CRISIL EQUITIES | 3
Chaman Lal Setia Exports Ltd

Table 2: Significant rise in acreage of basmati rice

Acreage
(hectares) FY08 FY09 FY10
Punjab 537,230 792,670 738,920
Haryana 658,490 610,730 781,400
UP 271,900 254,290 377,790
Uttarakhand 13,300 17,520 29,880
Other’s 33,400 34,260 40,400
Total 1,514,320 1,709,470 1,968,390

Source: RMSI

Chaman Lal – a contained, small player

Chaman Lal started milling of rice in 1974 and ventured into exports in 1982.
With a manufacturing
Despite manufacturing basmati rice for more than 25 years, the company has capacity of 14 tph,
remained a relatively small player in this industry. With a manufacturing Chaman Lal ranks low
compared with other
capacity of 14 tph, Chaman Lal ranks low compared with other players in the players in the basmati
basmati rice industry. rice industry

However, notwithstanding its small size, the company is well known for

producing quality basmati rice. It has also developed a niche for itself by

developing innovative products such as rice for diabetics and pesticide-free

basmati rice.

Figure 2: Basmati rice milling capacity of Indian players

KRBL Ltd 195

Lakshmi Energy* 165

REI Agro Ltd 103

Kohinoor Foods 60

LT Overseas 38

Chaman Lal Setia 14

0 20 40 60 80 100 120 140 160 180 200

MT per hour

*Lakshmi Energy frequently alternates between basmati and non-basmati

Source: Company, CRISIL Equities

Revenues primarily driven by higher realisations

Historically, Chaman Lal has had low focus on expanding its business operations.
Volumes remained range
Its sales volumes remained range bound between FY06 and FY10, while the bound between FY06 and
FY10
export volumes have grown at a CAGR of 14.7% during the same period.

Revenues increased primarily on account of improving industry-wide

realisations.

CRISIL EQUITIES | 4
Chaman Lal Setia Exports Ltd

Figure 3: Volumes have remained range bound Figure 4: Improved realisation boost revenues
40,000 22% 25% 2,000 54% 60%

20% 1,800
35,000 50%
13% 1,600
15%
30,000
35% 40%
1,400
35,657 10%
25,000
1,200
5% 30%
20,000 1,000
35,991 0% 1861
33,456 20%
37,642 29,423 800 1538
15,000
-5%
600 4% 1209 10%
10,000 -5% -10% 400 809
5,000 -17% 0%
-15% 200 948 -1%
- -20% 0 -10%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2006 FY2007 FY2008 FY2009 FY2010

Volumes (MT) Growth (RHS) Revenues Growth (RHS)

Source: Company, CRISIL Equities Source: Company, CRISIL Equities

R&D focus, product innovation can be game changer

Developer of rice for diabetics: Chaman Lal is increasingly focusing on R&D

to develop new processes which will further improve the quality of rice. The

company has developed rice with low Glimex Index (GI), which is suitable for
The company has
developed rice with low
diabetic people who avoid the normal rice. The diabetic rice has been certified by
Glimex Index (GI), which
Indian and international agencies and is already being exported to the UK,
is suitable for diabetic
Singapore, USA and UAE. While the company developed the rice, it was not able
people
to patent it, as it released a working paper on diabetic rice before applying for

patent. As per the management, nobody else has the know-how of processing

basmati rice with lower GI at present.

Launch in domestic market may provide good upside: The company

already sells the low-GI rice in export markets under the Maharani brand. In

domestic markets, it is has entered into an agreement with Marico to be an

exclusive supplier of low-GI basmatic rice. Marico is expected to market the rice

under the brand ‘Saffola Arise’. ChamanaLal expects to launch the diabetic rice

in domestic market under the Maharani brand during 2HCY12. With the change

in focus of people on maintaining a healthy lifestyle the diabetic rice holds huge

market potential and can be a game changer for the Company.

Focus on international markets and branding

Chaman Lal markets its basmati rice under its flagship brand – ‘Maharani’ - both
Chaman Lal has ventured
locally and internationally largely through wholesalers. It is not present in the into new geographies
such as New Zealand,
organised retail market. Domestic sales (~36% of total sales), though branded,
Australia and Singapore
are mostly conducted on a B2B (business to business) basis, where the retailer
buys in large quantities and sells to customers in a small quantity. Hence, the

end customer is not aware of the brands. In the export market, the company

mainly sells through private labels.

Taking the right steps for future growth: With the entry of second
generation promoters, Chaman Lal has renewed its focus on expanding
business. Over the past two years, the company has ventured into new

CRISIL EQUITIES | 5
Chaman Lal Setia Exports Ltd

geographies such as New Zealand, Australia and Singapore. The management It is planning to increase
its production capacity to
expects volume growth to increase as presence in the newer geograhies gets
20 tph in FY12
established. Also, the company is planning to expand its production capacity to
20 tph in FY12 from 14 tph.

New branding strategy: Going forward, Chaman Lal intends to focus on the

promotion of its flagship brand ‘Maharani’ as a premium brand. The company

has already introduced attractive packaging for 'Maharani' rice and is in the

process of launching a print and electronic media campaign to promote the

brand. Establishment of a strong brand could help Chaman Lal improve sales

volume, command higher realisations and improve profitability.

Chaman Lal’s operations not fully integrated

Due to lack of backward and forward integration, Chaman Lal has relatively
Lack of backward and
forward integration
lower profitability compared with other large players such as KRBL and REI Agro. lowers profitability
a) Backward integration: Chaman Lal does not have an integrated
power plant unlike its large competitors.

b) Forward integration: After de-husking the paddy, the company sells

the by-products, bran and husk, in the open market. However, larger
players process the by-product and sell value-added products like bran
oil, de-oiled cakes, furfural and also use the product for power
generation.

Debt/ tonne (Rs) PAT/tonne (Rs)

FY07 FY08 FY09 FY10 FY07 FY08 FY09 FY10

Chaman Lal Setia 4,011 10,516 8,452 7,564 531 1,259 578 1,934
LT Overseas 16,427 25,496 32,442 33,750 1,200 1,724 751 1,631
Kohinoor Foods 24,714 33,543 46,109 46,483 1,185 288 (838) 536
REI Agro Ltd 44,468 23,440 70,509 81,641 3,139 1,044 1,446 2,876
KRBL 14,691 25,997 20,599 18,052 1,480 1,848 2,242 3,717
Lakshmi Energy* 4,459 4,598 25,711 16,955 1,205 1,748 2,180 2,457

Source: Company, CRISIL Equities

CRISIL EQUITIES | 6
Chaman Lal Setia Exports Ltd

Key Risks
Domestic and international regulatory challenges
Basmati rice exports are often hindered by regulatory policies implemented by

the Indian government as well from those countries where the rice is being
exported.

a) Domestic regulations: The Indian basmati rice industry is not highly

regulated. However, the government partially controls it through the
minimum export price (MEP), and may intervene by raising or reducing
MEP. In the past one year, the MEP has seen many fluctuations. In August
2009, MEP was reduced from US$1,100 to US$800 per tonne. Currently the
MEP is at $900. Any major increase in MEP by the government may have an
adverse impact on Chaman Lal’s volumes.

Although historically, India has not witnessed a ban on basmati rice exports,

any policy change in this regard could have a significant impact on the

volumes and revenues of the company.

b) Regulations in export countries

Saudi Arabia: CSE exports rice to the Saudi Arabian market. In order to

reduce inflation, the Consumer Affairs Department in Saudi Arabia withdrew

the import subsidy of $267 per tonne, as a result of which, realisations for

exporters are likely to fall. Any similar events in the importing countries

can have a significant impact on volumes and revenues of the company.

Basmati cultivation dependent on rainfall

While basmati requires less water for cultivation compared to normal rice, it is

still prone to the vagaries of nature. In the event of scanty or no rainfall, the rice

crop including basmati could witness a significant drop in crop cultivation.

CRISIL EQUITIES | 7
Chaman Lal Setia Exports Ltd

Financial Outlook
Revenues to grow on back of volume growth
Figure 5: Revenues expected to grow at a two-year CAGR of 5%
(Rs mn)
2,500 28% 27% 30%

1,827
25%
Revenue growth driven
21%
2,000 primarily by growth in
20%
basmati sales volumes
1,500 2,061
15%

13%
10%
1,000
1,861
1,538 5%
1,209
500
-2%
0%

- -5%

FY08 FY09 FY10 FY11 FY12

Revenues Growth (RHS)

Source: Company, CRISIL Equities

Figure 6: Volumes and growth trend Figure 7: Trend in realisations

(MT) 35,657 (Rs)
22% 55%
45,000 25% 60,000 60%

40,000 20%
40,396 50,000 50%
29,423
35,000 36,888 15%
10%
35,991 34% 40%
30,000 10% 40,000
2% 30%
25,000 5%
30,000
20,000 -5% 0% 51,973 51,588 50,850 20%
49,386
15,000 -5% 20,000
33,569 3% 10%
10,000 -10% -1%
10,000 -4%
-17% 0%
5,000 -15%

- -20% - -10%

FY08 FY09 FY10 FY11 FY12 FY08 FY09 FY10 FY11 FY12

Volumes Growth (RHS) Realizations/MT Growth (RHS)

Source: Company, CRISIL Equities Source: Company, CRISIL Equities

Figure 8: EBITDA margin trend Figure 9: PAT and PAT margin trend
(Rs mn) (Rs mn)
8.3% 3.7% 3.7%
180 9% 80 3.6% 4.0%

160 70 3.5%
8% 3.0%
140
7.9% 60 3.0%
8%
120 129
50 2.5%
7.8%
100 7%
40 2.0%
80 162 74
96 7.1% 7% 70
144 35
30 1.1% 1.5%
60 55
6% 50
100
20 1.0%
40
6.2%
6% 10 0.5%
20

0 5% 0 0.0%

FY08 FY09 FY10 FY11 FY12 FY08 FY09 FY10 FY11 FY12

EBITDA EBITDA margin (RHS) PAT PAT margin (RHS)

Source: Company, CRISIL Equities Source: Company, CRISIL Equities

CRISIL EQUITIES | 8
Chaman Lal Setia Exports Ltd

Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of

management quality, apart from other key factors such as industry and business

prospects, and financial performance.

Experienced management with domain expertise

Chaman Lal is headed by an experienced management who brings along more

than 25 years of experience in the rice production and processing industry. It is

led by Mr Chaman Lal Setia (chairman and managing director) who looks after

the overall management of the company. Mr Vijay Setia (executive director)

looks after procurement, processing and production of rice, while Mr Rajeev

Setia (executive director) looks after marketing and finance activities.

Strong R&D, but patents applied in promoter’s name

Mr Vijay Setia leads the company’s R&D activities and has developed several
processes and technologies which are currently in the implementation stage and

could result in cost savings. The R&D focus has also been vindicated by the

development of new varieties of basmati rice such as rice for diabetics and

pesticide-free rice which has, in turn, improved realisations. Mr Vijay Setia has

also applied for patents in his individual capacity for certain process

improvements done at the plant to reduce the water and power utilisation.

Lack of aggression restricted growth in the past

Chaman Lal’s management has lacked the necessary aggression to expand

business operations. The company continues to operate as a small player with a

production capacity of 14 tph, and its volumes have been range bound over the

past five years despite strong growth reported by the basmati industry.

Second line of management

Chaman Lal’s day-to-day activities are handled by the promoters and it doesn’t

require a strong second line of management. The second generation promoters

have also joined the operations and are actively involved in the business

activities. Mr Vijay Setia’s son Ankit Setia is a qualified food technologist and

supports the company in R&D activities. Mr Sukarn Setia is driving the

company’s marketing intiative and is looking after strengthening Chaman Lal’s

position in the domestic as well export market. As per our interaction with the

management, the company is expected to remain a family-run business.

CRISIL EQUITIES | 9
Chaman Lal Setia Exports Ltd

Corporate Governance
CRISIL’s fundamental grading methodology includes a broad assessment of

corporate governance and management quality, apart from other key factors

such as industry and business prospects, and financial performance. In this

context, CRISIL Equities analyses the shareholding structure, board composition,

typical board processes, disclosure standards and related-party transactions.

Any qualifications by regulators or auditors also serve as useful inputs while

assessing a company’s corporate governance.

Overall, corporate governance at Chaman Lal presents good practices supported

by a strong and fairly independent board, good and relevant experience and

board processes and structures broadly conforming to minimum standards.

Board composition
Chaman Lal’s board consists of well-qualified directors with experience in various

fields. Based on our discussions and the company’s disclosure levels, we are of

the opinion that the board’s structure, processes and disclosure conform to the

required standards.

The board consists of 10 members, six of whom are non-executive directors. Of

the six, five are independent directors. This is well above the minimum

stipulated standard set in the SEBI listing guidelines. The balance sheet

disclosures are sufficient to gauge the involvement of board members in the

meetings. Chaman Lal has various committees in place to support corporate

governance practices. The audit committee is chaired by an independent

director, Mr Inder Dev Kukkar; it has two other independent directors on board

and it meets at timely and regular intervals.

Weak disclosure levels

Chaman Lal has not implemented a proper management information system

which limits its ability to maintain proper business data. The company’s quality

of disclosure is poor, judged by the level of information and details furnished in

annual reports, website and other publicly available data.

CRISIL EQUITIES | 10
 Chaman Lal Setia Exports Ltd

Valuation Grade: 4/5

We have used the P/E multiple approach to value Chaman Lal. We have
Fair value estimate of
assigned a forward P/E multiple of 3x to Chaman Lal’s FY12 EPS of Rs 12.9 and
Rs 39 based on P/E
arrived at the fair value of Rs 39 per share. Lack of focus on volume growth can
approach
impact profits adversely should basmati prices fall. Due to this overhang, we

prefer to use a low muliple of 3x, a 50% discount to the multiple assigned for

KRBL, the best basmati play, as per CRISIL Equities. Accordingly, we initiate

coverage on Chaman Lal with a valuation grade of ‘4/5’, indicating that the

current market price of Rs 31 (as on March 03, 2011) has upside.

Peer comparison
Mkt Cap EPS (Rs) P/E (x) RoE (%) P/BV (x)

Company CMP (Rs mn) FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E

Chamanlal Setia
Exports Ltd 31 180 12.1 9.5 12.9 14.1 2.6 3.3 2.4 2.2 24.1 16.2 19.4 18.5 0.6 0.5 0.4 0.4
KRBL Ltd 25 7195 5.1 5.7 7.4 7.6 4.9 4.4 3.4 3.3 26.0 23.1 24.1 20.0 1.1 0.9 0.7 0.6
Lakshmi Energy
and Foods Ltd 45 2,942 29.4 14.3 17.1 23.8 1.5 3.1 2.6 1.9 36.6 15.3 15.8 18.6 0.5 0.4 0.4 0.3
REI Agro Ltd 28 25,866 4.9 2.3 2.8 na 5.7 12.1 10.0 na 18.2 19.3 18.9 na 1.0 2.3 1.9 na
Median 3.7 3.8 3.0 2.3 25.0 17.7 18.8 18.6 0.8 0.7 0.6 0.4
Average 3.7 5.7 4.6 2.5 26.2 18.5 19.4 18.8 0.8 1.1 0.9 0.4
Source: Industry, CRISIL Equities

Figure 10: One-year forward P/E band Figure 11: One-year forward EV/EBITDA band
(Rs) (Rs mn)
70 900
800
60
700
50
600
40 500

30 400
300
20
200
10
100
0 0
Feb-10
May-10

Feb-11

May-09

Feb-10
May-10

Feb-11
Jul-06

Jul-07

Dec-07
Mar-08

Sep-08
Dec-08
Mar-09

Sep-09
Dec-09

Jul-06

Dec-06
Mar-07

Sep-07
Dec-07
Mar-08

Sep-08
Dec-08
Mar-09
Apr-06

Oct-06
Jan-07
Apr-07

Oct-07

Jun-08

Jun-09

Aug-10
Nov-10

Apr-06

Oct-06

Jun-07

Jun-08

Aug-09
Nov-09

Aug-10
Nov-10

Chaman Lal 1x 2x 3x 4x 5x Chaman Lal 2x 3x 4x 5x

Source: BSE, CRISIL Equities Source: BSE, CRISIL Equities

Figure 12: P/E – premium / discount to NIFTY Figure 13: P/E movement
12
0%
-10%
10
-20%
-30% 8
-40%
-50% 6 +1 std dev

-60%
4
-70%
-80% 2
-90% -1 std dev

-100% 0
Jan-07

Jan-08

Jan-09

Nov-09

Nov-10
Feb-10
May-10

Feb-11
Jul-06

Jul-07

Jul-08
Oct-06

Oct-07

Oct-08

Aug-09

Aug-10
Apr-06

Apr-07

Apr-08

Apr-09
Jan-07

Jan-08

Jan-09

Nov-09

Nov-10
May-10
Jul-06

Jul-07

Jul-08

Feb-10

Feb-11
Oct-06

Oct-07

Oct-08

Aug-09

Aug-10
Apr-06

Apr-07

Apr-08

Apr-09

Premium/Discount to NIFTY Median premium/discount to NIFTY 1yr Fwd PE (x) Median PE

Source: NSE, CRISIL Equities Source: BSE, CRISIL Equities

CRISIL EQUITIES | 11
Chaman Lal Setia Exports Ltd

Company Overview
Incorporated in 1974, Chaman Lal mills, processes and markets basmati rice. It
started exporting basmati rice in 1982. It markets its products in the Middle

East, the UK, the US and Iran. It markets its products under its flagship brand

“Maharani” and also under private labels. Chaman Lal’s rice processing facilities,

located in Amritsar in Punjab and Karnal in Haryana, have a total production

capacity of 14 tph. Over the years, the company has gained strong experience in

the processing of basmati rice and has developed several in-house technologies

that produce quality rice with uniform colour. Chaman Lal has developed an

indigenous technique of clarifying waste parboiling water and adoption of cleaner

fuels and combustion techniques which are under patent application.

Milestones
1974 Chaman Lal Setia established as a partnership firm
1982 Started basmati rice export
1995 Listed on the Bombay Stock Exchange
2007 Started production of basmati rice for diabetics

CRISIL EQUITIES | 12
Chaman Lal Setia Exports Ltd

Annexure: Financials
Income statement Balance Sheet
(Rs mn) FY08 FY09 FY10 FY11E FY12E (Rs mn) FY08 FY09 FY10 FY11E FY12E
Operating income 1,209 1,538 1,861 1,827 2,061 Liabilities
EBITDA 100 96 144 129 162 Equity share capital 94 94 94 94 94
EBITDA margin 8.3% 6.2% 7.8% 7.1% 7.9% Reserves 170 171 224 262 317
Depreciation 10 17 17 17 18 Minorities - - - - -
EBIT 90 79 128 111 144 Net worth 264 265 318 356 411
Interest 35 32 30 34 38 C onvertible debt - - - - -
Operating PBT 56 47 98 77 106 Other debt 493 371 403 353 333
Other income 6 4 4 4 5 Total debt 493 371 403 353 333
Exceptional inc/(exp) (5) (18) (0) - - Deferred tax liability (net) 5 7 11 11 11
PBT 56 34 102 81 111 Total liabilities 762 643 731 720 754
Tax provision 11 16 32 27 37 Assets
Minority interest - - - - - Net fixed assets 67 108 112 120 112
PAT (Reported) 45 18 70 55 74 C apital WIP 0 - 1 1 1
Less: Exceptionals (5) (18) (0) - - Total fixed assets 67 108 114 121 113
Adjusted PAT 50 35 70 55 74 Investments 1 1 1 1 1
Current assets
Ratios Inventory 522 345 373 367 414
FY08 FY09 FY10 FY11E FY12E Sundry debtors 175 157 227 223 252
Growth Loans and advances 11 11 2 12 13
Operating income (%) 27.5 27.2 21.0 (1.8) 12.8 C ash & bank balance 45 80 77 60 33
EBITDA (%) 63.4 (4.6) 50.9 (10.8) 25.6 Marketable securities - 3 - - -
Adj PAT (%) 123.1 (29.3) 97.6 (22.1) 36.2 Total current assets 753 596 680 662 712
Adj EPS (%) 123.1 (29.3) 97.6 (22.1) 36.2 Total current liabilities 58 62 63 64 71
Net current assets 694 534 617 598 641
Profitability Intangibles/Misc. expenditure - - - - -
EBITDA margin (%) 8.3 6.2 7.8 7.1 7.9 Total assets 762 643 731 720 754
Adj PAT Margin (%) 4.1 2.3 3.8 3.0 3.6
RoE (%) 20.3 13.4 24.1 16.2 19.4 Cash flow
RoC E (%) 14.3 11.3 18.8 15.6 19.8 (Rs mn) FY08 FY09 FY10 FY11E FY12E
RoIC (%) 15.6 11.3 17.4 14.4 17.2 Pre-tax profit 61 51 103 81 111
Total tax paid (10) (14) (29) (27) (37)
Valuations Depreciation 10 17 17 17 18
Price-earnings (x) 3.7 5.2 2.6 3.4 2.5 Working capital changes (254) 198 (89) 3 (69)
Price-book (x) 0.7 0.7 0.6 0.5 0.4 Net cash from operations (193) 252 2 75 23
EV/EBITDA (x) 6.3 4.9 3.5 3.7 3.0 Cash from investments
EV/Sales (x) 0.5 0.3 0.3 0.3 0.2 C apital expenditure (15) (58) (22) (25) (10)
Dividend payout ratio (%) 23.7 92.6 25.0 24.8 23.1 Investments and others 1 (3) 3 - -
Dividend yield (%) 5.8 8.8 9.4 7.3 9.3 Net cash from investments (15) (61) (19) (25) (10)
Cash from financing
B/S ratios Equity raised/(repaid) 0 0 1 - -
Inventory days 184 97 85 84 85 Debt raised/(repaid) 217 (122) 32 (50) (20)
C reditors days 16 11 10 10 10 Dividend (incl. tax) (11) (16) (17) (14) (17)
Debtor days 53 37 45 45 45 Others (incl extraordinaries) (6) (18) (0) (2) (3)
Working capital days 158 131 97 108 101 Net cash from financing 200 (156) 15 (66) (40)
Gross asset turnover (x) 8.3 8.6 8.7 7.7 8.1 C hange in cash position (8) 35 (3) (16) (27)
Net asset turnover (x) 18.8 17.6 16.9 15.7 17.8 C losing cash 45 80 77 60 33
Sales/operating assets (x) 18.8 17.6 16.8 15.6 17.6
C urrent ratio (x) 12.9 9.6 10.8 10.4 10.0 Quarterly financials
Debt-equity (x) 1.9 1.4 1.3 1.0 0.8 (Rs mn) Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
Net debt/equity (x) 1.7 1.1 1.0 0.8 0.7 Net Sales 535 505 347 428 498
Interest coverage 2.6 2.5 4.3 3.2 3.8 C hange (q-o-q) 40% -6% -31% 23% 16%
EBITDA 34.2 55.7 19.0 18.9 33.1
Per share C hange (q-o-q) 57% 63% -66% -1% 76%
FY08 FY09 FY10 FY11E FY12E EBITDA margin 6.4% 11.0% 5.5% 4.4% 6.7%
Adj EPS (Rs) 8.7 6.1 12.1 9.5 12.9 PAT 18.9 27.8 7.1 10.1 16.7
C EPS 10.4 9.1 15.0 12.5 16.0 Adj PAT 18.9 27.8 7.1 10.1 16.7
Book value 45.8 45.9 55.1 61.8 71.2 C hange (q-o-q) 45% 47% -74% 42% 64%
Dividend (Rs) 1.8 2.8 3.0 2.3 3.0 Adj PAT margin 3.5% 5.5% 2.1% 2.4% 3.4%
Actual o/s shares (mn) 5.8 5.8 5.8 5.8 5.8 Adj EPS 3.3 4.8 1.2 1.7 2.9

Source: CRISIL Equities

CRISIL EQUITIES | 13
Chaman Lal Setia Exports Ltd

Focus Charts
Increase in India’s basmati rice exports Basmati rice milling capacity of Indian players

KRBL Ltd 195

('000) (Rs mn)
2250 109 120
Lakshmi Energy* 165
2000 95
100
1750
REI Agro Ltd 103
1500 80

1250 Kohinoor Foods 60

60
1000 43

750 28 30 28 40 LT Overseas 38
22 21 20
18 18
500
20 Chaman Lal Setia 14
1163

1167

1046

1182

1556

2017
250
849

771
709
638

667

0 0
0 50 100 150 200
FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10
MT per hour

Volume (LHS) Value (RHS) *Lakshmi Energy alternates between basmati and non-basmati
frequently
Source: Company, CRISIL Equities Source: Company, CRISIL Equities

Volumes and growth trend Realisation trend

(MT) (Rs)
22% 55%
45,000 25% 60,000 60%

40,000 20%
40,396 50,000 50%
35,000 36,888 15%
10%
35,991 34% 40%
30,000 35,657 10% 40,000
2% 30%
25,000 5%
30,000
20,000 29,423 0%
-5% 51,973 51,588 49,386 50,850 20%
15,000 -5% 20,000
33,569 3% 10%
10,000 -10% -1%
10,000 -4%
-17% 0%
5,000 -15%

- -20% - -10%

FY08 FY09 FY10 FY11 FY12 FY08 FY09 FY10 FY11 FY12

Volumes Growth (RHS) Realizations/MT Growth (RHS)

Source: Company, CRISIL Equities Source: Company, CRISIL Equities

PAT and PAT margin trend Shareholding pattern over the quarters
(Rs mn) 100%
3.7% 3.7%
80 3.6% 4.0%
90%
25.3% 25.3% 25.3% 25.3%
70 3.5% 80%
3.0%
60 3.0% 70%

50 2.5% 60%

40 2.0% 50%
74
70
35 40%
30 1.1% 1.5% 74.7% 74.7% 74.7% 74.7%
55
50 30%
20 1.0%
20%
10 0.5%
10%
0 0.0%
0%
FY08 FY09 FY10 FY11 FY12 Mar-10 Jun-10 Sep-10 Dec-10

PAT PAT margin (RHS) Promoters Others

Source: Company, CRISIL Equities Source: Company, CRISIL Equities

CRISIL EQUITIES | 14
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