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After touching multi-year highs, prices of select agricultural products like rice and sugar are trading at close to the 10 to 15 years high. Neither is the first nor the last time that this trend has been visible. More important is whether this trend is sustainable, if yes, then what it means for companies that are part of the whole chain, either as consumers or suppliers? Another important issue is whether retail investors should look at these stocks as tactical plays or as long-term investments. To understand whether the up trend would be sustained or not, we have to look at the reasons why prices are moving upward.
First, is the Ukraine war, which led to logistic issues at some important ports. Second, countries are becoming more protectionist. Third, sudden changes in climatic conditions lead to a drop in the production of rice.
War will get settled, hopefully, sooner than later, but if the prices stay at elevated levels, the protectionist policy will get a further push as no government would want food inflation to stay at higher levels, especially for locally produced agricultural products.
As far as climatic changes are concerned, they keep happening in different parts of the world and impact different crops. The only thing which may happen is that the frequency of these disturbances may get higher.
The current wave of rising prices brings in a mixture of head and tailwinds. Companies which are exporting rice and that are too branded are likely to gain. Companies where
agro products like sugar and rice go as inputs and are likely to face some pressure on margins.
When we looked at companies in the sector, of the four companies, only two had ratings from analysts. Given the fact that most of these companies are in small-cap space, they don't get much attention from institutional investors. But if one looks at the price performance of these stocks in the last month it is clear that the street is smelling the aroma of basmati rice.
The data used in screening down these stocks has been gathered from Refinitiv’s Stock Report Plus. The data used in screening the following 4 stocks have been gathered from the latest Refinitiv’s Stock Reports Plus report dated June 9, 2023.
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KRBL Limited is a basmati rice processing company. The Company is engaged in seed development, contract farming, procurement of paddy, storage, processing, packaging, branding, and marketing of basmati rice. It operates in Domestic Agri-division, which includes agricultural commodities, such as rice, Furfural, seed, bran and bran oil, and others; and the Power division, which includes power generation from wind turbines, husk-based power plants, and solar power plants. The Company's geographical segments include Sales within India and Sales outside India, including the Middle East and Other than the Middle East. The Company offers its rice under a range of brands, including India Gate, Nur Jahan, Telephone, Train, Unity, Lotus, Lion, Doon, Aarati, Shubh Mangal, Al Wisam, Al Bustan, Alhussam, Blue Bird, City Palace, Necklace, Southern Girl, Taj Mahal Tilla, Bemisal and Indian Farm, among others. It exports its products to Saudi Arabia, Iran, Iraq, Yemen Republic, Kuwait, and others.
LT Foods Limited is a consumer food company. The Company operates through the manufacture and storage of rice segments. It operates in three principal geographical areas of the world: India, America, Europe, and other countries (The rest of the world). The Company is primarily in the business of milling, processing, and marketing branded and non-branded basmati rice and manufacturing of rice food products in the domestic and overseas markets. Its operations include procurement, storage, processing, packaging, and distribution. The Company is also engaged in research and development to add value to rice and rice food products. The Company's rice product portfolio comprises brown rice, white rice, steamed rice, parboiled rice, organic rice, quick-cooking rice, value-added rice, and flavored rice in the ready-to-cook segment. Its brands include Daawat, Heritage, Devaaya, Chef Secretz, and Rozana, which cater to a diverse customer portfolio.
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Source:
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