Ruchi Soya Industries
Issue Open
Price Band
Issue Size
Credit of Shares to Demat
Issue Close
Bid Lot
Listing Exchange
Cut off time for UPI Mandate Confirmation
Issue Type
Minimum Order Quantity
Allotment Details
Face Value
Listing On
Refunds
Issue Details
Issue
Opens |
March
24, 2022 |
Issue
Closes |
March
28, 2022 |
Issue
Size |
INR
4,300 crores |
Issue
Type |
Offer
for sale |
Price
Band |
INR
615- 650 |
Market
Lot |
21
shares |
Objects of
the issue
Repayment and/or prepayment, in full or part, of certain
borrowings availed by the company, Funding incremental working capital
requirements of the company & for general corporate purposes.
Shareholding
pattern (%) |
Pre-FPO |
Post-FPO |
Promoter
& Promoter group |
98.90 |
80.82 |
Public |
1.10 |
19.18 |
Total |
100 |
100 |
About the company
The company is a diversified FMCG and FMHG focused company
with a presence across India. They are one of the largest FMCG companies in
India's edible oil sector, as well as one of the country's largest fully
integrated edible oil refining companies. Aside from edible oil, the company
has a presence in the Nutraceutical business, as well as a packaged food
portfolio which was acquired from 'Patanjali.' They are also involved in the
production of wind energy. They operate throughout the palm and soya value chains,
with a healthy mix of upstream and downstream operations. The government has
allocated them zones for palm plantation, which aids them in the backward
integration of sourcing palm oil.
Key Strengths
Growing market size and an underpenetrated branded segment
Ruchi soya
operates in a variety of businesses under FMCG and FMHG segments. The following
are some of its segments that have a huge market size and growth potential. ~
Edible oil - The Edible oil market in
India is expected to grow at a CAGR of 6% in the coming five years. The branded
edible oil market is expected to grow faster than the overall category. This
growth will be led by a growing disposable income and rising consumer awareness
about healthy lifestyles and wellness. In India out of all the types of edible
oil palm oil has a share of 41%. Their brand, ‘Ruchi Gold’ has a market
leadership position, on account of being India’s highest-selling palm oil
brand. To grow their premium edible oil business, they have capitalized on the
brand strength of ‘Nutrela’ as an umbrella brand that they use for their Plantation - Ruchi Soya ventured into the oil
palm plantation development business as a route to backward integration and is
now one of the largest palm plantation companies in India. Nearly two-thirds of
Indian edible oil requirements are being met by imports and palm oil leads in
these imports. Ruchi Soya has the largest allocated zone of 299,245 hectares
and an MOI with 9 state governments. This initiative will not only help Ruchi
Soya source Palm oil at a cheaper rate for its self-consumption but can also
create a huge B2B business opportunity. India currently imports INR 1.5
trillion worth of edible oil.
Nutraceuticals and wellness Products –The nutraceutical industry has
witnessed immense growth in the country which took a big jump since 2020
because of the onset of the pandemic. This segment is poised to grow at a CAGR
of around 20% in the next three years. This growth will be led by a shift in
consumer behavior, an abundance of herbal raw material & growing focus on
health. Ruchi Soya has positioned its nutraceuticals segment as 100%
vegetarian, non-GMO, natural & preservative free. There is a big
demand-supply gap in this segment as vegetarians (35-40% of the population)
does not prefer taking nutraceuticals as most of the products available are
made out of animals. This initiative thus could prove to be a game-changer for
the company.
Biscuits - India is one of the largest biscuit manufacturing countries after the
US and China. The Indian biscuit market is expected to grow at a CAGR of 9% by 2025.
Biscuits are one the largest and yet fastest-growing segments within packaged
food categories. Patanjali has positioned its biscuits as healthier than its
competitors. It has a complete range of biscuits in whole wheat flour, cow’s
milk and without any maida, trans-fat & artificial colors. It has also
acquired a significant share of 24% in the Doodh/Milk Biscuits market which is
estimated to be INR 1,800 Cr, second to Britannia’s Milk Bikkis with a lion’s
share of ~49%.
Distribution network covering pan India
Ruchi Soya has developed an extensive distribution network throughout
India. The products of the company are sold through a pan India network of over
97 sale depots, 4,763 distributors who in turn reach out, directly to 4,57,788
retail outlets.
After the implementation of the Patanjali Resolution Plan in
terms of the NCLT Order, and entering into the Distributor Agreement, they have
gained access to Patanjali’s well-developed pan-India distribution network
consisting of around 3,409 Patanjali distributors, 3,326 arogya kendras, 1,301
Patanjali chikitsalayas, 273 Patanjali megastores, and 126 Patanjali super
distributors. This provides access to 5,45,849 customer touchpoints including
approximately 47,316 pharmacies, chemists, and medical stores, as of March 31,
2021.
Upstream and downstream integration
Ruchi Soya is one of the few companies in this industry
operating across the value chain, which includes sourcing, supply chain,
manufacturing, branding, and distribution. This enables them to manage costs
more effectively than several of their competitors and also helps in the
scalability of their edible oil business. Their oilseed crushing and oil
refining plants are strategically located in terms of access to raw materials.
They have one of the largest refining capabilities (of 11,000 TPD) along with
the oleochem division that uses the by-products of oil palm refining.
Strong promoter pedigree of Patanjali group, a leading FMCG
and wellness-oriented brand
The company benefits from the strong pedigree. Patanjali
Ayurveda Limited (PAL), one of their Promoters, has a proven track record of
being involved in the FMCG sector in India. They leverage PAL’s sourcing
capabilities, technical know-how and benefit from the PAL’s in-depth
understanding of local markets, its brands, extensive experience in
manufacturing of FMCG products, and trading and advanced logistics network in
India.
Key risks
Revenue dependence on one key product
In Fiscal 2019, Fiscal 2020, Fiscal 2021- and the six-months
period ended September 30, 2021, their revenue contribution from the sale of
edible oil products was 79.10%, 81.03%, 84.51%, and 81.42%, respectively. Thus,
any change in consumer preference for edible oil, especially palm oil will have
an adverse impact on the revenue of the company.
Dependence on third-party suppliers
In the food segment, the key raw materials used are oil
seeds, soya flour, crude vegetable oil, fresh fruit bunches, wheat flour,
vegetable oil/fat etc. The availability and prices of these raw materials are
substantially dependent upon factors that are not under their direct control.
In some cases, a decrease in price causes farmers and traders to hoard their
supply of seeds causing supply to decline even further. Also, if their
suppliers are unable to supply them with adequate quantities of raw materials
at commercially reasonable prices, their business could be adversely affected.
Unfavorable local and global weather patterns may have an
adverse effect
Their businesses are sensitive to weather conditions. The
availability of raw materials that they require for their operations and the
demand for their products may be adversely affected by longer than usual
periods of heavy rainfall in certain regions or a drought in India caused by
weather patterns.
Intense Competition
The company competes primarily in the Indian market, except
in the case of exported soyabean meal where they compete with other
international suppliers. They compete generally on the basis of product
quality, customer service, price, and consistency of supply and distribution
capabilities with respect to their manufactured products.
In the edible oil segment, the combined share of the top six
players in the branded oil business (Adani Wilmar, Ruchi Soya, Emami, Cargill,
Bunge and Marico) has been estimated ~40% in FY2020. Apart from the branded
players the company also faces competition from regional brands.
The packaged food industry has a number of established player
where they compete with the likes of Kellogg, Pepiso, Nestle & ITC who are the
leader in their product categories.
Financial Summary
Particulars (in INR cr) |
FY18 |
FY19 |
FY20 |
FY21 |
Revenue from operation |
11,994 |
12,729 |
13,118 |
16,319 |
Operating profit |
-5,047 |
126 |
406 |
957 |
OPM % |
-42% |
1% |
3% |
6% |
PAT |
-5,573 |
34.13 |
7,714 |
680.7 |
CFO |
882 |
240 |
-61 |
247 |
The company has witnessed steady sales growth over the years.
Its sales have witnessed an 8% CAGR growth over FY18 to FY21. The PAT has seen
a significant improvement this was majorly driven by the loans written off.
Post the resolution the debt which was hovering at around 7,900 crores fell to
half, which has also helped its interest coverage ratio. The ROCE and ROE of
the company stand at 12.1% & 17.6% respectively. With the debt
burden-reducing, the operating efficiency of the company is expected to improve
going forward.
Samco’s stance
Ruchi Soya has witnessed consistent sales growth over the
years. Although the company had run into financial trouble, the company’s
margins and profitability have improved post the takeover by Patanjali.
Further, because the proceeds of the FPO will be used to reduce a major chunk
of debt, the operating performance is likely to improve going forward as well.
Company’s own brands like Nutrela have a strong brand recall and command
leadership positions in few segments. With synergies from Patanjali group and
with a renewed focus on high growth areas, the company’s future prospects seem
promising.
From a valuation perspective as well, the issue seems
reasonably priced and does offer value to its investors. Having said this, as
the main source of the company’s revenue is the edible oil business wherein it
ranks second overall, and considering the moderate growth in the edible oil
industry, the revenue trajectory atleast in the short term, doesn’t seem very
optimistic. Furthermore, the new management has yet to demonstrate its track
record in areas such as nutraceuticals and palm oil plantations, which appear
to be the company's future growth drivers. Hence, investors need to be watchful
of whether the new promoters are able to deliver on the high expectations they
have set. Considering the above factors and also the current market scenario,
we recommend investors to 'SUBSCRIBE WITH CAUTION' to Ruchi Soya’s FPO.