Samco securities limited

Ruchi Soya Industries Ltd FPO

Add to Calendar 2022-03-24 12:00 AM 2022-03-28 12:00 AM Asia/Kolkata Ruchi Soya Industries Ltd FPO Ruchi Soya Industries India

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


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.

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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

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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.

Issue Detail

  • Issue Open: Mar 24, 2022
  • Issue Close: Mar 28, 2022
  • Issue Type: Book Built Issue FPO
  • Face Value: Rs. 2 per equity share
  • Price Band: Rs.615 to Rs.650 per equity share
  • Bid Lot:21 Shares
  • Minimum Order Quantity:21 Shares
  • Listing At: Apr 6, 2022
  • Issue Size: Rs. 4,300.00 Cr

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