Ruchi Soya Limited. Is it Worth Subscribing?

Business Introduction:

Ruchi Soya Industries, a subsidiary of the Patanjali Group, was founded in 1986 and is one of the major FMCG brands in the Indian edible oil business. It is the world’s largest producer of Soya foods, with operations across the whole value chain in upstream and downstream sectors, as well as secured palm farms.

Ruchi Soya owns 22 production facilities with a combined refining capacity of 11,00 tonnes per day; 16 plants are currently functioning. It has a robust distribution network comprised of 100 sales depots, 4763 distributors, and 457,788 retail locations.

Ruchi Soya is a diversified FMCG and FMHG firm with strategically positioned production facilities and well-known brands that are distributed throughout India. It is one of the major fast-moving consumer goods (FMCG) firms in the edible oil industry in India and one of the largest fully integrated edible oil refining enterprises in the country.

Ruchi Soya Limited Business Operations:

The company operates in a variety of verticals, including edible oil and by-products, oleochemicals, textured soy protein (TSP), honey and atta, oil palm plantation, biscuits, cookies, and rusks, noodles and breakfast cereals, nutraceuticals and wellness, and renewable energy, including wind power. 

At the moment, it is capitalizing on its brand “Neutrela” by offering a range of luxury items such as “Neutrela High Protein Chakki Aata” and “Neutrela Honey.” 

About Founders & Promoters:

Pre FPO, Promoters hold 98.9% of “Ruchi Soya Limited”. Promoters include ‘Patanjali’ Founders Shri. Acharya Balkrishna and others.

Financial Information:

Ruchi Soya reported Sales for the period ended 30th September 2021 stood at Rs. 11,261.19 crore. And Profit After Tax figures (PAT) is at 337.80 crores. 

Market capitalization post-issue will be valued between Rs 22,494 and 23,530 crore, implying an equity dilution of 18.25 – 19.11%. 

Ruchi Soya has a diverse product portfolio, the company has been able to provide good products and thus become profitable now. A turnaround in the business is noticeable.

Ruchi Soya boasts a diverse product portfolio and is one of India’s largest fully integrated edible oil refiners.

As far as valuation is concerned, the company trades at a PE of roughly 32, which is lower than the industry average. The Patanjali group wants this FPO to succeed so that they may launch further FPOs successfully, and they are also likely to launch IPOs for their other parts. 

The company is financially strong, well funded with negligible debt. With strong promoter backing, this FMCG brand could be a fine addition to one’s portfolio. 

SWOT – Risk Analysis:

Opportunity & Strength 

1. A major player in the edible oil market. Ruchi Soya is a leading player in Palm Oil.
2. Associated with one of the leading Consumer Brands (Patanjali India).
3. Operates in Nine (9) business verticals, a fully diversified business portfolio.

Weakness & Threat

1. Dynamic Market with high areas of competition.
2. The company is dependent on third parties for all its raw supplies.
3. Sensitive to Weather Conditions. So, Unfavourable weather could effect business, result of Operation & Financial Conditions.
4. Company is dealing with numerous litigations filed by it and against it.

Management Analysis:

Ruchi Soya Limited under the parent company ‘Patanjali Ayurved’ strives to be India’s top FMCG company by providing superior food products and services at an affordable price. The company is already a household brand with multiple products under its belt.

The company is equipped with top-class management who are well experienced in the industry.

Ruchi Soya Limited FPO Details:

Use of FPO Proceeds:

Patanjali Group now controls around 98.9 percent of Ruchi Soya. Around 1.1 percent of the company is owned by public shareholders. Following the FPO, Patanjali Group’s stake in Ruchi Soya will fall to around 81 percent, while the public will control approximately 19 percent.

So, the main intention of FPO other than raising funds for management, repayment of borrowings & funding working capital requirements is to reduce Promoters holdings to 75% as it is the limit laid down by the SEBI.

Industry Overview:

The packaged food retail industry in India is anticipated to be worth INR 6,00,000 crore in FY 2020, accounting for just 15% of the entire food and grocery retail market, which is estimated to be worth INR 39,45,000 crore in FY 2020. 

While unbranded products such as fresh fruits and vegetables, loose staples, fresh unpackaged dairy, and meat continue to dominate the Indian food retail sector, the packaged food market is growing at nearly twice the rate of the overall category and is expected to reach a market share of 20% by FY 2025. 

Concerns about public health and restrictions on mobility caused by COVID -19 have encouraged the emergence of packaged food items that combine consistency and assurance of quality with convenience.

Packaged food demand increased significantly in the first quarter of FY 2021, as people panicked during the lockdown period. The closure of foodservice establishments has also resulted in an increase in dining occasions at home.

While other retail segments are predicted to decrease by 30-35 percent in the Financial Year 2021 as a result of COVID-19, the packaged food category is expected to increase at a 14% annual rate.

Packaged food continues to be a distributor-driven industry, with 75% of sales generated through general trade (kiranas). However, contemporary retail channels such as hypermarkets, supermarkets, and e-commerce platforms are a rising source of sales for this category, accounting for 25% of packaged food sales. 

The primary reason for general trade’s supremacy is its extensive reach and coverage. Modern retail’s proportion of sales is larger in value-added items such as biscuits and morning cereals than in everyday-need products such as milk pouches, on-the-go products such as aerated drinks, and essentials such as edible oils and wheat flour.

Conclusion:

Since its inception in 1986, Ruchi Soya Industries Limited (Ruchi Soya) has grown into an integrated operator in the edible oil market, with a footprint across the full value chain, from farm to fork, and secured access to Indian palm oil plantations. 

Today, Ruchi Soya is a renowned manufacturer and marketer of a nutritious range of edible oils, as well as a pioneer of soya foods in India. Additionally, it is one of India’s major palm-planting firms.

Ruchi Soya now has 22 production plants with a combined refining capacity of over 11000 tonnes per day, a seed crushing capacity of over 11000 tonnes per day, and a packaging capacity of over 10000 tonnes per day. 

A pan-India presence with strategically located manufacturing facilities that strike the right balance of proximity to raw materials and markets, combined with an extensive distribution network and a large sales force in India, has enabled the company to run smoothly, increase production to meet growing domestic demand, and export by-products such as soya meal, lecithin, and other food ingredients to other countries. Ruchi soya has the right to buy more than two million acres of land in India that can be used to grow palm oil.

What is FPO?

An FPO is a procedure through which a publicly-traded business offers additional shares in the market following the completion of its initial public offering. This is why FPOs are sometimes referred to as “secondary offers.”

Companies often issue an FPO to generate capital from shareholders and investors shortly after launching an initial public offering. Typically, an FPO is created when a business seeks capital to expand or reduce debt. Typically, the corporation will issue FPO in order to diversify its stock basis.

Will I Subscribe to this Ruchi Soya Limited FPO?

Unlike an IPO, when the share price is determined by the company’s success, and FPO’s share price is determined by the market, as the share is already trading.

However, because corporations typically raise FPOs to expand and/or decrease or restructure their debt, one should carefully examine the rationale for the FPO and apply accordingly.

With that said, Ruchi Soya is a pioneering firm in the manufacture of edible oils in India. Due to the constant increase in demand for edible oil, India’s business volume is predicted to climb northward in the future years. It caters extensively to the lower middle and upper-middle classes. As a result, it serves a broader segment of society than its competitors.

And the company is now releasing its FPO in order to reduce its promoter participation while raising its public shareholding.

I will be considering subscribing to “Ruchi Soya FPO” but it’ll be a pure speculative bet. I do not intend to hold on to the company’s shares for the long term.

How to Apply for Ruchi Soya Limited FPO?

Steps to be followed to apply for “Ruchi Soya Limited” via Zerodha console:

Step 1: Visit the Zerodha website and log in to Console.

Step 2: Go to Portfolio and click the FPOs link.

Step 3: Go to the “Ruchi Soya Limited” row and click the ‘Bid’ button.

Step 4: Enter your UPI ID, Quantity (In lots), and Price.

Step 5: ‘Submit’ FPO application form.

Step 6: Visit the UPI App (net banking or BHIM) to approve the mandate.

Do not have a brokerage account? Apply for Zerodha – India’s top brokerage service.

Disclaimer: All the information on this website is published in good faith and for general information purposes only.

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