Ruchi Soya Industries coming with an FPO to raise upto Rs 4544 crore

Ruchi Soya Industries

• Ruchi Soya Industries is coming out with a 100% book building; follow on public offer (FPO) of 6,99,08,699 shares in a price band Rs 615-650 per equity share.
  
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors. 
  
• The issue will open for subscription on March 24, 2022 and will close on March 28, 2022.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 2 and is priced 307.50 times of its face value on the lower side and 325 times on the higher side.
  
• Book running lead managers to the issue are SBI Capital Markets, Axis Capital and ICICI Securities.
  
• Compliance Officer for the issue is Ramji Lal Gupta.
  

Profile of the company

The company is a diversified FMCG and FMHG focused company, with strategically located manufacturing facilities and well recognised brands having pan India presence. It is one of the largest FMCG companies in the Indian edible oil sector and one of the largest fully integrated edible oil refining companies in India. Being the pioneers and largest manufacturers of soya foods has aided its brand ‘Nutrela’ in becoming a household and generic name in India. It is across the entire value chain in palm and soya segment, with a healthy mix of upstream and downstream business.

The company has been allocated zones, to undertake palm plantation, by the Government, which assists it in backward integration of sourcing palm oil. Ruchi Soya is the largest player in terms of allocated zones. Its integration also extends downstream to the oleochemicals and other by-product and derivatives business. It is pioneers in soya chunks which are associated with nutrition and good health. Leveraging upon the brand ‘Nutrela’, it has launched a range of premium edible oils and blended edible oils and ‘Nutrela High Protein Chakki Atta’ and ‘Nutrela Honey’ in Fiscal 2021. Further, it has expanded its packaged food portfolio by acquiring the ‘Patanjali’ product portfolio of biscuits, cookies, rusks, noodles, and breakfast cereals. In Fiscal 2022, it forayed into a niche and a high growth FMHG segment with the launch of its Nutraceutical business. It is also into the wind power generation business, where the renewable power generated is used for sale and for captive use. This also helps it to offset its carbon footprint, to the extent possible. 

The company is a part of the Patanjali group, one of India’s leading FMCG and health and wellness company. Their portfolio includes health and ayurvedic products, cosmetics, processed food, beverages and juices, and personal and home care products. It leverages Patanjali’s expertise and technical know-how in nutraceuticals and benefit from the synergy in the research and development and the pan India distribution network. 

Proceed is being used for:

• Repayment and/ or prepayment of borrowings from consortium of lenders and PAL, one of company’s Promoters, in full or part, availed by the company.
  
• Funding incremental working capital requirements.
  
• General corporate purposes.
  

Industry overview

Edible oils are indispensable to Indian cooking. Growing population, changing tastes and preferences of consumers, shifting consumption pattern towards branded oils and consistent marketing and distribution initiatives by leading edible oil brands is leading to rising consumption of edible oils in the country. The total consumption of edible oil in Indian in FY 2020 has been estimated to be 22 million MT. Out of the total requirement, it is estimated that 10 million MT is produced domestically from primary (Soybean, Rapeseed& Mustard, Groundnut, Sunflower, Safflower & Niger) and secondary sources (Oil palm, Coconut, Rice Bran, Cotton seeds & Tree Borne Oilseeds) and remaining 60%, is met through import. The edible oil retail market is estimated to be Rs 1,79,500 crore in FY 2020 and is expected to grow at a CAGR of 6% in the coming 5 years. It has been growing steadily at a CAGR of 6% in the last five years. The share of unbranded play is consistently dropping and is estimated to shrink to 10% by FY 2025. The branded edible oil market is estimated to be around Rs 1,56,000 crore and is expected to grow faster than the overall category gaining a lion’s share of close to 90% of the total market in terms of value in the coming five years.  It is estimated that close to 75% of the total edible oils available in terms of volume is retailed as a branded product. The edible oil industry in India is fragmented wherein 13% of oil is sold as loose/unbranded and the consumers are shifting to branded oils, which bodes well for the organized players.

The size of the soya chunks retail market in India is estimated to be at Rs 2,000 crore comprising both of branded and unbranded segments with almost equal share in terms of value. The total market for branded soya chunks is Rs 1,000 crore nationally with West Bengal having a market share of more than one third of total size. The growth in soya chunks is led by the eastern and northern regions of India which contribute 80% sales to the total market of soya chunks (branded and unbranded) as recipes such as soya chunks, dry soya granules bhurji, soya chaps, soya pulao and many others have been a part of regular diet in these regions since the 1990s. Soya chunks provide an alternative to cottage cheese in the north and to meat in the eastern region. Consumption in the western and southern regions has remained relatively low and wider acceptance in these regions may require advocacy and integration with traditional recipes.

Pros and strengths

Strong promoter pedigree of Patanjali group: The company benefits from the strong promoter pedigree. Patanjali Ayurved, one of its Promoters, has a proven track record of being involved in the FMCG sector in India. It leverages Patanjali Ayurved’s sourcing capabilities, technical know-how and benefit from the Patanjali Ayurved’s in-depth understanding of local markets, its brands, extensive experience in manufacturing of FMCG products and trading and advanced logistics network in India. Its core approach to marketing is an influence and advocacy model that relies on word of mouth as well as endorsement from professionals, brand ambassadors and its customers. As part of its Board of Directors, Ramdev is a Non-Executive Non-Independent Director and brand ambassador of the company and hence the company is well poised to benefit from Ramdev’s immense marketing and execution skills pursuant to which he has steered Patanjali into becoming a leading FMCG group in India, in a period of less than seven years. Continuous involvement in creating mass awareness of its products will have a strong impact on the demand of its products in future.

One of the key players in palm oil plantation: The company 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 it to manage costs more effectively than several of its competitors and also helps in scalability of its edible oil business. It also gives it the flexibility to alter its mix of products in line with any changes in the demand for its products or in the availability or the price of its key raw materials at any given time. Over the years the Company has developed relationships with some of the large oil suppliers in the world. Its supply chain is further bolstered, with the palm plantation business which works with farmers in a total aggregate area of 2,99,245 hectares of which 56,106 hectares is under cultivation across nine states, in certain specified areas, in return for providing them certain technical and other assistance in relation to palm oil cultivation.

Enjoy strong brand recognition in Indian market: There has been an increased preference for branded food products among retail consumers in India. This shift is a result of a number of different factors, such as an increase in awareness of health and hygiene- related matters, growth of the organized retail distribution network and the rise in purchasing power among consumers, including in rural areas. It has a strong portfolio of brands focused on various types of edible oils and soya foods. Its brand ‘Nutrela’ is synonymous with TSP and is a household and generic name. Its nutraceuticals brand Patanjali- Nutrela is focused on health and wellness and reaps the benefits of the association with a proven brand like, Patanjali. Its robust brands portfolio comprises of Nutrela, Mahakosh, Ruchi Gold, Ruchi Star, Sunrich, Soyumm and other brands, which are well positioned in the market. Its brand, Ruchi Gold has market leadership position on account of being India’s highest selling palm oil brand. Its products strategically cater to the premium as well as popular market categories, which makes its products less susceptible to shifts in consumer preferences, market trends and risks of operating in a particular product category. 

Presence across mass, value and premium segment: The company’s diversified product portfolio enables it to cater to a wide range of tastes, preferences, price points and consumer segments. It has products in the premium as well as mass market categories, which makes its products less susceptible to shifts in consumer preferences, market trends and risks of operating in a particular product category. Its ‘Nutrela’ brand is positioned as a premium brand focused on the health and wellness platform. Its ‘Mahakosh’ brand is focused on the middle-income segment and its ‘Ruchi Gold’ brand is focused as a “mass” brand focused on the middle and lower-income segments. As on March 31, 2021, its diversified product portfolio for its edible oil segment consists of 233 SKUs. It will continue to expand its product portfolio within the existing product segments, focus on increasing sales realisation and volumes, and strive to provide differentiated offerings to its consumers. It seeks to leverage its extensive experience to strengthen its industry position, by developing new products to capitalise on emerging trends. Its various brands cater to the varied requirements of its customers.

Risks and concerns

Unfavourable local and global weather patterns: The company’s businesses are sensitive to weather conditions, including extremes such as drought and natural disasters. There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. The availability of raw materials that it requires for its operations and the demand for its 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 such as the El Nino. Excessive rainfall may lead to poor pollination of palms, decrease the effectiveness of fertilizers and affect harvesting, while drought results in oil palm plantations forming fewer fruit bunches. Adverse weather conditions may also cause volatility in the prices of commodities, which may affect growers’ decisions about the types and quantum of crops to plant and may consequently affect the sales of company’s crop protection products. Further, it may be subjected to decreased availability of water, which could impact its manufacturing operations.

Require sizeable amounts of working capital: The company’s business requires working capital for day-to-day operations, procurement of raw materials and production. In addition, certain purchase orders may require a considerable increase in materials and production costs. The credit period given to customers may be considerable and customers may not be invoiced for products until the time of product delivery or after product delivery and, in some cases, the customer may not pay its invoices on time or at all. Further, its working capital requirements are likely to increase owing to additional businesses such as biscuits, cookies, rusks, noodles, breakfast cereal and nutraceuticals. There may be circumstances where funds available with it may not be sufficient to fulfil its business commitments, and it may need to incur additional indebtedness, or utilize internal accruals to satisfy its working capital needs.

Some of products are subject to seasonal variations: As soybean and other oilseeds are seasonal crops, the company’s utilization rates of the same vary significantly throughout the year. It typically process a substantial quantity of soybean between October to April, with the peak months being from mid-October to mid-April. Its utilization rates are typically significantly lower between May and September. Each of its oilseed crushing plants is shut down for a total of approximately 30 days a year for maintenance during the off season, typically from August to September. As a result of these seasonal fluctuations, its sales and operational results for the seasonal product categories in different quarters within a single fiscal year vary and sales and operational results may not be relied upon as indicators of sales or operational results of other fiscal quarters or of its future performance. Its inability to manage seasonal variations effectively may have an adverse effect on its business and financial condition.

Fluctuations in price of crude palm oil: The results of operations of the company’s oil palm business depend heavily on the price of crude palm oil and oil palm products. Crude palm oil prices are subject to a high degree of volatility and cyclicality, and are affected by, among other things: (i) the prices of crude oil and biofuels; (ii) the supply of and demand for crude palm oil and other oil palm products and substitute oils, particularly soy oil; (iii) global production levels and physical stocks of crude palm oil and other vegetable oils, which are affected principally by global weather conditions, the total area of land under cultivation, and the supply of and demand for suitable oil palm farm land; (iv) global consumption levels of crude palm oil and other vegetable oils; and (v) import and export duties and other taxes and regulations related to crude palm oil, fresh fruit bunches and other vegetable oils. Further, in the event of a significant and prolonged reduction in the prices for crude palm oil and palm-oil based products, farmers may uproot their oil palm crops, which could adversely affect its business and results of operations.

Outlook

Ruchi Soya Industries, a part of Patanjali Group, is one of the leading FMCG brands in the Indian edible oil sector. It is the largest manufacturers of soya foods with a presence across the entire value chain in upstream and downstream businesses with secured palm plantations. The company operates in different verticals such as Edible oil and by-products, Oleochemicals, Textured Soya protein (TSP), Honey and Atta, Oil Palm Plantation, Biscuits, Cookies, and Rusks, Noodles and Breakfast cereals, Nutraceuticals and wellness, and Renewable energy wind power. Currently, it is leveraging its brand Neutrela with a range of premium products like Neutrela High Protein Chakki Aata and Neutrela Honey. The company benefits from a strong, established and extensive distribution network in India and a large sales force which is focused on maintaining and developing distribution relationships. 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 (general trade channel) in the urban, semi-urban and rural areas of the country in addition to its increasing focus on modern trade and e-commerce platforms like Big Basket. On the concern side, the company faces an inherent business risk of exposure to product liability or recall claims in the event that its nutraceutical and wellness products fail to perform as expected or any such failure results, or is alleged to result, in bodily injury or property damage or both. It operates in the branded edible oil, soya food products, oleochemicals, biscuits, cookies, rusks, noodles and breakfast cereals segment and have recently forayed into nutraceuticals business and face significant competition from Indian as well as international brands.

The issue has been offered in a price band of Rs 615-650 per equity share. The aggregate size of the offer is around Rs 4299.38 crore to Rs 4544.06 crore based on lower and upper price band respectively. On the performance front, the company’s revenue from operations increased to Rs 16,31,863.30 lakh in FY 2021 from Rs 13,11,778.81 lakh in FY 2020. The company’s profit for the year decreased by 91.18% to Rs 68,077.18 lakh in FY2021 as compared to Rs 771,461.39 lakh in FY2020. The company intends to leverage the brand equity that it enjoys as a result of its relationship with the Patanjali group. It also intend to increase its FMCG/ food product portfolio by continuous leveraging the strong brand equity of Patanjali and utilizing the strong distribution network, economies of scale, in-house manufacturing, the research and development capabilities and the experience of Patanjali group. It also aspire to be a key FMCG player and therefore as part of the company’s strategy evaluating the synergies with PAL’s food portfolio through a business transfer in near future. It intends to increase its market share in branded edible oil products and food products in India.