Should you invest in Ruchi Soya Industries FPO?

Ruchi Soya Industries Limited incorporated on 6th January 1986, a part of Patanjali Group, 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. It has brands such as Mahakosh, Sunrich, Ruchi Gold and Nutrela. It is also the largest player in terms of allocated zones, to undertake palm plantation, by the Government, which assists them in backward integration of sourcing palm oil.

Ruchi Soya Industries FPO

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The company primarily operates in the business of processing oilseeds, refining crude edible oil for use as cooking oil, manufacturing soya products, and value-added products. It has also expanded its packaged food portfolio by acquiring the ‘Patanjali’ product portfolio of biscuits, cookies, rusks, noodles, and breakfast cereals. ‘Ruchi Oil Palm’ has the largest allocated zone of 2,99,245 hectares. The company has a total of 23 processing plants (of which 17 are currently operational) across India, out of which 10 such processing plants form their oil crushing and refinery units, and 1 biscuit manufacturing plant. It has a pan India network of over 97 sale depots, 4,763 distributors who in turn reach out, directly to 457,788 retail outlets in the urban, semi-urban, and rural areas of the country.

Promoters & Shareholding:

Acharya Balkrishna, Ram Bharat, Snehlata Bharat, Patanjali Ayurved Limited, Patanjali Parivahan Private Limited, Divya Yog Mandir Trust, Patanjali Gramudyog Nayas, Ruchi Soya Industries Limited Beneficiary Trust, Yogakshem Sansthan, Vedic Broadcasting Limited, Patanjali Peya Private Limited, Patanjali Natural Biscuits Private Ltd, Divya Packmaf Private Ltd, Vedic Ayurmed Pvt Ltd, Sanskar Info TV Pvt Ltd, Patanjali Agro India Pvt Ltd, SS Vitran Healthcare Pvt Ltd, Patanjali Paridhan Pvt Ltd, Gangotri Ayurveda Limited, Swasth Aahar Pvt Ltd, and Patanjali Renewable Energy Pvt Ltd are the company promoters.

Pre Issue Share Holding98.90%
Post Issue Share Holding80.82%

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Public Issue Details:

Offer for sale: Issue of approx. 66,153,846 equity shares of Rs. 2 aggregating up to Rs. 4300 Cr.

Total FPO Size: Rs. 4300 Cr.

Price band: Rs. 615 – Rs. 650.

Objective: To utilize the entire issue proceeds for furthering the company’s business by repayment of certain outstanding loans, meeting its incremental working capital requirements, and other general corporate purposes.

Bid qty: minimum of 21 shares (1 lot) for Rs. 13,650 and maximum of 14 lots.

Offer period: 24th Mar 2022 – 28th Mar 2022.

Date of allotment: 31th Mar 2022.

Pros:

  • One of the leading FMCG brands in the Indian edible oil sector.
  • It is a part of Swami Ramdev led FMCG company, Patanjali group.
  • Strong and extensive network distribution in India.
  • Professional and experienced management team.
  • Upstream and downstream integration and one of the key players in Oil Palm Plantation.
  • Strong brand recognition of the products in the Indian market.

Risks:

  • It depends almost entirely on third-party suppliers in respect of the availability of its raw materials.
  • Unfavourable local and global weather patterns may harm its business.
  • Non-compliance with and changes in, safety, health, environmental, and labour laws and other applicable regulations, will adversely affect its business.
  • Subject to business risks inherent to the palm oil and soy industries.

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Subscribe or avoid?

Sectorial outlook – The per capita income of India has been showing an increasing trend since 2012; growing at a healthy CAGR of approximately 10% and since India’s share of domestic consumption, measured as private final consumption expenditure, in its GDP was ~60% in CY21. The high share of private consumption to GDP has the advantage of insulating India from volatility in the global economy. It also implies that sustainable economic growth directly translates into sustained consumer demand for goods and services, along with the government’s various programs such as ‘Aatmanirbhar Bharat Abhiyan’ etc are expected to have a positive impact on the FMCG industry in the long term.

The financials (revenue and net profit) are shown in the graph below:

Valuation – For the last 3 FY, the average EPS is Rs. 299, but this is skewed since the EPS in FY20 is 871.3 and the P/E is around 22x on the upper price band of Rs. 650.. Britannia Industries (P/E 53.3), Tata Consumer Products (P/E 82.1), Dabur India (P/E 53.4), Marico Ltd. (P/E 50.5), and Nestle India (P/E 80.5), etc. are its listed peers as per the RHP. The company P/E is between 34x and 22x, and looking at the industry average P/E, the listing seems to be reasonable.

Recommendation – Recommendation – It is one of the leading FMCG brands in the Indian edible oil sector with the strong brand recognition of the products in the Indian market due to It being a part of Swami Ramdev led FMCG company, Patanjali group. It has also been able to maintain average annual revenue growth of approx. 18% in the last 3 years but we would recommend investors to be cautious because even though the valuations look good, taking the company’s history into consideration, the current share price might not be really be discounted as it is appearing and hence, we would recommend investors to “AVOID” the FPO for now.

Disclaimer:

This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in

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