Will the `spiritual’ people reward better than ITC’s professional management?
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RUCHI SOYA OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 4,300 Cr (6,61,53,846 equity shares) |
| Offer for Sale | Nil |
| Face Value | Rs 2 |
| Price Band | Rs 615–650 |
| Bid Lot | 21 Nos. |
| Implied M-Cap | Rs 23,530 Cr |
| Implied Equity Cap | Rs 72.40 Cr |
| Free Float | 19.18% |
| Lead Manager | SBI Cap, Axis Cap and ICICI Sec |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening : 24-Mar-2022 | Closing : 28-Mar-2022 |
| Allotment : 31-Mar-2022 | Refunding : 04-Apr-2022 |
| Demat Credit : 05-Apr-2022 | Trading : 06-Apr-2022 |
The Offer
The three and a half decade-old Ruchi Soya Industries Ltd is going public for a second time. The company, which made its maiden public offer 36 years ago for a paltry sum of Rs 1.25 Cr, is now making a mega fresh public issue of Rs 4,300 Cr. The offer is being made through the book-building route with a price band of Rs 615-650 for Rs 2 paid-up share.
Applicants should bid for a minimum lot of 21 shares and multiples thereof. The company’s shares are already listed on both BSE and NSE. The new shares are proposed to be listed on April 6, 2022. SBI Capital Markets, Axis Capital and ICICI Securities are acting as managers to the offer and Link Intime has been roped in as registrar to the issue. The bidding opens on Thursday, March 24 and closes on Monday, March 28 2022.
Of the issue proceeds (Rs 4300 Cr), the company proposes to utilize Rs 2,664 Cr for repayment of loans and Rs 593 Cr for funding working capital requirements. The balance amount net of issue expenditure is earmarked for general corporate purposes.
Lineage
In the mid-eighties when Soya was the talk of the stock pundits, the Madhya Pradesh-based Shahra Group incorporated Ruchi Soya Industries. Within four months of incorporation, the company floated a public issue in April 1986 followed by a Rights Issue in 1992, Private Placement in 1994, Global Depository Receipts in 2006. No doubt, the company achieved a phenomenal growth in the initial years. Within a span of 25 years since its inception, Ruchi Soya grew from Rs 6 Cr to Rs 30,000 Cr worth claiming as India’s biggest FMCG-company!
Under the Shahra management, the stock price hit a peak of Rs 460 in 2007 and the company went for a stock-split, from Rs 10 to Rs 2. Post-split, it scaled up to Rs 165.25 (equivalent to Rs 826.25 pre-split). Nevertheless, after 2011, the stock lost its flavor and eventually Ruchi Soya became a sick company on the back of heavy debt burden. In the second half of 2019, as per NCLT order, the company was forced to go in for reduction and consolidation of capital and the stock was quoted at less than Rs 4 in November 2019.
Under the Insolvency and Bankruptcy Code (IBC), the Patanjali group controlled by yoga guru Baba Ramdev and his associates successfully put up a Resolution Plan and became the promoters of Ruchi Soya from December 18, 2019. Post Patanjali’s entry, the stock price skyrocketed to Rs 1,535 in June 2020 as the floating stock was reduced to just 1.1%!
As of December 31, 2021, the new promoters held 98.9% stake. In terms of the provisions of continuous listing requirement as stipulated under Rule 19A of SCRR, where the public shareholding in a listed company falls below twenty-five per cent due to implementation of a resolution plan approved under section 31 of the IBC, the company is required to bring the public shareholding to twenty-five per cent within a maximum period of three years from the date of such fall. And, if the public shareholding falls below ten per cent, the company should increase the public holding to at least ten per cent, within a period of eighteen months from the date of such fall. The present issue has thus been necessitated to fulfill the listing obligations.
As Ruchi initiated plans to enhance its floating stock through a follow-on public offer (FPO), its stock price in the secondary market started receding. From the peak of Rs 1,535, the price has fallen below Rs 900 on the eve of its public issue.
Key Management
Incidentally, none of the key managerial persons has experience in the listed domain. Patanjali group’s popular face Baba Ramdev (51) is designated as a Non-Executive Non-Independent Director of Ruchi Soya. (While the offer document claims Ramdev’s date of birth as January 10, 1971, Wikipedia presents his age as 56, date of birth being December 25, 1965!)
Ramdev’s close associate Acharya Balkrishna (49) is the Chairman and Non-Executive Non-Independent Director of the company. He has been instrumental in the promotion and formation of Patanjali Ayurved Ltd (PAL) and became the managing director of PAL on October 1, 2007.
Brother of Ramdev, Ram Bharat (42), who is an intermediate from the UP Board of High School and Intermediate Education, has been appointed as Managing Director of Ruchi Soya. He has been associated with PAL since October 2011. How Ruchi will compete with its listed peer-giants like ITC, Britannia, Nestle, etc. which are managed by proven professionals, thus remains to be seen.
Stakeholders
At present, the Patanjali Group is holding 98.9% of the equity capital of Rs 59.17 Cr at an average cost of Rs 7 a share. As there is no offer for sale from the promoters, post-public offer, they will continue to hold Rs 58.52 Cr (80.82%) equity at the same cost of Rs 7 a share while the public will hold about 19% at Rs 650 (cap price). Of the promoters’ stake 20% is locked-in for three years and the balance (60.82%) is locked for one year.
Business Track
Ruchi presents itself as a diversified FMCG and FMHG focused company. It is said to be one of the largest FMCG companies in the Indian edible oil sector and one of the largest fully integrated edible oil refining companies in the country. Being the pioneers and largest manufacturers of soya foods has aided its brand ‘Nutrela’ in becoming a household and generic name in India. Ruchi is across the entire value chain in palm and soya segment, with a healthy mix of upstream and downstream business.
Leveraging upon the brand ‘Nutrela’, the company has launched a range of premium edible oils and blended edible oils, ‘Nutrela High Protein Chakki Atta’ and ‘Nutrela Honey’ in fiscal 2021. Further, in May 2021 it expanded the packaged food business 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 Nutraceutical business. To counter its carbon footprint, Ruchi also generates power from renewable energy sources. As on September 30, 2021, it generated wind power aggregating to 84.6 MW across eleven locations in six states.
Even though Ruchi has nine business verticals, the operations are currently dominated by the edible oil products. In the fiscals 2019, 2020, 2021 and six months period ended September 2021, sale of edible oil products was at Rs 10,069 Cr, Rs 10,629 Cr, Rs 13,791 Cr and Rs 9,169 Cr, respectively contributing 79%, 81%, 85% and 81% of the revenue. According to the offer document (RHP) the company will continue to depend on the sale of oil products especially palm oil and soya oil for a majority of its income in the near future.
Financial Track
Though it was a sick company not long ago, Patanjali’s Resolution Plan has cleaned up Ruchi’s balance sheet. Operationally, Ruchi’s top line is indeed very impressive at over Rs 16,000 Cr. But, its operating margin is still in single lower digits. Cost of raw materials constituted as much as 76%, 83%, 82% and 83% of its revenue from operations for the six months period ended September 30, 2021, fiscal 2021, 2020 and 2019, respectively. However, as compared to the proposed equity base of Rs 72 Cr the company’s bottom line is quite attractive at Rs 681 cr.
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Ruchi Soya Standalone Financials (in Cr) |
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| Year Ended |
Mar-21 |
Mar-20 | Mar-19 | Mar-18 |
Mar-17 |
| Revenue |
16319 |
13118 | 12729 | 11994 |
18527 |
| Operating Profit |
954 |
287 | 122 | -5049 |
-781 |
| OPM% |
5.8 |
2.2 | 1 | -42.1 |
-4.2 |
| Other Income |
64 |
58 | 100 | 35 |
93 |
| EBIDTA |
1018 |
345 | 222 | -5014 |
-642 |
| EBIDTA % |
6.2 |
2.6 | 1.7 | -41.7 |
-3.4 |
| Interest |
371 |
112 | 7 | 856 |
832 |
| Depreciation |
133 |
22 | 138 | 140 |
156 |
| Net Profit |
681 |
210 | 77 | -5565 |
-1260 |
| Accumulated Loss |
0 |
0 | 4543 | 4614 |
0 |
| Equity (Implied) |
72 |
59 | 65 | 65 |
65 |
| Reserves (Implied) |
8290 |
3312 | 958 | 958 |
958 |
| Borrowing |
3490 |
3584 | 7296 | 6650 |
4617 |
| Fixed Assets |
4981 |
5095 | 5251 | 5386 |
5526 |
Ruchi’s quarterly performance in the current fiscal is encouraging. In the 9-month period up to December 2021, the company has logged in revenue of more than Rs 17,500 Cr on which it has netted a profit of Rs 572 cr. If fiscal 2021 trend is any indication, the company is poised to post a profit of more than 10 times its equity capital for fiscal 2022.
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Ruchi Soya’s Recent Quarterly Trend |
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| Quarter Ended |
Dec-21 |
Sep-21 | Jun-21 |
Mar-21 |
| Revenue |
6280 |
5995 | 5266 |
4839 |
| Operating Profit |
420 |
330 | 331 |
250 |
| OPM% |
6.7 |
5.5 | 6.3 |
5.2 |
| Other Income |
21 |
16 | 30 |
21 |
| EBIDTA |
441 |
346 | 361 |
271 |
| EBIDTA % |
7.0 |
5.8 | 6.8 |
5.6 |
| Interest |
88 |
92 | 90 |
90 |
| Depreciation |
33 |
34 | 33 |
33 |
| Net Profit |
234 |
164 | 174 |
314 |
Valuation
Post Patanjali Resolution, in mid 2020, Ruchi stock flared up to Rs 1,535 for want of liquidity. Currently it is placed around Rs 900 compared to which the FPO price band of Rs 615-650 may look attractive. Nevertheless, a couple of points are worth noting here. First, the current market price cannot be an ideal indicator as the company’s present floating stock is just 1.1% of the capital. Second, there could be another dilution (increase in floating stock) in a year’s time as the company has to fulfill the listing obligation of maintain a public float of 25% of the capital. Moreover, as the promoters’ average cost of holding is only Rs 7 a share, after the lapse of the lock-in period of one year, the stock may encounter selling pressure.
In terms of peer valuation, Ruchi’s FPO price appears to be cheaper as compared to the recent IPO of Adani Wilmar. Nonetheless, the current dark horse of the FMCG industry, ITC, with an impressive operating margin of 32% and handsome yield of 4.4%, seems more attractive in the FMCG sector under the present market conditions.
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HOW RUCHI SOYA COMPARES WITH SELECT LISTED PEERS |
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Financials |
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| (Amount in Cr) |
Ruchi Soya |
ITC | Dabur | Britannia | Adani Wilmar |
Nestle |
| Market Cap |
23530 |
301164 | 97155 | 77978 | 50790 |
172202 |
| Borrowing |
3490 |
4 | 483 | 2087 | 1629 |
34 |
| Fixed Assets |
4981 |
25176 | 2004 | 1759 | 4011 |
3240 |
| Revenue |
16319 |
53155 | 9562 | 13136 | 37090 |
14709 |
| Other Income |
64 |
2633 | 325 | 313 | 105 |
120 |
| EBIDTA |
1018 |
19628 | 2327 | 2822 | 1505 |
3475 |
| Interest |
371 |
45 | 31 | 111 | 407 |
201 |
| Net Profit |
681 |
13383 | 1695 | 1851 | 728 |
2145 |
| Equity Cap |
72 |
1232 | 177 | 24 | 130 |
96 |
| Reserves |
8290 |
59116 | 7487 | 3524 | 7121 |
1988 |
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Stock Features |
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| Current Price (Rs) |
650 |
244 | 550 | 3237 | 391 |
17860 |
| Face Value (Rs) |
2 |
1 | 1 | 1 | 1 |
10 |
| Book Value |
137 |
49 | 43 | 147 | 56 |
216 |
| Promoter Stake % |
98.9 |
0.0 | 67.4 | 50.6 | 87.9 |
62.8 |
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Profitability |
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| OPM % |
5.9 |
32.0 | 20.9 | 19.1 | 3.6 |
24.4 |
| Net Margin % |
4.2 |
24.0 | 17.1 | 13.8 | 2.0 |
14.7 |
| Earnings Per Share |
18.81 |
10.68 | 9.59 | 77.37 | 5.60 |
222.45 |
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Return |
||||||
| RONW % |
16.8 |
22.2 | 22.1 | 52.2 | 19.9 |
102.9 |
| ROCE % |
11.7 |
29.8 | 25.6 | 46.6 | 23.4 |
145.6 |
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Discounting |
||||||
| Price/Earnings |
34.6 |
22.9 | 57.3 | 41.8 | 69.8 |
80.3 |
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Price/Book Value |
4.7 | 5.0 | 12.7 | 22.0 | 7.0 |
82.6 |
| Price/EBIDTA |
23.1 |
15.3 | 41.8 | 27.6 | 33.7 |
49.6 |
| Price/Revenue |
1.4 |
5.7 | 10.2 | 5.9 | 1.4 |
11.7 |
| Price/Fixed Assets |
4.7 |
12.0 | 48.5 | 44.3 | 12.7 |
53.2 |
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Distribution |
||||||
| Dividend % |
0 |
1075 | 475 | 14500 | 0 |
2000 |
| Yield % |
0 |
4.4 | 0.9 | 4.5 | 0 |
1.1 |
| Pay-out % |
0 |
99 | 49.5 | 205.0 | 0 |
89.9 |
Concern
- Weakening of Rupee against USD is bound to affect the company’s margin as it has sizable raw material imports.
- The company faces direct and indirect tax proceedings (258 cases) involving Rs 306 Cr which includes an amount of Rs 45 Cr has been paid under protest, and appeal for Rs 261 Cr that has been filed.
- Also, there is a disputed demand of Sales Tax of Rs 835 Cr.