Ruchi Soya FPO: 7 Things to Know

Baba Ramdev's Ruchi Soya, a subsidiary of Patanjali Ayurveda is all set to launch its follow on public offer (FPO) on 24 March 2022 to raise up to Rs 43 bn.

The three-day offer will be open for subscription till 28 March 2022.

Following the news, shares of Ruchi Soya Industries have surged close to 28% in the last five consecutive sessions.

Despite the general bullish market sentiment, the firm's stock price came under selling pressure on Thursday. Shares of the company were trading down by 4% on the BSE.

What is an FPO?

Follow on public offers (FPOs) are popular methods for companies to raise additional equity capital in the capital markets through a stock issue and diversify their equity base.

In basic words, a company uses FPO after it has gone through the process of an IPO and decides to make more of its shares available to the public or to raise capital to expand or pay off debt.

An initial public offering (IPO) is the first or initial sale of shares of a company to the general public, but an FPO is an additional share sale offer.

In an IPO, the company whose shares get listed is a private company. Following the IPO, the issuer joins the likes of other publicly listed corporations.

The shares for sale in an FPO, on the other hand, belong to a firm that has already been listed on the markets.

Ruchi Soya FPO Details

In a regulatory filing late last week, Ruchi Soya said a committee of the board approved and adopted the red herring prospectus (RHP).

Last year in August, the company had received capital markets regulator's go-ahead to launch the FPO. It had filed the draft red herring prospectus (DRHP) in June 2021.

FPO Details

IPO Opening Date	24-Mar-22
IPO Closing Date	28-Mar-22
Issue Type	Book Built Issue FPO
Face Value	Rs 2 per equity share
Issue Size	Rs 43 bn
QIB Shares Offered	50% of the net offer
Retail Shares Offered	35% of the net offer
NII (HNI) Shares Offered	15% of the net offer

Data Source: RHP

The price band and lot size of the company's upcoming FPO is yet to be finalised by the company.

According to speculations, the company will price the FPO at 10-15% discount to the prevailing market price to entice investors.

Why Ruchi Soya is coming out with an FPO?

The FPO is being launched to comply with the 25% minimum public shareholding (MPS) requirement.

At the moment, Patanjali holds around 98.9% of the firm, and it is required to reduce its interest in Ruchi Soya to approximately 75% in the coming three years.

In the round one, the edible oil firm needs to dilute a minimum 9% stake in the FPO.

Meanwhile, as per the DRHP, Ruchi Soya will use the entire issue proceeds for expanding the company's business by repayment of certain outstanding loans, meeting its incremental working capital requirements, and other general corporate purposes.

The Revival of Ruchi Soya

Ruchi Soya was facing bankruptcy in 2017 after incurring Rs 120 bn in debt and suffering significant losses. Following this, a protracted bidding war began, with Ramdev's Patanjali Ayurveda emerging as the winner in 2019.

After taking over the diversified fast-moving consumer goods (FMCG) firm, the new owners have rapidly planned a turnaround. The company has turned profitable and its debt has significantly decreased.

As a result, the company's shares, which were relisted on the markets in 2020, have gained a lot of traction.

Since the takeover, the company is taking various rebranding activities. It is cutting costs and adding new categories to its product line. It has tied hands with Adani and is working together with Wilmar in order to reposition its business altogether.

A quick look at the company's financials

For the December 2022 quarter, edible oil major reported a 3% increase in its net profit to Rs 2.3 bn. Its net profit stood at Rs 2.27 bn in the year ago period.

Its total income rose by 41% to Rs 63 bn in the third quarter of this fiscal year from Rs 44.8 bn in the same period of the previous year.

After suffering losses for many quarters, the company finally turned profitable in the financial year 2019-20. It posted profit after tax (PAT) of Rs 76.7 bn compared to a net loss of Rs 0.8 bn in the fiscal 2018-19.

For the financial year 2020-21, Ruchi soya reported a net profit of Rs 6.8 bn.

Moreover, the company has delivered good profit growth of 21.4% compounded annual growth rate (CAGR) over last 5 years.

(Rs bn)	Dec-21	Sep-21	Jun-21	Mar-21
Net sales	62.8	60	52.7	48.4
Expenses	58.6	56.7	49.4	45.9
Profit after tax	2.3	1.6	1.7	3.1
Gross profit margin	6.7%	5.5%	6.3%	5.2%
Net profit margin	3.7%	2.7%	3.3%	6.5%

Source: Equitymaster

After the revival, Ruchi Soya said it has strongly positioned itself with diversified portfolio of products to capitalise on the trend of shift in consumer preferences towards trusted and branded packaged foods amid the pandemic.

Company's key strengths

• Product portfolios cater to a wide range of tastes, preferences, price points, and consumer segments.
• FPO proceeds will help to reduce debt and thereby improve the balance sheet.
• The company's brands like Nutrela and Ruchi Gold, have strong brand awareness in the Indian market. Also, it is a market leader in Nutrela soya chunks space with a market share of 40%.
• In the edible oil area, they are active across the entire chain. Moreover, it has one of the largest refining capabilities (11,000 tonnes per day).

Risks associated with the firm

• The company significantly (around 85% in the first nine months of the year 2021) depends on the sale of edible oil products for revenue.
• Rising input costs due to the Russia-Ukraine conflict may hurt profitability as the edible oil business is dependent on imports.
• It requires sizable amount of working capital for operations and growth.
• Domestic and foreign firms such as Hindustan Unilever, Agro Tech Foods, Sanwaria Agro Oils, and other players are putting up stiff competition.

How the stock markets reacted to Ruchi Soya

On Thursday, shares of Ruchi Soya opened the day at Rs 1,071 on the BSE and Rs 1,070 on the NSE.

Its share price closed at Rs 1,004.5 (down 6.2%) on the BSE and Rs 1,004.4 (down 6.3%) on the NSE.

At its current price, it is trading at a P/E of 33.5.

The share touched its 52-week high of Rs 1,377 and 52-week low of Rs 619 on 8 June 2021 and 20 April 2021, respectively.

Over the last 30 days, the Ruchi Soya share price is up 13.8%. Over the last one year, the company's share price is up 43.1%.

About Ruchi Soya

Incorporated in 1986, Ruchi Soya Industries, now 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 firm 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 wind power.

Currently, it is leveraging its brand 'Neutrela' with a range of premium products like 'Neutrela High Protein Chakki Aata' and 'Neutrela Honey'.

Till June 2021, Ruchi Soya owns 22 manufacturing units with a total refining capacity of 11,000 tonnes per day, currently, 16 plants are operational. It has a strong network distribution of 100 sale depots, 4,763 distributors, and 457,788 retail outlets.

For more details about the company, you can have a look at Ruchi Soya Industries factsheet and quarterly results on our website.

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