Ruchi Soya FPO: All you need to know

Ruchi Soya FPO

Ruchi Soya is coming with its FPO, and the window opens on 24 March 2022. Let us look at the details of the FPO.

History of Ruchi Soya

  • Ruchi Soya went into insolvency in December 2017. Ruchi Soya owned Rs 9345 crore to the lenders and around Rs 2,800 crore to other creditors in 2019.
  • Patanjali came to the rescue and made a Rs 4,350-crore offer to take over the crippled edible oil firm.
  • Patanjali became a major player in soybean oils and other edible oils with the acquisition of Ruchi Soya. 
  • Back then, investors and NCLT were informed that Patanjali will infuse Rs 204.75 crore as equity and Rs 3,233.36 crore as debt. 
  • Another Rs 900 crore was to be infused by the Patanjali Group through a subscription of non-convertible debentures and preference shares in the special purpose vehicle.

The shareholding pattern - FPO need

  • After the deal was completed, Patanjali’s held a majority stake in the edible oil maker.
  • Under SEBI’s regulation, it had to bring down its holding below 90% within 18 months of acquisition since public shareholding fell below 10%. And then below 75% within three years.
  • As per Patanjali's March 2020 statement, the company had sold a 9.89% stake in Ruchi Soya and met SEBI's first guidelines.
  • The FPO is offered to bring down the promoter stake to 75% to fulfil the second condition. As per SEBI’s requirement, the public shareholding in a business should be at least 25%. Patanjali is not selling its existing shares to bring the stake down. Ruchi Soya is launching additional shares.

FPO details

Proceeds will be used for repayment of the debt, meeting working capital requirements, and general corporate purposes. Below are the FPO details:

  • Subscription Details: 24 March 2022 to 28 March 2022
  • Issue size - FPO consists of fresh issuance of equity shares of an amount aggregating to Rs 4300 crore
  • Price band: Rs 615 to Rs 650
  • Employee reservation: shares up to 10,000
  • Lot size: 21 shares and multiples of 21
  • Minimum investment: Rs 13,650

Business and financials

Let us look at the Ruchi Soya business before talking about the subscription. Ruchi Soya is an integrated player in the edible oil business with a presence across the entire value chain and has the largest palm plantation in India. It has manufacturing facilities at 23 locations with a pan-India distribution network.

Below are the company’s financials:

  • March 2020 - The company's revenue from operations was Rs 12,729 crore and profit after tax reported was Rs 27.8 crore.
  • March 2021 - The revenue was Rs 13,118 crore while the profits jumped multi-fold to Rs 7,709 crore.

Should you subscribe?

After getting into insolvency the company was taken over by Patanjali Ayurveda. The company has a strong presence in the edible oil business. Over the years, it has developed a strong brand recall in various categories with products under the Nutrela, Mahakosh, Sunrich, Ruchi Gold and Ruchi No. 1 brands.

At the upper end of the price band of Rs 650 per share, the Rs 4,300 crore FPO is available at a 34% discount to the company’s current market price of Rs 913. In terms of valuation, the FPO is valued at a PE ratio of 21.7 times (based on trailing 12 month earnings). This is much lower compared to the industry average of about 65 times. 

Given factors such  as good brand recall, leadership position, healthy return profile and reasonable valuations, we remain “Positive” on the prospects of this issue.