Ruchi Soya Ind FPO review (Apply)

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Review By Dilip Davda on March 22, 2022

•    RSIL is a diversified FMCG and FMHG focused company with having a wide range of products.
•    For FY20 it posted a robust bottom line following exception items. 
•    Based on its FY22 annualized earnings, the issue is priced at a P/E of 30.86. 
•    The issue is at a discount of around 29% to its current trading price.

ABOUT COMPANY:
Ruchi Soya Industries Ltd. (RSIL) is a diversified FMCG and FMHG focused company, with strategically located manufacturing facilities and well-recognized brands having a 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. (Source: Technopak Report) 

Being the pioneers and largest manufacturers of soya foods has aided its brand 'Nutrela' in becoming a household and generic name in India. RSIL is across the entire value chain in the palm and soya segment, with a healthy mix of upstream and downstream business. (Source: Technopak Report). It has been allocated zones, to undertake palm plantation, by the Government, which assists the company in backward integration of sourcing palm oil. Ruchi Soya is the largest player in terms of allocated zones. The company's integration also extends downstream to the oleochemicals and other by-product and derivatives businesses. 

The company is a pioneer 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, RSIL forayed into a niche and a high growth FMHG segment with the launch of the Nutraceutical business. (Source: Technopak Report). It is also into the wind power generation business, where the renewable power generated is used for the sale and for captive use. This also helps the company to offset its carbon footprint, to the extent possible. It is a part of the Patanjali group, one of India's leading FMCG and health and wellness companies. Group's portfolio includes health and ayurvedic products, cosmetics, processed food, beverages and juices, and personal and home care products. RSIL leverages Patanjali's expertise and technical know-how in nutraceuticals and benefits from the synergy in the research and development and the pan India distribution network.

To counter its carbon footprint, the company also generate power from renewable energy sources. As of September 30, 2021, it generated wind power at a total aggregate amount of 84.6MW across eleven locations and six states.

RSIL's products are sold under the Brand Names "Ruchi Gold", "Nutrela", "Mahakosh", "Ruchi Star", "Soyumm", "Tulsi", "Sunrich", "Ruchi Sunlight", "Bakefat", "CakeMo", "PuffMo", "CookieMo", "MoCreme"," BakeMo". 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for repayment/prepayment of borrowings (Rs. 2668.83 cr.), incremental working capital (Rs. 593.42 cr.) and general corporate purpose, RSIL is coming out with Follow-on Public Offer (FPO) worth Rs. 4300 cr. The company has fixed the price band of Rs.615 - Rs. 650 per share of Rs. 2 each. It will be issuing 66153843 shares at the upper cap of the price band. Minimum application is to be made for 21 shares and in multiples thereon, thereafter. The issue opens for subscription on March 24 2022 and will close on March 28, 2022. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 18.27% of the post-FPO paid-up equity capital of the company. According to management, listing norms will be met by this calendar year-end to have 25% public holdings. 

Though the company has a good number of employees, it has reserved only 10000 shares for eligible employees. From the residual portion, it has allocated 50% for QIBs, 15% for HNIs and 35% for Retail investors.

Book Running Lead Managers (BRLMs) to this issue are SBI Capital Markets Ltd., Axis Capital Ltd. and ICICI Securities Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company issued further equity in the price range of Rs. 2.80 to Rs. 77.50 (based on Rs. 2 FV) between September 1990 and December 2019. The average cost of acquisition of shares by the promoters is Rs. 7 and Rs. 1228.02 per share. 

Post FPO, RSIL's current paid-up equity capital of Rs. 59.17 cr. will stand enhanced to Rs. 72.40 cr. Based on the upper cap of FPO pricing, the company is looking for a market cap of Rs. 23529.67 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, RSIL has (on a standalone basis) posted turnover/net profits of Rs. 12829.26 cr. / Rs. 34.13 cr. (FY19), Rs. 13175.37 cr. / Rs. 7714.61 cr. (FY20) and Rs. 16382.98 cr. / Rs. 680.77 cr. (FY21). For the 3Qs of FY22 that ended on December 31, 2021, it has earned a net profit of Rs. 571.88 cr. on a turnover of Rs. 17608.19 cr. For FY20, it has one-time special exceptional items credit of Rs. 7490.23 cr. This has boosted its average EPS and RoNW for these three fiscals. 

For the last three fiscals, the company has posted an average EPS of Rs. 321.23 and an average RoNW of 2027.47%. The issue is priced at a P/BV of 4.37 based on its NAV of Rs. 148.82 as of September 30, 2021, and at a P/BV of 2.70 based on its post-FPO NAV of Rs. 240.43. 

If we annualize FY22 earnings and attribute it to fully diluted post FPO equity, then the asking price is at a P/E of 30.86. Thus the issue is reasonably priced.

SCRIP PERFORMANCE: AS PER BSE WEBSITE: CODE: 500368
RSIL's shares are already listed on BSE and NSE. It has posted the last 52 weeks high/low of Rs. 1377 / Rs. 619. It is last traded at Rs. 910.10 (at the close of March 21, 2022). At this price, the FPO is at a discount of around 28.58%. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, RSIL has shown Dabur India, Britannia Ind., Nestle India, Agro Tech Foods, Zydus Wellness, Godrej Agrovet, Marico and ITC Ltd. as its listed peers. They are currently trading at a P/E of 67.43, 50.52, 74.21, 99.25, 00, 28.97, 57.35 and 20.61 (as of March 21, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY: 
The company has not declared any dividends for the reported periods of the offer documents. It will adopt a dividend policy based on its financial performance and future prospects. 

BRLMs TRACK RECORDS:
The three BRLMs associated with this issue have handled 66 public issues in the last three fiscals (including the ongoing one), out of which 23 issues closed below the issue price on the day of listings. 

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