Ruchi Soya acquires Patanjali Ayurved’s food business for Rs 690 crore

Edible oil major Ruchi Soya has announced it’s acquiring the food business of Patanjali Ayurved for around Rs 690 crore. This is expected to fast-track Ruchi Soya’s shift to the fast-moving consumer goods (FMCG) category.

The name of Ruchi Soya Industries Ltd will be changed to Patanjali Foods Ltd after regulatory approvals.

The acquired food business consists of 21 products including ghee, honey, spices, juices and flour.

Ruchi Soya will pay an annual royalty to Patanjali Ayurved, estimated at 1 per cent of the gross turnover of the products under the transfer agreement, according to a company source.

It’s a debt-free transfer and Ruchi Soya will fund the acquisition through internal accruals, he said.

“The acquisition is valued at a fair market value of Rs 690 crore based on all the fixed assets of food division and respective current assets on slump sale basis,” the company said in a stock exchange filing.

The board of Patanjali Ayurved has approved this transfer of food business to Ruchi Soya Industries with effect from May 9.

Ruchi Soya’s stock closed 10 per cent higher at Rs 1,192.15 apiece in Wednesday’s trade.

As part of the deal, Ruchi Soya will get the manufacturing plants at Padartha (Haridwar in Uttarakhand) and Newasa (Maharashtra). It will also include the transfer of employees, assets, contracts, licences and permits, distribution network, and customers related to the food retail business of Patanjali Ayurved. However, it will exclude Patanjali’s brand, trademarks, designs and copyrights. While the transaction will include current assets, it will exclude debtors, vehicles, cash and bank balance, the company said in its stock exchange filing.

The payment will be made in three tranches.

In the first tranche, 15 per cent (Rs 103.5 crore) of the total purchase consideration shall be simultaneously paid with the execution of the business transfer agreement or within three days from the execution of the business transfer agreement.

In the second phase, 42.5 per cent (Rs 293.25 crore) of the total purchase consideration shall be paid on the closing date defined under the business transfer agreement. In the third tranche, the remaining 42.5 per cent (Rs 293.25 crore) of the total purchase consideration will be paid. The transaction is expected to be completed by July 15.

Patanjali’s food retail business has a business turnover of Rs 4,174 crore, up 28 per cent from the previous financial year. In the previous financial year, Patanjali Ayurved’s turnover stood at approximately Rs 10,605 crore, Ruchi Soya said in its exchange filing.

Patanjali Ayurved will retain businesses such as hair care, dental care, skincare, medicine and herbal formulations.

“This strategic initiative for acquisition of food business shall strengthen its food product portfolio with an array of brands and also contribute to the growth in terms of revenue and EBIDTA,” the company said. It added that the company has reaffirmed its position to be a strong FMCG company as committed to its shareholders at the time of its follow-on public offer (FPO).

In a note to investors, Ruchi Soya said, “By acquisition of PAL’s (Patanjali Ayurved’s) food business portfolio, Ruchi’s food portfolio is expected to contribute approximately 18 per cent of the total revenue in the current fiscal (FY23) compared to 6 per cent in FY22. This will have a positive impact on the margin profile and will re-position Ruchi from a largely commodity-oriented company to a leading food company of India.”

The note also said that the Patanjali food business is growing at 2– 2.5 times that of the industry growth which is pegged at 11 per cent.

The combined food portfolio of Ruchi and Patanjali food business is estimated to cross Rs 6,600 – 6,800 crore of revenue in FY23. “At a conservative growth estimate of about 25 per cent CAGR, it is expected that Ruchi’s combined food portfolio will cross revenue of Rs 22,000 crore in the next five years at constant price (excluding oil), ” the investor note said.