Ruchi Soya FPO: Shares available at deep discount but should you subscribe?


NEW DELHI: Most analysts tracking Ruchi Soya Industries’ follow-on public offer (FPO) said investors can apply for shares with a long term view given the price band is at a significant discount.

At the upper end of the price band of Rs 650 per share, the Rs 4,300 crore FPO is available at a 40 per cent discount to the company’s current market price of Rs 913.

The company was bought by Patanjali Ayurved after going through insolvency. It is an integrated player in the edible oil business having a presence across the entire value chain. It markets its products under the Nutrela, Mahakosh, Sunrich, Ruchi Gold and Ruchi No. 1 brands.

Recently, the company has ventured into new fields like honey and atta. Analysts at KRChoksey Shares said Ruchi Soya’s foray into other FMCG and FMHG products including oleochemicals, biscuits, rusks, wheat flour, honey and nutraceuticals bodes well for its mid- to long-term business growth.

“The industry is valued at a TTM PE of 31.5x and Ruchi Soya’s TTM PE multiple is 33.5x while the FPO is valued at a multiple of 21x. Hence, we recommend ‘SUBSCRIBE’ for the listing and long-term gains for this FPO,” said Parvati Rai, Head Research at KRChoksey Shares & Securities.

Patanjali, which owns a 98.90 per cent stake in the company, was mandated to bring its ownership to 75 per cent or below within three years of buying. It has already been two years and thus it needs to sell its shares.

While Ruchi Soya has high debt on the books, it plans to utilise most of the FPO proceeds for repayment of its debt in the next few months.

Religare Broking said the industry in which Ruchi Soya operates has high growth potential. “Going ahead, the company would continue to grow its relationship with Patanjali, focus on increasing high-margin products, and improve operating efficiency. Further, expanding the distribution network and managing the supply chain would be crucial,” it said in a note.

SBI Securities while highlighting strong points of Ruchi Soya said the company has a strong promoter pedigree, is a key player in oil palm plantation, and has an experienced leadership and management team.

Though it added there are a few risk factors that investors should be aware of:

  • Raw material price volatility due to adverse weather and geopolitical developments
  • Contingent liability (Rs 311.21 crore) due to outstanding litigations against the company
  • Exchange rate fluctuations that may adversely affect its operations
  • There have been certain lapses in compliance with provisions of Companies Act and Sebi Listing Regulations in the past

Analysts said the reason behind deep discount could also be because Patanjali wants the issue to succeed given the volatile market condition. Moreover, there will be more FPOs in the coming year as Patanjali will still own more than 75 per cent following this round of share sale. So, it needs the investor appetite to remain strong.

“Patanjali Group wants to make sure this FPO is successful so that they can come out with more FPOs successfully and maybe launch IPOs of their other segments. We have a neutral rating for this FPO, however, aggressive investors can apply for long-term,” said Aayush Agrawal, Senior Analyst, Swastika Investmart.


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