Teji Mandi Explains: How attractive is Ruchi Soya FPO?

Teji MandiUpdated: Friday, March 25, 2022, 04:23 PM IST
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Ayurveda major Patanjali Group-owned Ruchi Soya Industries plans to raise Rs 4,300 crore via Further Public Offer (FPO). This is the first capital raise since over a month.

Details of Ruchi Soya FPO

Ruchi Soya is an FMCG company that manufactures and sells soya products and refined oil under Mahakosh, Sunrich and Nutrela. The Baba Ramdev-led Patanjali Ayurved owns a 98.9% stake in Ruchi Soya. The FPO is in the range of Rs 615-Rs 650 per share.

The company will use the FPO proceeds to pare debt. The FPO is being done to dilute the promoter holding in the company to comply with the 25% minimum public shareholding norms. Patanjali’s shareholding will reduce to 81% post-FPO, while public shareholding will increase to 19%.

Investors who wish to subscribe to Ruchi Soya FPO can bid for 21 equity shares and multiples thereafter. At the upper price band, they will be shelling out Rs 13,650 to get a single lot of Ruchi Soya Industries.

The Pros and Cons

The current market scenario has scared off private companies to launch IPOs. This is the first capital raise since geopolitical tensions between Ukraine and Russia began.

Let’s weigh the pros and cons before making an opinion. Starting with strengths, the stock is trading with a PE of around 32, which is lower than the industry average. It has a strong backup from the Patanjali Group, and there could be a turnaround in the company. The robust product portfolio makes it attractive since it is one of India's largest fully integrated edible oil refining companies.

Moving on to cons, the current market volatility could affect the FPO. Due to adverse weather and geopolitical developments, raw material price volatility stands as a risk. Due to outstanding litigations, the company has contingent liability (Rs 311.21 crore).

Factoring in both sides, Ruchi Soya FPO looks like an attractive bet regarding valuations and earnings.

What Lies Ahead?

In a media interview, Baba Ramdev said that the company would become debt-free by next month. By April, it will pay off Rs 3,300 crore debt to its commercial lenders. This strong statement will grab investors’ eyes towards Ruchi Soya FPO, which could sail well through the tough winds.

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