Moneycontrol
Last Updated : Mar 21, 2018 04:59 PM IST | Source: Moneycontrol.com

What makes Ruchi Soya an attractive target for Godrej Agrovet?

Companies such as Patanjali Ayurved Ltd, ITC Ltd and Emami Ltd too have evinced interest in Ruchi Soya

Himadri Buch @himadribuch
 
 
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Ruchi Soya, largest player in the oil seed extraction space in the country, may soon handover its palm oil business to another palm oil developer.

According to a report in Mint, Mumbai-based Godrej Agrovet (GAL)  is planning to bid for palm oil business of India's largest edible oils maker Ruchi Soya. GAL is one of the largest palm oil developers in India.

However, GAL may not be as interested in other businesses of Ruchi Soya, and may tie up with others companies to acquire them.

Companies such as Patanjali Ayurved, ITC and Emami, too, have evinced interest in Ruchi Soya, as per the media reports. It has received as many as 26 applications from Indian and foreign conglomerates to acquire a 51 percent equity stake.

GAL is the market leader in palm oil plantations in India with market share of 35 percent. It has a range of products, including crude palm oil, crude palm kernel oil and palm kernel cake. It has 61,700 hectares under cultivation for palm oil at the end of FY17. This number has increased from 30,000 hectares in FY09, clocking CAGR of 9.3 percent over FY09-17. GAL is continuously exploring growth opportunities at an appropriate valuation.

Ruchi Soya’s brand portfolio includes Nutrela, Mahakosh, Sunrich, Ruchi Gold and Ruchi Star, while the company is also the largest player in the cooking oil and soya foods category in India.

Ruchi Soya ventured into the palm business through contract farming on a large scale, following a strategy of backward integration. The company has acquired and developed oil palm plantations in Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, Chhattisgarh, Gujarat, Arunachal Pradesh, and Mizoram. In these nine states, plantations cover a potential area of around 200,000 hectares (ha).With an annual capacity of 3.72 million tonnes per annum, Ruchi Soya is India’s largest company in oil seed extractions.

Why is Ruchi Soya looking to sell 51 percent stake?

Ruchi Soya had a total debt of about Rs 12,000 crore as of December 31, 2017.

In December 2017, NCLT’s Mumbai bench admitted Ruchi Soya’s Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016, following petitions by Standard Chartered Bank and DBS Bank.

Last year, Ruchi Soya announced a 51 percent stake sale to private equity major Devonshire Capital for about Rs 4,000 crore. However, with the NCLT admitting the case the Devonshire deal became “null and void”.

Ruchi Soya is among the 26 companies on the second list of bad loan accounts that the Reserve Bank of India sent to banks last year asking them to conclude a debt resolution.

Ruchi Soya’s promoters—the Shahra family, and companies owned by them—hold 54.85 percent in the company. Of this, Soyumm Marketing Pvt. Ltd is the largest shareholder with a 13.66 percent stake. Managing director and CEO Dinesh Shahra owns 0.63 percent as an individual shareholder and an additional 9.74 percent on behalf of two separate trusts.

The company has presence in both branded and non-branded segments with participation in domestic and international markets. The company is one of the largest exporters of value-added soy products like Textured Soy Protein, Toasted/ Un-toasted/ White Soy Flakes and Soy Lecithin segment. India’s No.1 Food and Agri Products company as per Fortune India 500 Rankings - 2016 and Turnover of USD 3 billion (FY 2016-17).

The company had announced sale of 51 percent stake and since then there have been bids ranging between Rs 8,000 and 10,000 crore for a majority stake in the company. The deal is likely to be completed by June 2018.

According to analysts, this deal would reduce the debt to Rs 4, 000 crore, approximately. This is likely to be a game changer for the company as it has being impacted badly due to deteriorating financials. As per the estimates, there would be 30-40 percent haircut by various banks in this deal.
First Published on Mar 21, 2018 04:59 pm
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