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Moneycontrol Pro Panorama | Oil’s well that ends well?

In today’s edition of Moneycontrol Pro Panorama: A cash shot for the economy, public float maths at Ruchi Soya, agri policy rethink, Weekly Tactical, Eicher’s hot wheels, the chip jigsaw and more

May 28, 2021 / 03:54 PM IST
Representative image

Representative image


Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

If Yoga guru Baba Ramdev takes a moment from his ongoing spat with the Indian Medical Association, he would see that his Patanjali group has struck oil with Ruchi Soya.

The company, which was bought by Ramdev-promoted Patanjali Ayurved for Rs 4,350 crore in 2019, has seen its market cap soar to Rs 31,693 crore. In other words, a 14 percent stake sale in the company will fetch Ramdev his initial investment.

Of course, the story at Ruchi Soya since the entry of Patanjali Ayurved is extremely low public float of shares. The promoter group owns 98.9 percent of Ruchi Soya restricting stock ownership. The company is reportedly looking to issue fresh equity shares to comply with public shareholding norms. Gravity defying valuations may not come in the way of the share sale. After all, its mainstay edible oil business is seeing favourable price and demand trends.

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The situation is best captured in Marico’s latest quarterly results. Edible oil volumes grew 17 percent in the March quarter despite a massive 30 percent price hike in the second half of the previous fiscal year. Adani Wilmar, another larger distributor and seller of edible oils, reported a 47 percent increase in revenues last quarter. The underlying volumes are not readily available.

These are good numbers supported by the sharp rise in edible oil prices which have risen to an 11-year high. Lower output in major edible oil producing countries and diversion of produce for biofuels have driven up prices in the international market. Add to this the import duties, the retail prices of certain edible oils doubled in India from 2020. Although the price rise is not as intense as it was a couple of months ago, and expected to “cool down” by July, according to Marico, the high price levels in the midst of a pandemic is hurting consumers.

The government is considering measures to reduce the impact and thus, these good times may not last for edible oil sellers.

The first step the government is considering is a temporary reduction in import duties. India imports about 65 percent of its cooking oils.

That will work only so much. What’s needed is an easing of supply constraints. Only when supply increases, will prices fall. This is not a new problem and there are ongoing efforts to increase oilseed production in India such as the National Mission on Oilseeds which started last financial year with the aim to reduced edible oil import dependence to 45 percent by 2024-25.

Acreage under oilseed cultivation and output too has increased in recent years, but clearly not enough to meet domestic demand. But clearly a lot of lopsided incentives need to be corrected and there needs to be targeted policymaking to ensure sustainable oilseed production without destroying the environment.

“The chief incentive that the government has to offer is procurement at MSP (minimum support prices) for pulses and oilseeds across the country in key markets, so that we see the end of open market prices ruling at below-MSP levels,” we argued today in a piece calling for better agriculture policy making. You can read it here.

That, however, is a structural shift which will take some time.

In the near term, firm commodity prices will have a positive rub-off effect on the agriculture sector. Farmers are exiting FY21 on a positive note and firm prices can drive farm investments as one of our today’s pieces explains.
Do check out these investing insights from our research team:

Weekly Tactical Pick | CCL Products

Eicher Motors: Any soft patch an opportunity to accumulate

Page Industries: Near-term blip, strong long-term outlook

Cadila: All in for COVID while keeping a tab on complex pharma

What else are we reading today?

COVID-infected economy needs a cash jab

The proposed new IPO rules will deprive retail investors of an opportunity

The key takeaways from RBI’s annual report

Review of Wadhawan’s proposal in DHFL case would place resolution process in jeopardy

Lex | Tesla/Samsung: Plans to secure chip supply could extend delivery times (republished from the FT)

Technical picks : IndusInd Bank, Marico, Bank of Baroda and UltraTech Cement (These are published every trading day before markets open and can be read on the app)

R Sree Ram

Moneycontrol Pro
R. Sree Ram
first published: May 28, 2021 02:53 pm

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