Moneycontrol
Last Updated : Feb 27, 2018 01:14 PM IST

Buyers like Patanjali, Emami eye majority stake in Ruchi Soya

Ruchi Soya is close to NCLT resolution. Ruchi Soya is one of few companies in India with backward integration and is largest player in oil seed extraction in the country with capacity of 3.72 mtpa.

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% stake and since then there have been bids ranging between Rs 8,000 and10,000 crore for a majority stake in the company. The deal is likely to be completed by June 2018. Large FMCG players such as Patanjali, Godrej, Emami, Adani, large Malaysian players, etc., are bidding for 51% stake in the company.

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% haircut by various banks in this deal.

This would reduce the debt to Rs 4, 000 crore, approximately. It is believed that post completion of deal, the debt would fall from Rs 5, 900 crore to Rs 2, 000 crore and would lead to interest cost saving of Rs 500-550 crore savings for the company. The interest cost would fall from Rs 830 crore to nearly Rs 250 crore, post this deal.

Ruchi Soya has leading brands such as Nutrela, Mahakosh, Sunrich, Ruchi Gold and Ruchi Star and largest player in the cooking oil and soy foods categories of India.

The company has strengthen its relationship with Patanjali Ayurveda and became close with transformation from B2B to BTC segment. The company was earlier involved in processing and packaging agreement with Patanjali for Madhya Pradesh & Rajasthan.

To extend this relation, the company announced MOU signing with Patanjali Ayurved Ltd. for an exclusive sales and distribution arrangement for the entire range of Patanjali edible oil in large packs.

Under the MOU, Ruchi Soya would use its own extensive distribution network to sell the complete range of Patanjali edible oils in large packs across all regions of India.

Meanwhile, as per analyst’s view the Company expects to post Rs 25, 000 crore and 4% consolidated margins for the company by FY20. Analyst expects Rs 11, 000 crore of branded business with 6% margins on conservative basis. If we assume branded business only .4x of sales this would result into market cap of Rs 5500 crore. The residual business topline could be of Rs 14000 crore and EBIDTA of Rs 420 crore. We are assuming 6x EV/EBIDTA for the residual business and arrived at EV value of Rs 2520 crore for the company. This would lead to EV value of Rs 8020 crore (reduce debt of Rs 2000 crore) which would lead to equity value of Rs 220 per share for the company which makes this company potential 12x candidate in next two years. Assuming current EV value of Rs 6600 crore, we arrived at price target of Rs 60 per share in our base case scenario for the company.

Ruchi Soya’s utilisation had suffered due to low exports, bad crop and demonetisation and hit as low of 10-15% due to these factors. “We believe worst is over for the company and we believe would improve utilisation level of capacity from 40% to 75% going ahead. The utilisation is likely to improve by increase in refining capacity, change in product mix, pick up in exports and improved performance by brand business.” the company stated.

The increase in capacity utilisation is in turn expected to boost the topline by around 15% on an annualised basis. This will enable company to regain market share of packed oil sales back from importers and traders of refined oil and will also improve bottomline by 15 to 20%

Meanwhile, the company stated that the GST and hike in import duties were positive for company. “We believe GST and government recent hike in import duties are key trigger for company as it would boost a shift from unorganised to organised players. The recent increase in import duty on edible oils which is a big positive for organised edible oil players. The stable rupee and low international edible oil prices combined with the earlier duty differential which was favouring import of refined edible oils had led to immense pressure on the domestic industry with many refining facilities on the verge of closure, however higher import duties would be big boon to domestic players,” the company stated.

Disclaimer : This article is generated under featured post to create awareness among readers.
First Published on Feb 26, 2018 05:54 pm

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