21 Mar 2022

Ruchi Soya sets price band for its proposed FPO

If you are wondering as to why the stock of Ruchi Soya Industries is down nearly 10% in early trades on Monday, 21st March, it is due to the FPO pricing. For instance, the follow-on public offer (FPO) of Ruchi Soya has been set in the price band of Rs.615 to Rs.650.

The upper end of the FPO price band already reflects a 35% discount to the closing price on Thursday 17-March, which largely explains the sharp fall in the price of Ruchi Soya.

The stock of Ruchi Soya was down nearly 18% in early trades before bouncing back to settle around 10% losses at 11.30 am on Monday. At the upper end of the price band, the total FPO collections would be to the tune of Rs.4,300 crore.

This would be in the form of fresh funds coming into Ruchi Soya and the company plans to utilize these funds largely to prepay some of its debt and also to fund its working capital expenses.

The follow on public offer (FPO) will open for subscription on March 24th and will close for subscription on March 28th, both days inclusive.

The minimum lot to bid for the FPO would be of 21 shares and at the upper end of the price band, the minimum investment in the FPO would be Rs.13,650. The FPO size will be Rs.4,300 crore. First, let us look at the core purpose of doing this FPO from the point of view of the company and its promoters.

As per SEBI regulations, public shareholding has to be brought to 75% within a stipulated period. In the case of Ruchi Soya, the company was bought by Baba Ramdev’s Patanjali Ayurveda under the NCLT Bankruptcy laws in 2019.

Currently, Patanjali Group owns 98.9% in Ruchi Soya while public holds just 1.1%. The FPO will dilute the equity such that the stake of Patanjali will come down to 81% and the public holding will increase to 19%. 

Ruchi Soya happens to be the largest player in branded palm oil and has an imposing market share of 12% of the branded palm oil market in India. It is ahead of Adani Wilmar, which has an 11% market share of the Palm Oil market.

In addition, Ruchi Soya is also the pioneer of soya based foods in India and had introduced Nutrela brand of soya chunks into India at a time when health foods were yet to become as rampant as they are today. 

The ongoing conflict between Russia and Ukraine has resulted in serious supply chain constraints and resulted in a hike in edible oil prices. This has worked to the favour of companies like Ruchi Soya.

There is also a major opportunity as currently 90% of India's sunflower oil requirements are met by Ukraine and Russia. What could actually make the FPO pricing attractive is the sweet spot that the company finds itself in due to the war.

Ruchi Soya plans to utilise almost the entire issue proceeds for repayment of certain loans, as well as for meeting its working capital requirements in a business that is extremely working capital intensive.