Ruchi Soya FPO opens on March 24: Apply or skip—What should investors do with Rs 4300-cr follow-on public offering?

Ruchi Soya Industries has fixed the price band for its Rs 4300-crore follow on public offering (FPO), which opens on March 24 and closes on March 28. A part of the Patanjali Group, Ruchi Soya has fixed a price band at Rs615-650 per equity share. Anchor investors bidding for Ruchi Soya FPO will open on March 23.  

An investor wishing to apply for this IPO can make a minimum bid of 21 Equity Shares (1 lot) and in multiples of 21 equity shares thereafter. The issue also includes a reservation of up to 10,000 Equity Shares for subscription by eligible employees.   

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The promoters currently have a nearly 99 percent stake in the edible oil major. The company needs to dilute a minimum 9 percent stake in this round of the FPO. The post-issue market capitalization will be ₹ 22,494 – 23,530 Cr with an equity dilution of 18.25%-19.11%. 

Shares of Ruchi Soya, a diversified FMCG and FMHG focused company, tanked more than 17% on Monday as the company announced price band for its upcoming FPO. The shares touched day's low of Rs 831 per share, down Rs 173 a share from its previous closing of Rs 1004.45 per share on the BSE.   
 

What should investors do?   

As the shares witnessed a knee-jerk reaction after the announcement of price band and the FPO opens on March 24, what should investors do with this follow-on public offering?   

Aayush Agrawal, Senior Analyst, Swastika Investmart Ltd, says that Ruchi Soya aims to utilize the entire issue proceeds for furthering the company's business by repayment of certain outstanding loans, meeting its incremental working capital requirements, and other general corporate purposes.   

"It has a strong backup from the Patanjali group and we are seeing a turnaround in the company where it managed to turn profitable. It has a strong product portfolio and is one of the largest fully integrated edible oil refining companies in India," says Agrawal.   
 

"Aggressive investors can apply for long-term" 

Swastika Investmart Ltd senior analyst is of the view that the stock with PE of around 32 is available at lower than the industry average.   
"Patanjali group wants to make this FPO successful so that they can come out with more FPOs successfully. They are also likely to come out with IPOs of other segments. We have a neutral rating for this FPO, however, aggressive investors can apply for long term," he added.   

"Can apply as FPO price is capped at 30-35% discount" 

Manoj Dalmia, Founder and Director, Proficient equities Private said the plans to use funds from this FPO for repayment of loans, to meet working capital needs and other general corporate purposes. 

The promoters hold about 99% stake and need to dilute 9% in this round of FPO. As per SEBI rules, it has to bring down promoter holding to 75%. 

"Investors can go for this FPO as the CMP is Rs 935 whereas the price band for FPO is Rs 615-650 a discount of about 30-35%," he added 

"Strong company's  background and product demand infuse trust—Apply"  

Due to indefinite war between Ukraine and Russia, hike in edible oil prices as well as shortage in supply seems round the corner, at least for the short-term, says Ravi Singh, vice President and Head of Research, Share india.  

"India's 90% sunflower oil requirement is catered by Ukraine and Russia and Sunflower oil comprises 15% of most edible oil brands. Although the financials of Ruchi Soya are a bit weak, given the company’s strong base & background and the requirement of its products, Investors may subscribe to this FPO," he added. 

"Company only trying to clear its existing debt—Avoid " 

Likhita Chepa, Senior Research Analyst at CapitalVia Global Research has advised investors to avoid this FPO.   

"The objective oof this FPO is repayment of the company’s borrowings and funding working capital requirements which is not good for the investors. The company is not in the expansionary mode, and is still trying to repay its existing debt. We believe Investors can avoid the FPO for Ruchi Soya," she said. 

If the FPO goes well and the company is able to repay their debt, the investors can think of buying stock at lower prices, she added.       

About the company 

Ruchi Soya is amongst the largest branded oil packaged food companies. Its ‘Ruchi Gold’ brand has a market leadership position, on account of being India’s highest selling palm oil brand and also the pioneers and largest manufacturers of soya foods in India under the brand name of “Nutrela’.   

The Company is recognised as the largest branded oil packaged food company with a strong portfolio of brands in various types of cooking oils under categories such as palm, soybean, mustard, sunflower, cottonseed etc.   

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)