Ruchi Soya FPO opens today: FPO price offers 45% discount at current levels—What should investors do?

Ruchi Soya FPO (follow on public offering) will open today, March 24 and conclude on March 28. One of the largest FMCG companies in the Indian edible oil sector, the Patanjali group subsidiary has fixed a price band of Rs 615-650 per equity share for this FPO.  

Incorporated in January 1986, Ruchi Soya Industries is the largest manufacturers of soya foods under the brand Nutrela.

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On Wednesday, Patanjali-backed FMCG company raised a little more than Rs 1,289 crore from 46 anchor investors ahead of its follow-on public offering (FPO). 

The promoters, who hold 99% stake in the FMCG company, aims to dilute a minimum 9 percent stake in this round of the FPO. An investor wishing to apply for this FPO 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.  

At March 23rd closing price of Rs 896 a share on the BSE, Ruchi Soya FPO price is available at nearly 45% discount on the lower price band of the FPO at Rs 615.  

"Ruchi Soya has a well-recognized brand name, extensive distribution network and experienced management team. Going ahead, the company would continue to grow its relationship with Patanjali, focus on increasing high-margin products, and improve operating efficiency. Further, expanding the distribution network and managing the supply chain would be crucial, " says Religare boking.  

On the financial front, the company is trading at 35x PE FY22E (annualized EPS), however, Ruchi Soya has high debt on the books and its plan is to utilize major FPO proceeds for repayment of its debt (~80-85%) in the next few months, it adds.  

What should investors do?  

Senior Analyst, Swastika Investmart Ltd, is of the view that Ruchi Soya has a strong backup from the Patanjali group and witnessing a turnaround in the company where it managed to turn profitable.  

"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.  

The objective of this FPO is repayment of the company’s borrowings and funding working capital requirements which is not good for the investors, says Likhita Chepa, Senior Research Analyst at CapitalVia Global Research.  

"The company is not in the expansionary mode, and is still trying to repay its existing debt. Investors can avoid this FPO," she said.

Ruchi Soya is amongst the largest branded oil packaged food companies. 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.  

The company has a total of 23 processing plants (of which 17 are currently operational) across India. Also, they have developed an extensive distribution pan India network of over 97 sale depots, 4,763 distributors who in turn reach out directly to 4,57,788 retail outlets.

(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.)