Ruchi Soya Expects Food Biz To Cross ₹ 22,000 Cr Revenue In 5 Yrs Post Patanjali Deal, Here’s Why

On May 18, the board of directors or Ruchi approved the signing of a business agreement with its parent Patanjali to acquire the food retail business. The deal will comprise the acquisition of Patanjali-owned manufacturing units situated at Padartha District Haridwar in Uttrakhand and Newasa unit in Maharashtra, Transfer of employees, distribution network, customers, etc. The transaction is expected to complete by July 15.

During its red herring prospectus for FPO, Ruchi Soya mentioned its strategy to continue to leverage the Patanjali brand and enhance synergies with Patanjali’s food portfolio.

In its investors’ meeting, the company said, “Ruchi has acquired Patanjali’s Food business to increase the food portfolio and this will directionally change Ruchi’s growth trajectory.”

Notably, Patanjali’s food business comprises 536 SKUs across 8 product categories viz, Staples, Oil, Beverages, Spices & Condiments, Ghee, Honey, Herbal Products, and Dry Fruits.

The Baba Ramdev-led FMCG firm has a diversified food portfolio comprising of both high volume – low margin – moderate growth products such as Staples, Edible Oil, etc., and high margin – high growth products such as Cow ghee, Beverages, Dry fruits , etc.

Ruchi pointed out in its regulatory filing that, we are market leaders in products such as cow ghee, Chayawanprash, and medicated juices.

It highlights that within the overall portfolio of Patanjali, edible oil is the largest category accounting for 35% share, followed by Cow Ghee at 31% share in total revenue. Under the edible oil category, mustard oil holds the largest portion with a 60% share.

Ruchi’s statement said, “Patanjali Food Business is growing at 2 – 2.5 times industry growth.”

Patanjali’s food business registered a revenue of 4,174 crore in the financial year FY22 – registering a growth of 28% compared to the previous fiscal.

Meanwhile, Ruchi Soya’s food portfolio mainly includes TSP (soy nuggets), Biscuits, Noodles and

Confectionary products.

According to Ruchi’s investor meet statement, the merger will translate to a stronger food portfolio for Ruchi along with synergy across manufacturing, distribution, R&D, and human capital.

Here’s how as per the regulatory filing:

Ruchi highlighted that Patanjali has strong brand equity in the market and is known for offering quality products at a reasonable price. Patanjali is amongst the most significant success story in Indian FMCG space that achieved a record of achieving 100% yoy growth in past and building a strong home grown brand. The brand has high trust and following amongst its customers.

Secondly, Ruchi stated that the combined distribution strength of Ruchi and Patanjali will be formidable in Indian FMCG space.

Ruchi’s products are sold on a Pan-India network with more than 100 sale depots, over 4,700 distributors who further reach out to over 4.5 lakh retail outlets in the urban, semi-urban and rural areas of the country. Additionally, Ruchi is present in over 4,600 modern grocery stores, while also holding a presence in e-commerce platforms such as Flipkart, Amazon, Big Basket etc.

On the other hand, Patanjai super distributors and Patanjali distributors offer access to over 5.5 lakh retail points including approximately 47,316 Pharmacies, Chemist & Medical Stores.

“With an increase in product portfolio, our distributors will have access to larger product baskets that will translate to higher RoI for them,” Ruchi stated.

In terms of Research & Development Capabilities, Ruchi pointed out that Patanjali has a strong R&D facility at Haridwar, Uttarakhand and it has state or art facilities and an experienced R&D team to ensure that they continue to develop world class products at reasonable prices.

On the human capital, Ruchi currently has over 10,500 employees – of which 3,396 are on-roll employees. As part of the acquisition, 1,850 Patanjali employees will be transferred to Ruchi across departments including sale, R&D, quality etc.

As per Ruchi, on-boarding of experienced team will bring synergy across the board; however, it is expected that the combined sales team of Ruchi & Patanjali will help in rapid growth in reach across states, cities and retail stores across the country. The sales team efficiency will also increase multifold considering larger product basket.

Post acquisition:

Ruchi expects the combined food portfolio to contribute to ~ 18% of total revenue in the current fiscal (FY2023) compared to 6% revenue in FY2022. It said, “this will have a positive impact on the margin profile as well and will re-position Ruchi from largely commodity oriented company to leading Food company of India.”

Ruchi expects the combined food portfolio to cross revenue of 6,600 – 6,800 crore in FY2023.

Furthermore, Ruchi said, at a conservative growth estimate of about 25% CAGR; it is expected that Ruchi’s combined food portfolio will cross revenue of 22,000 crore in the next 5 years at constant price (excluding oil).

On Thursday, Ruchi Soya’s shares erased yesterday’s robust gains and traded in the red tracking bearish markets. The shares closed at 1168.45 apiece down by 1.55% on BSE.

On the previous day, Ruchi’s stock closed at 1186.85 apiece up nearly 10% on the same exchange.

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