Every morning thousands of people thronged to practice yoga which is related to Patanjali foods. It started in the late 90s. By 2002, Baba Ramdev was popularizing yoga among Indians through television and through his mass yoga camps. Soon, Patanjali became a household name in India.
There was a time when social media was flooded with memes about the next product to be launched by Patanjali. Well there are many. However, you must have heard of Ruchi Soya. It is not a product but a company acquired by Patanjali Group.
Ruchi Soya Industries Limited, now renamed as Patanjali Foods Limited, was in the news for some time. There was a huge jump in the share price and no one knows why! In this article, we will do a fundamental analysis of Patanjali Foods and know more about its story
Fundamental Analysis of Patanjali Foods
Patanjali Foods is also known as Ruchi Soya Industries. Today we take an in-depth fundamental analysis of Patanjali Foods and know more about the company, verticals, MOT and more.
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Industry review
The Indian edible oil market is the fourth largest in the world after the United States, China and Brazil. It is witnessing a major shift towards branded and packaged food items due to the increased focus on health, wellness and immunity amid the pandemic.
Convenience and digitization are the key factors driving demand and growth in this segment. In addition, increasing population and per capita income has accelerated the demand for edible oils.
Experts say that the market is expected to grow 10.82% annually (CAGR 2022-2027). He says that the edible oil segment is expected to grow by a volume of 18.8% in 2023 and the average per capita volume is expected to be 3.80 liters in 2022.
About the company
Patanjali Food Limited has grown into an integrated player in the edible oil business, with a farm to fork presence. It is among the top Fast Moving Consumer Goods (FMCG) and Fast Moving Health Goods (FMHG) players in the edible oil segment in India. The company is a leader and market leader in the branded textures soy protein space.
What happened to Ruchi Soya Industries?
Patanjali Group acquired Ruchi Soya Industries Limited for Rs 4350 crore in 2019 under the Corporate Insolvency Resolution Process (CIRP). In less than three years, the company crossed Rs 24,000 crore revenue and turned profitable in the first full year of operations.
However, the company’s journey over the past decade has been full of ups and downs.
Indian companies get most of their crude palm oil requirement from Indonesia. In October 2011, Indonesia raised export duties on crude palm oil and cut export duties on refined edible oil.
As a result, the cost of purchase of Ruchi Soya went up and this had to impact margins. Its business failed and its debt burden spiraled out of control.
Entered Patanjali Group
Banks dragged Ruchi Soya Industries to court Lenders agreed to resolve bankruptcy proceedings by selling Ruchi Soya to another FMCG company. Patanjali acquired 99% of the total ₹9,000 crore and cleared dues worth ₹4,000 crore. The existing shareholders lost most of their investment and the company was delisted from the stock exchanges.
Relief and Fantastic Benefits
After the acquisition, the company got re-listed on January 27, 2020 and started trading at ₹ 16.5. After a while, within five months, its share price increased by 9100% to Rs.1500. However, then only 1% of its shares were trading in the market. It was possible for investors to buy or sell shares at higher prices.
As a result, Patanjali had to reduce its stake to 90% in twelve months and 75% in three years.
Patanjali Foods – FPO
In March 2022, the company came up with a follow-on public offer (FPO) of ₹4,300 crore. This included allotment of 6,61,53,846 equity shares of face value of ₹ 2 at a premium of ₹ 648 per share. The company achieved a market capitalization of ₹ 33,479 crore after listing its shares under FPO on April 8, 2022. This amount was used for:
• Redeem Debentures and Preference Shares.
• Repay term loans and working capital loans to attain debt-free status.
Patanjali Foods – Manufacturing Capacity & Distribution
Patanjali Foods has 22 manufacturing units. They can crush 11000 tonnes of seeds and pack 10000 tonnes per day. Its manufacturing facilities are strategically located. In fact, they strike the right balance between raw materials and proximity to markets.
The company has a wide distribution network and adequate manpower. It aims to increase penetration in metros, semi-urban and rural markets. In fact, the company has 7602 Distributors, 95 Sales Depots, 305 Mega Stores, 104 Super Distributors and 9,82,131 Retail Outlets.
It has started using digital platforms to meet the changing consumer preferences and personalize the user experience. In addition, it exports products like soya meal, lecithin and other food ingredients to 31 countries.
Patanjali Foods – Moat
• Farmer friendly company with rural integration.
• Balanced mix of inland and port based refineries has helped in reducing logistics cost. In fact, this has given it a significant transportation cost advantage related to road travel.
• A healthy mix of upstream and downstream business with presence across the entire value chain.
• The company has contract manufacturing facilities which enable it to effectively meet the market demand of its products without significant capital expenditure.
Fundamental Analysis of Patanjali Foods – Scope
Patanjali Foods has six business verticals:
Edible Oils, By-Products, and Derivatives
It is one of the largest oilseeds solvent extraction and edible oil companies in India. The company has a strong portfolio of brands like Ruchi Gold, Mahakosh, Nutrella, Sunlight, Sunrich and Ruchi Star. It sells a variety of edible oils, vegetable and bakery products.
palm oil plantation
Palm oil yield and per hectare income is better than other oilseed crops. It is a leading player in palm oil processing in India with a capacity of 0.90 million metric tonnes per annum. In addition, it has access to more than 2.50 lakh hectares of potential oil palm cultivation in various states of India.
It has signed MoUs with ten state governments under the public-private partnership model promoted by the government.
FMCG
Patanjali Foods aims to increase its share in the food business volume and product offering. In addition, they are a leader in edible soy flour and textured soy protein.
It acquired the biscuit cookies and rusk business from Patanjali Natural Biscuits Private Limited and Patanjali Ayurved’s food retail business venture for ₹690 crore.
Oleochemicals
Oleochemicals are chemicals derived from natural sources, including plants, fats, and oils. They become raw materials or intermediaries for various industries.
This is their downstream business. They efficiently utilize the by-products produced under this vertical mainly in their edible oil refineries. They manufacture products such as soap noodles, glycerin and distilled fatty acids.
Nutraceuticals
Fast Moving Health Goods (FMHG) has received excellent response in the market, apart from opening up a new revenue stream for the company. This vertical includes various brands under categories like general nutrition, sports nutrition and medical nutrition.
In addition, they are co-branded under Patanjali and Nutrela and certified by FSSAI and Ministry of AYUSH. The preventive healthcare segment witnessed a huge boom and the company is poised to capitalize on this as the industry deepens its presence in India.
Renewable Energy- Wind Energy
Patanjali Foods Limited has windmill establishments in Madhya Pradesh, Tamil Nadu, Maharashtra, Gujarat and Rajasthan. It has a total wind power generation capacity of 84.6 MW. It is used for captive use as well as for sale. In addition, it is focusing on sourcing power for its business operations at 11 locations in 6 states.
Patanjali Foods – Financial
Revenue and net profit growth
On a standalone basis, the company’s revenue shows an increasing trend over a period of five years. The company suffered huge losses in 2018 but recovered after that.
Hence the chart shows an increasing trend in profit. However, profits have come down in the last two years. Its sales grew at a 3-year CAGR of 37.90% and its net profit grew at a 3-year CAGR of 224.19%.
those days. Hence, the above table represents the numbers from its standalone statement.
• The Company’s Return on Equity (ROE) is 16.51% and Return on Capital Employed (ROCE) is 15.49%. In general, an ROE of 15% to 20% and an ROCE of at least 20% is considered good. The company has a return on assets of 7.02% which is good.
• Patanjali Foods has a debt-to-equity ratio of 0.72. Its interest coverage ratio (ICR) is 4.41. Ideally, an ICR of more than 3 is good.
• Its promoters currently hold 80.82% stake in it. It reduced its promoters’ pledge from 99.97% to 0% in the September quarter of 2021. This is a positive sign.
• The company’s shares are trading at a price-to-equity ratio of 55.72, which is lower than the sector PE of 62.29. This indicates that the stock is currently available at a low price and may increase in price in the future.
• Patanjali Foods is a large-cap company with a market capitalization of ₹48,688 crore.