Ruchi Soya shares hit 20% upper circuit ahead of FPO

Shares of Patanjali-owned Ruchi Soya Industries hit the 20% upper circuit on Monday ahead of its follow-on public offer (FPO) which opens on March 24. The stock was locked at ₹964.40, up ₹160 apiece on BSE on Monday.

This comes after the company's board, in which Baba Ramdev is one of the directors, approved a red herring prospectus (RHP) for its follow-on public offering (FPO) worth ₹4,300 crore. A follow-on offer is when a firm issues additional shares after an initial public offering.

The Ruchi Soya FPO comprises equity shares of face value of ₹2 each aggregating to ₹4,300 crore, according to its exchange filing. The issue also includes a reservation of up to 10,000 equity shares for subscription by eligible employees. The FPO will be available for bidding through March 28, 2022.

Patanjali Ayurved aims to make its companies debt-free in the coming three-four years, with a substantial portion (62%) of Ruchi Soya's proceeds from the ₹4,300 crore follow-on public offer to be used to partly retire the company's debt of ₹3,330 crore.

Patanjali completed the acquisition of Ruchi Soya in a ₹4,350-crore deal in December 2019. Since then, it has managed to grow the business to ₹16,318 crore in FY21.

Edible oil price hike in the offing

A spike in edible oil prices is likely in the near-term as the Russia-Ukraine war has hit shipments of sunflower oil. Ukraine and Russia together account for 90% of India's sunflower oil imports. This oil comprises 15% of most edible oil brands.

In an interview with Fortune India last week, Sanjeev Asthana, CEO of Ruchi Soya, said that if the war continues till April, the sunflower sowing season could get impacted, and that could lead to scarcity for a longer period. "So, the pressure would be on to soya oil, which has two dimensions. Both in Brazil and Argentina, from where we import soybean, the crop looks sluggish. To add to that is the mandate on biodiesel and how much of soya oil needs to be used there. There is rapid work happening in Argentina and Brazil which has led to supply shortage," Asthana said.

There is a 10-15 million tonne shortage of the soybean crop, he said, adding that between sunflower oil and soybean oil prices have gone up by $300-$500 per metric tonne. "Demand going towards soya and soya itself falling a little short is having a spiralling impact on commodity prices. However, this situation will not last for long. It's a war premium that we are paying and the moment the war ends the prices will be back to earlier levels," said Asthana.

"Sunflower is a concern therefore customers may move to soya consumption…it depends on the impact on the sunflower oil pricing. But this won't be for the full year, so I am imagining anywhere between 400,000 tonnes to 600,000 tonnes of sunflower oil consumption will go to soybean. We will have to reassess the situation in three-four months," he added. "All companies carry stock of 35-40 days. The war may have some impact in terms of prices and volumes, but that's not going to be dramatic."