Ruchi Soya Industries- A play on agriculture food products:: Macquarie Research

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Ruchi Soya Industries
A play on agriculture food products
Event
 Ruchi Soya Industries Ltd (RSI IN) is the largest branded edible oil and soya
products maker in India. The company has a strong brand portfolio comprising
Nutrela, Ruchi Gold, Mahakosh, Ruchi Star, Sunrich, etc. RSI has created a
niche in branded edible oil segments – palm, soya, sunflower and mustard oil.

Impact
 Over 15% market share in edible oil. RSI has edible oil crushing and
refining capacity of 4mt and 2.2mt, respectively. The company has
consistently increased its edible market share from 10.5% in FY07 to 15.2%
by FY10. With domestic demand growing at 10% CAGR in the last three
years, significant potential exists for conversion from unbranded (loose pack)
to packaged edible oil. This should help the branded players such as Ruchi.
 Edible oil shortage in India provides opportunity. More than 50% of the
domestic edible oil needs are met through imports due to domestic production
shortfall. Domestic production has increased at a CAGR of 2% in the last six
years against import growth of 11%. We believe this provides opportunities for
Indian edible oil players as the domestic shortfall is likely to persist.
 Branded sales will drive future growth. Branded sales contribute ~23% of
its sales with Ruchi Gold generating around a third of branded edible oil sales.
Also, branded edible oil still makes up ~30% of the market, which is likely to
go up significantly in coming years with a shift in consumer profile and
growing health awareness. The company’s branded sales have grown at a
30% CAGR between FY05 and FY10. The company’s soya food products
brand Nutrela has very strong brand equity.
 Strong distribution network. The company has a strong distribution network
with 4,230 distributors covering 0.5m retail outlets across India. These
distributors are served through 21 manufacturing locations and 86 company
depots (with storage and other logistical facilities) across India.
 Integrated across value chain. The company is integrated across the value
chain with ~175,000 hectares of land for palm oil plantations in India. The
company is also keen to start plantations in Ethiopia, Combodia and other
geographies. Integration should help RSI avoid major raw material cost
shocks and help it sustain long-term margin.
Outlook
 Strong outlook. With the domestic edible oil demand-supply mismatch and
the growing demand of the packaged food, edible oil and processed/packaged
the food market is poised for strong growth in India. We believe the long-term
fundamentals of the sector are strong.
 The stock is currently trading at 11.3x its FY12E earnings and 6.2x its FY12E
EV/EBITDA multiple (Bloomberg consensus).


Ruchi Soya Industries Aide Memoire
1. What is your revenue growth guidance for the next couple of years?
2. What are your future capex and capacity expansion plans?
3. With palm oil prices remaining firm, what will be your margin guidance going forward?
4. Will you be able to pass through all raw material cost inflation to your consumers?
5. What is the cost outlook for your key raw materials such as palm oil?