Fundamental Analysis of Patanjali Foods: People flocked in thousands every morning to practice yoga. This started in the late ’90s. By 2002, Baba Ramdev was popularizing yoga among Indians through the medium of television and his mass yoga camps. Soon enough, Patanjali became a household name in India.
There was a time when social media was flooding with memes about the next product that Patanjali would launch. Well, there are so many. However, you might have heard of Ruchi Soya. It is not a product, but a company that the Patanjali Group acquired.
Ruchi Soya Industries Limited, now named Patanjali Foods Limited was in the news for a while. The stock price went on a spectacular rally and nobody knew why! In this article, we shall do a fundamental analysis of Patanjali Foods and find out more about its story.
Fundamental Analysis Of Patanjali Foods
Patanjali Foods also known as Ruchi Soya Industries. Today we conduct an In-Depth fundamental analysis of Patanjali foods and know more about the company, verticles, moat, and much more.
Industry Overview
The Indian edible oil market is the world’s fourth largest market after the USA, China, and Brazil. It is witnessing a major shift towards branded and packaged foods due to enhanced focus amid the pandemic on health, wellness, and immunity.
Convenience and digitalization are major factors driving demand and growth in this segment. Moreover, increasing population and per capita income have accelerated the demand for edible oils.
Experts say that the market is expected to grow annually by 10.82% (CAGR 2022-2027). They say that the edible oils segment is expected to show a volume growth of 18.8% in 2023 and that the average volume per person is expected to amount to 3.80 L in 2022.
About the Company
Patanjali Food Limited has evolved as an integrated player in the edible oil business with a presence from farm to fork. It features among the top Fast Moving Consumer Goods (FMCG) and Fast Moving Health Goods (FMHG) players in the edible oils segment in India. The company is the pioneer and market leader in the branded textures soya protein space.
What happened to Ruchi Soya Industries?
The Patanjali Group acquired Ruchi Soya Industries Limited under the Corporate Insolvency Resolution Process (CIRP) in 2019 for ₹ 4350 crores. In less than three years, the company crossed ₹ 24,000 crores in revenue and became profitable in the first full year of operations.
However, the company had a topsy turvy journey in the past decade.
Indian companies source most of their crude palm oil requirement from Indonesia. In October 2011, Indonesia raised the export duty on crude palm oil and cut the export duty on refined edible oil.
As a result, Ruchi Soya’s cost of procurement escalated and it had to take a hit on margins. Its business failed and its debt burden spiraled out of control.
Patanjali Group stepped in
Banks dragged Ruchi Soya Industries to court. The lenders agreed to resolve the bankruptcy proceedings by selling Ruchi Soya to another FMCG company. Patanjali acquired 99% of the and settled ~ ₹ 4,000 crores worth of dues, out of the total ~ ₹ 9,000 crores. Existing shareholders lost most of their investment and the company got delisted from the bourses.
Relisting and spectacular gains
After the acquisition, the company got relisted on January 27, 2020, and began trading at ₹ 16.5. A little later, within five months, its stock price rallied by a whopping 9100% to Rs 1500. However, only 1% of its shares were trading in the market, then. It was possible for investors to buy or sell shares at high values.
As a result, Patanjali had to reduce its shareholding to 90% in twelve months and to 75% over three years.
Patanjali Foods – FPO
In March 2022, the company came up with a follow-on public offer (FPO) of ₹ 4,300 crores. It involved the allotment of 6,61,53,846 equity shares with a face value of ₹ 2 each at a premium of ₹ 648 per share. The company achieved a market capitalization of ₹ 33,479 crores after listing its shares under FPO on April 8, 2022. This amount was used to:
- redeem debentures and preference shares.
- repay term loans and working capital loans to achieve a debt-free status.
Patanjali Foods – Manufacturing Capacity and Distribution
Patanjali Foods own 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 proximity to raw materials and markets.
The company has an extensive distribution network and adequate manpower. It aims at increasing 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 cater to changing consumer preferences and personalize the user experience. Further, it exports products such as soya meal, lecithin, and other food ingredients to 31 countries.
Patanjali Foods – Moat
- Farmer-friendly company with rural integrations.
- A balanced mix of inland and port-based refineries has helped it to reduce logistics costs. In fact, it 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 for its products without significant capital expenditure.
Fundamental Analysis of Patanjali Foods – Verticals
Patanjali Foods has six business verticals:
Edible Oil, By-products, and Derivatives
It is one of India’s largest oilseed solvent extraction and edible oil companies. The company has a robust portfolio of brands like Ruchi Gold, Mahakosh, Nutrela, Sunlight, Sunrich, and Ruchi Star. It sells a variety of edible oils, vanaspati, and bakery products.
Oil Palm Plantations
Palm oil’s yield and income per hectare are better than other oil seed crops. It is a leading player in oil palm processing with a 0.90 million metric ton capacity per annum in India. Further, it has access to over 2.50 lakh hectares of potential oil palm cultivation across various states in India.
It has inked MoUs with ten state governments under the Governmentpromoted public-private partnership model.
FMCG
Patanjali Foods aims to increase its share of the food’s business volume and product offerings. Further, they are pioneers in edible soya flour and textured soya protein.
It acquired the biscuits cookies and rusks business from Patanjali Natural Biscuits Private Limited and Patanjali Ayurved’s food retail business undertaking for ₹ 690 crores.
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 primarily at their edible oil refineries under this vertical. They manufacture products like soap noodles, glycerine, and distilled fatty acids.
Nutraceuticals
Fast Moving Health Goods (FMHG) have an excellent response in the market, besides opening a new revenue stream for the company. This vertical includes various brands under categories like general nutrition, sports nutrition, and medical nutrition.
Further, they are co-branded under Patanjali and Nutrela and are certified by FSSAI and the Ministry of Ayush. The preventive healthcare segment witnessed a major boom and the company is poised to take the advantage of this as the industry deepens its presence in India.
Renewable Energy- Wind Power
Patanjali Foods Limited has windmill installations in Madhya Pradesh, Tamil Nadu, Maharashtra, Gujarat, and Rajasthan. It has a total wind power generation capacity of 84.6 MW. This is used for captive use as well as sale. Moreover, it is focusing on sourcing power for its business operations across 11 locations in 6 states.
Patanjali Foods – Financials
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 made huge losses in 2018 but recovered after that.
Therefore the chart shows an increasing trend in profit. However, in the past two years, the profit has decreased. Its sales grew at a 3-year CAGR of 37.90% and its net profit grew at a 3-year CAGR of 224.19%.
Patanjali Foods – Key Metrics
| Particulars | Values |
|---|---|
| Face Value (₹) | 2 |
| EPS (₹) | 24.14 |
| ROE (%) | 16.51 |
| Debt to Equity | 0.72 |
| Current Ratio | 2.82 |
| Market Cap (Cr) | 48,688 |
| Promoter’s Holdings (%) | 80.82 |
| Dividend Yield (%) | 0.38 |
| Stock P/E (TTM) | 55.72 |
| Sector PE | 62.29 |
| Net Profit Margin | 3.33 |
The latest consolidated financial statements of Patanjali Foods Limited are unavailable at the time. Therefore, the above table represents numbers from its standalone statements.
- The company has a return on equity (ROE) of 16.51% and a return on capital employed (ROCE) of 15.49%. In general, an ROE of 15% to 20% and a ROCE of at least 20% are considered to be good. The company has a return on assets of 7.02% which is good.
- Patanjali Foods has an ideal debt-to-equity ratio of 0.72. It has an interest coverage ratio (ICR) of 4.41. Ideally, an ICR greater than 3 is good.
- Its promoters currently hold an 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 lower price and that its price might increase in the future.
- Patanjali Foods is a large-cap company with a market capitalization of ₹ 48,688 crores.
In Closing
In this article, we did a fundamental analysis of Patanjali Foods. We took a look at their back story and the company’s business. Then we understood the company’s business verticals. Later we took a look at its revenue, profits, and other key metrics.
Finally, we took a look at its achievements, sustainability, and CSR initiatives. That’s all for this article, folks. We hope to see you around and happy investing until next time!
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