Ruchi Soya Industries

I bought shares in Ruchi Soya day before at 87 rupees. Ruchi Soya is not a value investors bet but a growth investors'.

Ruchi Soya operates in a promising sector. As the 4th largest consumer yet a dismal 12 kgs of per capita consumption per annum, the edible oil industry is slated to rise with increased demand. For more information on the industry, read the corporate presentation available at Ruchi Soya's website (here, slides 10-15, pdf, 573 Kb).

Ruchi Soya is an excellent franchise. Over 10,000 crores in sales makes Ruchi Soya the largest integrated oilseed solvent extraction company, the biggest importers & refiners of edible oils in India and the biggest exporter of soya meal and lecithin. Ruchi Soya accounts for 12% of Indian edible oil consumption.

The company has done well in the branded edible oil segment too and has taken up branding in a big way. Nutrela (soya chunks, granules, soya flour) is the largest selling soya foods brand in the country today. Additionally, they have Nutrela Soyumm (Soyabean Oil), Ruchi Gold (Palmoline Oil), Sunrich (Sunflower Oil) and Mandap (Mustard Oil). New healthy oil variants like Nutrela Vitamin Sunflower oil and Nutrela Groundnut oil are also on offer. Their latest product is N-rich, a soya based nutritional drink.

1. The company will close FY08 at annual sales of Rs. 10,200 crs. The company has shown a 4-yr CAGR of 30% . The edible oil industry in India is slated to grow to 33% per annum. Given Ruchi Soya's penetration in the market, their sales growth should atleast be 15% next year.

2. Ruchi Soya's net profit margins have increased each year by 10 bps (0.8% in 2003 to 1.3% in 2008). I estimate a closing profit of Rs. 130 crores this year which is 30% higher than last year. On the operating margins front, Ruchi Soya has improved from 2.3% in 2003 to 3.2% now .. improving each year.

3. Adjusted for the 5:1 stock split, the EPS has increased each year (2.5, 3.2, 4.1, 5.5, 5.5, 7.1). I have further tracked the price-earning over these years. On Mar-31st of 2005, 06, 07, 08 .. the PE of the stock has been pretty consistent - 11.0, 13.1, 11.8, 11.5. At the current price of 90 (Apr 17), Ruchi Soya is valued at a price earning of 12.6.

From an asset view, Ruchi Soya is not the best bet for a value investor. A negative NCAV and a high debt-equity ratio may put many off. I picked this stock from an earnings and franchise perspective. A big, bulky, difficult to enter business, in an organised market of 10, growing at 30% in an industry growing at 30% is probably a bet .. but hopefully an educated one.