Informist, Friday, May 20, 2022

By Avishek Rakshit

KOLKATA – Patanjali Ayurved Ltd's handover of the foods business to subsidiary Ruchi Soya Industries Ltd signals both a retreat to its core portfolios of health and personal care, as well as preparations for the next level of growth for the group's foods business.

Under the deal, Patanjali Ayurved will transfer the 42-bln-rupee foods business to unit Ruchi Soya, which will subsequently be renamed Patanjali Foods Ltd.

Patanjali, which owns 81% of Ruchi Soya, will get 1% royalty for all products sold by the listed entity under the Patanjali brand, and will focus its energies on its portfolio of personal care, home care, and Ayurvedic products. 

If the plan works, companies like Hindustan Unilever Ltd, ITC Ltd, Tata Consumer Products Ltd, Dabur India Ltd, and Nestle India Ltd could face greater competition from Patanjali on two fronts--the packaged foods business which Ruchi Soya will handle, and the personal care business that Patanjali Ayurved will manage directly.

MULTIFOLD BENEFITS

The deal is beneficial for Ruchi Soya in many ways. First, it will give the company an extensive portfolio to compete with larger, established fast moving consumer goods players.

Once the acquisition is completed, Ruchi Soya will add branded commodities such as flour, pulses oats, sugar, and spices, value-added commodities like cow ghee, juices, herbal tea, papad, and sweets, and high-margin products like dry fruits, breakfast cereals, corn flakes, and noodles to its portfolio.

Earlier, its foods and edibles business spanned only branded edible oil, textured soya protein, nutraceuticals, and bakery fats as major verticals.

"Our food portfolio will be diversified and spread across various categories and soya is a small part of the overall portfolio," said a Ruchi Soya spokesperson.

Also included in the deal is an agreement under which Patanjali Ayurved will not enter into the categories it has handed over to Ruchi Soya. This is expected to give the listed entity headroom to build the Patanjali brand further and expand the market for Patanjali foods.

Ruchi Soya is also expected to reap major benefits from the brand equity of Patanjali.

"Patanjali knows that its brand pull is greater than that of Ruchi, and they want to build on that," said Harish Bijoor, chief executive officer of Harish Bijoor Consults Inc. "Patanjali acquired Ruchi Soya because of its ability to roll out products, the manufacturing capability and the people manning the company, but the brand Patanjali still has a higher pull."

At the same time, Ruchi Soya will not sacrifice its own brands such as Nutrela, Mahakosh, Ruchi Gold, and Soyum, and will continue its play on this front.

The renaming of Ruchi Soya to Patanjali Foods is expected to complete the brand transition. This will bring the new brand to all three stakeholders--consumers, channel partners and shareholders, and "reflect the true nature of the business", the Ruchi Soya spokesperson said.

A third direct benefit for Ruchi Soya will be direct access to Patanjali's distribution network, which Ruchi Soya will improvise further.

While Ruchi Soya's current direct reach is limited to around 500,000 outlets, Patanjali reaches out to nearly 5.5 mln outlets in the universe of 8.5 mln-strong fast moving consumer goods outlets.

The joint distribution network will strengthen the company's market share, a Ruchi Soya spokesperson said. "With this acquisition, we will be able to engage with channel partners and distributors more actively."

As part of the network expansion for Ruchi Soya, the company will offer various schemes and incentives to Patanjali distributors, besides offering invoice financing through trade financing schemes. Ruchi Soya will also make Patanjali distributors part of its various training and other learning and development programmes.

Analysts said that for long, product availability and distribution was a challenge for Patanjali's foods portfolio in some pockets, but divestment of the foods business to a professionally managed company like Ruchi Soya could help address this to an extent. Effectively, it might lead to market share gains in tier-II and tier-III locations, they pointed out.

The deal will also offer several financial benefits to Ruchi Soya.

Immediately, it will add 42 bln rupees of turnover to Ruchi Soya's foods business, estimated at around 19 bln. This will triple the share of the food business in Ruchi Soya's total sales to 18% for the current financial year.

While divesting the foods business, Patanjali is not passing on any debt to Ruchi Soya, and intends to keep the company debt-free going forward, with expansion being funded from internal accruals.

Finally, Patanjali's food business is growing at a fast clip. The vertical, which expanded 28% in the year ended March, has been growing at 15-20% in the last few years and is anticipated to maintain such growth. As such, the deal is expected to give a shot in the arm to Ruchi Soya's efforts to transform itself from a low-margin, low-growth commodity player to a high-margin, high-growth packaged foods business.  End

Edited by Avishek Dutta

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2022. All rights reserved.