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Ruchi Soya Industries Ltd.*

CASE STUDY, FINANCIAL MANAGEMENT
ET Cases - GSMC, 13 Pages
AUTHOR(S) : Prof. Brahmadev Panda, Asst. Professor, and Manas Kumar Pal, Associate Professor - Institute of Management and Information Science, Bhubaneswar, Odisha

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Ruchi Soya Industries Ltd.

 

“Our growth is just an outcome of our concern; a concern that drives us to create innovative products using advanced technology and apply sound logistics for being there on demand.”

– Dinesh Sahara, Managing Director, Ruchi Soya Industries Ltd.


“At Ruchi Soya, we have always dreamed big” stated Managing Director, Dinesh Sahara, at the 20th Annual General Meeting (AGM) of RSIL. He clearly understood the demand for edible oil in India and lack of enough production to meet the demand and that almost more than the half of the requirement was imported from outside India. Edible oil import comprises 63 % of the total Indian agricultural imports2 and this was the reason why this sector has huge growth opportunities. RSIL understood the supply-demand gap and was eager to tap this market by putting its best efforts in expansion and creation of quality products for the consumers. RSIL, when compared to other players in edible oil industry had continuously restructured its business and achieved success positioning it as No.1 in the industry.

Company Background

The Ruchi Group was founded by late Mr. Mahadeo Sahara in the year 1958 and further his four sons set up different businesses like commodity trading, farming, ginning and oil mining to expand their family business. Late Mr. Mahadeo Sahara realized the potential of soya crop in the early 1960s. Mr. Dinesh Sahara the youngest son was appointed as the Managing Director of RSIL Industries Ltd. (Annexure I). It is quite interesting that the Group named itself as ‘Ruchi’ which in Hindi means taste or interest especially in food.....................

Edible Oil Industry

About 80% of the world’s total edible oil is of vegetable origin, obtained from oilseeds, nuts, fruits and grains (Exhibit II). India imports edible oil almost 65% of the total Indian agricultural import (Exhibit III), hence edible oil manufacturing needs to be focused in order to minimize the import percentage.........

The global production and consumption of major oilseeds and vegetable oils has been increasing continuously since 1978-19791.The total harvesting area for major oilseeds increased (by 54%) from 120.4 million hectares (USDA, 2003)...........

Consolidation of RSIL

Growth can be achieved in two ways – organic and inorganic. Mergers and Acquisitions (M&A) is one of the in-organic growth strategies that help the organization to achieve growth. M&A has been widely practiced in developed economies as corporate strategy and Indian companies are also practicing it for their growth and success. RSIL also adopted the merger and acquisition strategy for growth and market control. Ruchi Soya Industries Ltd., the flagship company of Ruchi Group exercised a major restructuring by merging six companies within the Ruchi Group to create a INR78,000 million entity.............

Financial Performance

RSIL’s consolidation with its sister concerns helped it to achieve growth and superior financial performance. Certain financial tools were used to gauge the pre and post-performance of the company and to find out the impact of consolidation on the financial performance of the company. The data related to the financial performance of the company were collected from the annual reports of the RSIL Ltd...........

Share Price Performance

Mergers and acquisitions are known as one of the efficient strategies that firms apply in order to gain shareholder value. Merger has both positive and negative impact on the share price of the company. If a company is going for a merger with a lot of debt involved or the target firm is not very lucrative then investors in the market react negatively and that lead to fall of share price in the market.............

Backward Integration

Raw material sourcing and supply chain management decision has become very crucial for every organization because of scarcity of material, price fluctuation and in time delivery. RSIL as a manufacturer and processor of edible oil understood the criticality and severity of these decisions. Hence to overcome with those problems, they made a backward integration with the palm plantation and processing units. RSIL acquired the entire business of Mac Oil Palm Ltd.........

Financial Performance

This integration made by RSIL with an intention to increase its production capacity and cost reduction was reflected in their revenue figures. Exhibit XI illustrates the financial figures of pre and post integration. The year 2007-08 and 2008-09 are taken as pre-integration period, year 2009-10 as the merging year and the year 2010-11 and 2011-12 as post-integration period (Exhibit XI).........

Share Price Performance

Share price movements are also important to be analyzed in order to gauge the investor sentiment and price volatility at the time of any restructuring process. Market Price of the Share (MPS) is important as it defines the market value of the firm and a slight decline in MPS leads to huge loss in value.............

Rationale behind the Restructurings

The mega consolidation within the Ruchi Group in the year 2005-06 and backward integration in 2009-10 had certain motives behind it. Six companies of Ruchi Group were earlier engaged in the soya processing, edible oil and fat, food businesses and dairy products, while RSIL had been looking after edible oil processing and marketing...........

Exhibits

Exhibit I: Different Business Verticals and its Capacities

Exhibit II World Oilseed Production (2011-12)

Exhibit III: Indian Agricultural Import Scenario

Exhibit IV: Worldwide Consumption and Production

Exhibit V: Details of Oil and Fats Production

Exhibit VI: List of Major Players in Vegetable Oil Production (2011-12)

Exhibit VII: Scheme of Merger

Exhibit VIII: Pre-Consolidation Financial Figures

Exhibit IX: Post-Consolidation Financial Figures

Exhibit X: Month-wise Share Prices Movements

Exhibit XI: Details of Financial figures of Pre and Post integration

Exhibit XII: Month-wise Share Price Movements

Annexures

Annexure I: Organizational Chart of RSIL Industries Ltd.

Annexure II: Journey of RSIL Industries Ltd.

Teaching Note Preview

Ruchi Soya Industries Ltd.

 

Synopsis

Indian edible oil production only cater less than 40% of the required demand and it imports almost more than 60 percent to meet the demand in the country. It  shows the kind of demand persists in India; still the per capita edible oil consumption is below the average per capita consumption of the world. The industry  experts are expecting that India’s per capita consumption will match the global average in the coming years. However, the huge gap in between the demand and  supply needs to be taken care and that gap is fulfilled through imports and Indian firms are exactly looking to capitalize this opportunity. Ruchi Soya is perhaps the  one in the edible oil industry has understood these phenomena clearly and has put its incessant effort to increase its scale of production and sales through mergers and acquisitions.

Ruchi group, the leading player in the edible oil industry started its journey in 1986. Ruchi Soya is the first and foremost maker and marketer of cooking oil and  soya food and at present it is the largest palm Plantations Company of India. Mr. Dinesh Sahara, who is currently the managing Director of the company has  been taking care of this company since its inception and has been shaping the company to reach new heights every time. In these years Ruchi has transferred itself from a mere commodity trader to a leading cooking oil and food processing unit with a proper branding of its products. It has a strong portfolio of brands that  include Nutrela Soya Foods, Ruchi Gold, Sunrich Sunflower oil, Ruchi Star, Ruchi Refined Oil and Mahakosh Refined Soya Bean oil. Ruchi’s Vanaspati, a  hydrogenated vegetable fat rules the rust. It has 22 manufacturing plants, 5642 non-exclusive distributors covering over 2,210 towns and over 725, 000 retail outlets as on FY 2013.

Ruchi Soya took a major restructuring decision in the year 2005 to consolidate the business of the other companies in their group. Six companies of Ruchi group were earlier engaged in the soya processing, edible oil &fat, food businesses and dairy products, while Ruchi Soya has been looking after edible oil processing and marketing. The merger of the group companies will be effective from April 1, 2005, subject to statutory and other clearances. With the effect from the appointed date, the business of MPGIL will be transferred to Ruchi Soya for Rs. 805.7 million by way of slump sale................................

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Abstract

This case study focuses on how merger and acquisition navigated Ruchi Soya Industries Ltd. (RSIL), RSIL in eliminating competition, tapping the opportunity in the  edible oil industry and emerging as the market leader. It focuses on the business performance analysis of RSIL’s amalgamation and its related issues. RSIL started in 1986 and primarily dealt with processing of oil-seeds, refining of crude oil and food products from soya. Its brand portfolio includes Nutrela, Ruchi Gold, Ruchi Star,  Sunrich and Mahakosh. These brands are well-rooted and have a strong market presence. It has 22 manufacturing plants, 5642 non-exclusive distributors covering over 2,210 towns and over 725, 000 retail outlets1 as on FY-2013.

RSIL’s consolidation with its sister concerns in the FY-2005 and its backward integration with Mac Oil Palm Ltd., and Pam Tech India Ltd., in the FY-2010 increased the company’s revenue from mere INR52 million in the FY-2004 to INR306 million2 in the FY-2012. Its net worth also increased from INR2720 million in the FY-2004 to  INR23660 million in the FY-20131, which was almost nine times more. Its continuous expansion strategy helped Ruchi to be included in the top 250 consumer  companies of the world3.

India has emerged as a leading edible oil consumer with a share of 12%4 of the world’s consumption. India’s domestic edible oil consumption has been growing steadily from 11 million MT in the FY-2005 to 18 million MT2 in the FY-2013 out of which India only produces 7 million MT and rest 11 million MT are imported to meet the demand. Looking into the present opportunities RSIL devised its business strategy which helped it to achieve a CAGR of 14%2 and accelerated its growth cycle.

    1  Annual report-2013 2  Corporate presentation-2013 3  7th annual Global Powers of Consumer Products 2014 by Deloitte 4  USDA FAS

* GSMC 2014, IIM Raipur

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