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.
