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Ruchi soya industries ltd, the second largest fmcg (fast mov-ing consumer goods) player

in india by consolidated turn-over, after itc ltd, and amongst the 50 fastest growing in the world, is repositioning itself for momentous growth.

clocking a standalone turnover of `26,499 crore in 2012-13, this flag-ship company of the ruchi group of industries is also exploring new horizons beyond its traditional business interests.

since its founding in 1986 by the shahra family as a food processing unit in indore, in Madhya pradesh, ruchi soya has evolved as an inte-grated player in the edible oil busi-ness with a presence across the entire value chain. it is acknowledged as india’s largest integrated oilseed solvent extraction (in terms of oil-seed crushing) and edible oil refin-ing company. it is also the country’s foremost cooking oil and soya food maker and marketer, and the largest palm plantations company.

the company name is from the hindi word ‘ruchi’ that depicts taste or interest, especially in food. its ori-gin was in 1958 when the late family patriarch, Mahadeo shahra, and his eldest of four sons, Kailash shahra, set up their family business in com-modities trading, farming, ginning and oil milling. dinesh shahra, the youngest son, who is managing director of ruchi soya industries, joined the business in 1972.

over the years, ruchi group has diversified into a conglomerate of businesses promoted by the four brothers and their sons and spans edible oils, soya foods, steel, dairy, information technology and realty. while Kailash chairs the group and dinesh heads ruchi soya, suresh, the second eldest, is managing direc-tor of Anik industries ltd, and the third brother, santosh, is managing director of general food ltd and ruchi pvt ltd.

Kailash’s son umesh is the manag-ing director of ruchi strips & Alloys ltd and of indian steel corporation

ltd, suresh’s sons nitesh and Manish are president, refining division, and executive director, Anik industries, respectively, santosh’s son Vishesh is a director in a company, and dinesh’s sons sarvesh and Ankesh are business head, fmcg & specialty ingredients, ruchi soya, and director, business development, ruchi Agritrading pte ltd, singapore, respectively.

ruchi soya entered the capital market with a modest ipo of `60 lakh in 1986. now listed on the Bombay and national stock exchanges, it has metamorphosed into india’s larg-est importer and marketer of edible oils. it was the company that pio-neered soya cultivation in the coun-

try, with tie-ups with indian and American agricultural universities, and the farming community.

the company has a pan-india presence, with five

port-based refineries, three standalone crushing plants, eight

integrated crushing and refining units, one refinery, one vanaspati plant, and two palm fruit process-ing factories. its extensive distri-bution network comprises 725,000 retail stores, 106 company depots and 5,642 distributors.

over the years, ruchi has trans-formed itself from being a commod-ities trader and one processing oils to a complete foods company with branding of all its products. this has driven the company to the next level, with a strong portfolio of brands that include ready-to-eat vegetarian fare, nutrela soya foods, refined oils and table spread, sunrich sunflower

Ruchi Soya is making some fast moves in the fast moving consumer goods industry

The oil barons

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MAJOR FMCG PLAYERS IN INDIATurnover 2012-13 (` crore)

P&G India

Colgate-Palmolive

Marico

Britannia Ind.

Godrej ConsumerProducts

HUL

Ruchi SoyaIndustries

ITC 31,323

29,807

26,317

6,391

6,135

4,500

2,800

1,685

Dinesh Shahra:fmcg’s paradigm

shift

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oil, mass edible oil brands ruchi gold and ruchi star, and Mahakosh refined soya bean oil. ruchi no. 1 is a leading edible oil and vanaspati brand, while ruchi gold is the leader in palmolein and is india’s single largest oil consumer brand.

An ac nielson survey of the mar-ket share of branded edible oils, or rocp (refined oils in consumer packs), in packaging of five litres or less, ranks Adani wilmar, an equal partnership venture between the Ahmedabad-based Adani group and singapore’s wilmar international ltd, in first place, with 20.1 per cent. ruchi follows closely with 17.3 per cent, while chennai-based Kaleesu-wari refinery pvt ltd has a share of 5.8 per cent. ruchi, however, indi-cates that its ruchi gold brand, with a 9.4 per cent market share, contin-ues to be india’s largest selling single oil (palm) brand.

The joint ventures“in the non-rocp segment, or bulk/ institutional sales of edible oils to large consumers like hotels, restau-rants and foodstuff manufacturers, ruchi has a strong hold and a leading position,” the company maintains. “nielsen doesn’t provide data on this.” the company besides adds that it has the highest capacity – of 4.02 million tonnes per annum - of oil-seed extraction, the highest capacity – of 2.99 million tonnes per annum - of oil refining, and the highest capacity – of 3.29 million tonnes per annum - of soya meal processing.

while there is no ranking avail-able globally for edible oil compa-nies, the big players are American multinationals adm (Archer daniels Midland), Bunge and cargill, and zurich-based louis dreyfus - better known as the abcd of edible oils.

“india’s fmcg sector is currently undergoing a paradigm shift, driven by a ‘lifetime change’ of the custom-ers,” mentions dinesh shahra. “this has forced major players in the sec-tor to promote products with cus-tomer preferences.” observing that india’s fmcg market is mature, com-petitive and marked by local as well as global brands, he, however, believes that the need of the hour is

innovation, which sets one company apart from another. “our view of innovation has been multifaceted,” he says. “we understand evolving customer needs and focus on provid-ing high quality products through innovation to attract increasing numbers of consumers.”

to give thrust to these pathways for growth, ruchi has forged three significant joint ventures (jvs) over the past one year, the latest one, in february, having the potential to revolutionise soya bean production in india. this jv is with dj hendrick international, inc. (djhii) of canada and kmdi international of japan for researching, producing, marketing and distributing high-yielding non-genetically modified (non-gm) soya beans in india. ruchi soya will hold 55 per cent of the equity, with 35 per

cent held by djhii, canada’s leading centre of excellence for developing non-gm soya beans, and 10 per cent by kmdi, a japanese trader and mar-keter of high-quality food-grade soya beans.

the jv combines the expertise of each partner towards enhancing the low yields in india. though the country is the world’s fifth largest producer of soya beans, with annual yields of about 12 million tonnes and an additional 1.8 million tonnes of soya bean oil, its productivity of just 1.02 tonnes per hectare is less than half the global average of 2.5 tonnes. india is thus a net importer of soya bean oil, purchasing almost 1.2 mil-lion tonnes yearly.

“india’s soya bean oil consump-tion far outstrips domestic produc-tion, so if corrective action is not taken, the country’s foreign exchange bill will continue to inflate,” explains ruchi chief operating officer (coo) satendra Aggarwal. “this jv plans on reducing import dependency through improving the oil content of domestically grown soya beans, which, in turn, will benefit public health, conserve precious foreign exchange, raise farmer incomes, and improve the rural economy.”

dinesh shahra stresses that ruchi steers clear of gm seeds or crops, as research globally testifies that such ‘tampered food’ can be detrimental to health. Kailash shahra concurs, maintaining that as a major player in the marketplace, his company has the responsibility to take the lead and contribute to positive action.

last june, ruchi entered into a 51:26:23 jv with japan’s edible oil major j-oil Mills inc (j-oil) and

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Sarvesh Shahra: mitigating business risks

SEGMENTAL REVENUE SPLIT

Foodproducts

2%Vanaspati

3%

Edible oils66%

Extractions22%

Others7%

SALES REVENUE SHARE

FY12 FY13 Change (` crore) (` crore) (%)

Extractions 6,350 7,066 11.27

Vanaspati 1,056 896 -15.11

Oils 20,484 18,400 -10.17

Food products 310 413 33.20

Wind turbine 46 56 22.61

Others 2,337 3,489 47.43

Total 30,583 30,321 -0.95

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global trading company toyota tsu-sho corporation (ttc). the part-nership requires ruchi to sell and transfer its soya processing plant at shujalpur, in Madhya pradesh, to the jv for producing and marketing high quality functional edible oils from the second half of 2014.

“ruchi soya will provide raw materials and necessary marketing and distribution assistance to the jv,” mentions Ankesh shahra. “j-oil will provide technical assistance and ttc, will provide management assis-tance for internal control and access to international markets through its network.”

Another jv with japanese compa-nies ruchi entered into was in April 2013, with leading tomato prod-uct company Kagome co ltd and Mitsui & co ltd, one of the world’s largest trading, investment and ser-vices companies. ruchi Kagome, the 40:66.7:33.3 jv, seeks to revolu-tionise india’s tomato market of an estimated 17 million tonnes per year with the launch of premium tomato puree, sauces, ketchup and other world-class products by june. it has identified land in Maharashtra to set up a manufacturing plant, with an initial investment of `44 crore.

“ruchi Kagome will handhold local tomato producers by supplying them higher yielding seed, sharing global knowledge in such produc-tion and setting up local support centres,” observes dinesh shahra. “india is the second largest producer

of tomatoes and a major importer of processed tomato products, but the segment has been marred by a lack of market awareness, poor har-vest management, and an inefficient value chain.”

Palm oil revolutionthese three jvs will supplement the r&d capabilities of ruchi, which has an r&d centre at powai, in

Mumbai, focussing on new prod-uct developments, and modern test-ing and quality control laboratories across india. it budgets close to `10 crore annually for r&d.

After soya, ruchi is also steward-ing a palm oil revolution in india. By 2014-15, it proposes to process 300,000 tonnes of ffbs (fresh fruit bunches) and produce 53,000 tonnes of crude palm oil (cpo) and 6,000 tonnes of crude palm kernel oil (cpko). And it plans to nearly dou-ble this over the next four years to production levels of 1,00,000 tonnes of cpo and 11,000 tonnes of cpko, says n.K. Arora, corporate head of ruchi’s oil palm division located at peddapuram, outside Kakinada in Andhra pradesh. “we will increase this to 200,000 tonnes over the next eight years, as our plantations start yielding more palm fruits,” he adds.

Already the largest branded palm oil marketer and palm processor in the country, ruchi is consolidat-ing its sourcing strengths to pro-cess imported palm oil as well as that grown by contract farmers. “self suf-ficiency in raw material sourcing is the key to insulating us from short supplies and spiralling prices in the long run,” says Arora. showing the old and new processing mills, the palm nurseries, the research facili-ties, and the impressive success and prosperity attained by palm cultiva-tors in the Kakinada region, he says achieving backward integration in palm plantations was imperative to

(from left) Ankesh Shahra, Treytiak, Dinesh Shahra, Hendrick, Akhilesh Sarraf, gm, Ruchi Soya, celebrate a the jv on soya production

NO SIGNIFICANT CHANGEIN EQUITY & FACE VALUE

Equity (` crore) Face value (`)

1067

212

Dec 2014 Dec 2014Dec 2013 Dec 2013

SHAREHOLDING

Promoter55.86% FII

15.64%Others28.5%

As on December 2013

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complete the value chain and accord a fillip to the palm oil business.

B.V. Mehta, executive direc-tor of Mumbai-based solvent extractors’ Association of india (sea), says cpo accounted for half the imports of edible oils by india in 2012-13, estimated at 5.89 million tonnes of the overall 10.38 million tonnes.

since foraying into palm oil plan-tation, ruchi has been allotted a combined 2,06,000 hectares of land banks by the governments of Andhra pradesh, gujarat, Mizoram, tamil nadu, odisha, Karnataka and chhat-tisgarh, 58,350 hectares of this in Andhra and 52,457 hectares in gujarat. the company works closely with farm-ers in these seven states, where it main-tains 22 nurseries with 3.39 million seedling stocks, mentions Mallesham poola, ruchi’s head of plantations, oil palm division. the company operates four mills in Andhra with an aggre-gate ffb processing capacity of 125 tonnes per hour.

unlike in indonesia, there is no clearance of forests here, but more a shift in cultivation to the palm crop, which starts bearing fruit in three years. inter-cropping (grow-ing other crops) is resorted to within that period to ensure farm incomes, explains Arora.

the tripartite agreement between ruchi, the state governments and farmers grants exclusive rights to the company to procure ffbs from farmers, who are paid fortnightly by direct bank transfers. this obvi-ates middlemen, while ffb rates are linked to international palm prices to avail the benefits of global markets to the local farming community, men-tions Arora. his company provides farmers a subsidy of `2,000 per hec-tare for installing drip irrigation, in addition to government subsidy.

Focus on sunflower tooconsidering sunflower, alongside palm, as the two fastest growing cat-egories of edible oils, ruchi recently launched its sunrich refined sun-flower oil brand in odisha. estimat-ing the current sunflower oil market in india at over `18,000 crore, Ajay Malik, assistant vice-president, ruchi

soya, says the plan is to take the mar-ket share of sunrich to 10 per cent within the next one year and to 15 per cent by 2016.

coo Aggarwal expects this grow-ing domestic demand for sunflower oil to drive the imports of vegetable oils, which he projects to rise by close to 25 per cent next year. “Annual edible oil consumption will cross 22 million tonnes in 2015, a little over half of which will be accounted for by the packaged oil segment,” he mentions.

the company has been active in the export market as well, having emerged as a niche player in soya bean meal, which is in high demand, particularly in southeast Asia, the far east and Middle east. it also exports high-end value added products like

edible de-fatted soya flour, full fatted edible flour, soya lecithin, soya gran-ules, soya flakes and soya chunks. the company is the highest exporter of soya meal and soya lecithin. used primarily as an emulsifier, soya lec-ithin is one of the most ubiquitous additives in all kinds of foods, from tea bags and chocolate to salad dress-ing and supplements.

godrej group chairman Adi godrej, whose group company, godrej consumer products ltd, is one of india’s largest fmcg players, considers ruchi soya a successful company in the oilseeds, vegetable oils and added value products busi-nesses. “they are both a competitor and a vendor to us,” he says. “i have always followed their strong growth and innovation with admiration and i personally know their manag-ing director dinesh shahra, who has played a leading role in the oilseeds and vegetable oil industry.”

investment information and credit rating agency icra notes that while the share of branded oil segment has remained low over the years, it is poised for growth in view of the rising income levels, an uptrend in urbanisation, and the increasing quality consciousness of indian con-sumers. while edible oils constitute an important component of food expenditure in indian households, the industry is highly fragmented. this has resulted in severe competi-tion and inherently thin profitabil-ity margins, leading many inefficient units to down shutters. Almost 80 per cent of soya processors have van-ished over the past 20 years.

diversified product portfolios, multiple manufacturing units, and pan-india operations mainly in the branded segment have, however, sustained the presence of major enterprises like ruchi soya, Marico ltd, Adani wilmar ltd and ks oils ltd. icra believes that by virtue of their scale, these larger manufac-turers are advantaged by access to cheaper working capital credit and savings in production costs that have enabled them to withstand margin pressures and difficult industry conditions.

pointing out that his company’s

(from left) Ankesh Shahra, Treytiak, Dinesh Shahra, Hendrick, Akhilesh Sarraf, gm, Ruchi Soya, celebrate a the jv on soya production

Arora: stewarding a palm revolution

BUSINESS VERTICALS

Capacity/year Locations (Million tonnes) (No.)

Oilseed extraction 4.02 11

Edible oil refining 2.99 14

Palm fruit processing 0.52 02

Vanaspati &bakery fats 0.52 07

Soya meal 3.29 11

Wind powergeneration 85.3MW 11

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revenues in 2012-13 remained sub-dued – `26,499 crore as against `26,224 crore in 2011-12 - on account of weakening sentiments in the edi-ble oil industry, ruchi chief financial officer (cfo) V. suresh Kumar, how-ever, indicates that profits surged by 93.16 per cent over the previous year, driven by a 12.16 per cent increase in branded products and cost reduc-tion. the pat for fY2013 was `.236 crore on a standalone basis and `.284 crore on a consolidated basis.

investor sentiment, for a company that has been growing steadily, has, however, remained muted. fii hold-ings have declined from 16.6 per cent three years ago to 15.64 per cent today and of diis, from 0.5 per cent to 0.16 per cent. ruchi’s market cap of `3,092 crore is now valued a little over `1,200 crore. its share price which was around `93 in May 2012 is now hovering around `36. At this level the current market price discounts the earnings by just 5 times.

Rising branded sales“during the nine months ended december 2013, we registered net sales of `18,606.35 crore and pat was at `33.07 crore,” indicates Kumar. “there is no strong reason to believe this could deviate much in the last quarter.” According to him, branded sales contribute 28.33 per cent to the total sales of ruchi soya and their share is steadily increasing. “this is due to our conscious decision of focusing more on bottom-line

and less on top-line,” he points out. “we are keen on enhancing our branded portfolio that can fetch us better margins.”

the ac nielsen report reveals that while the indian fmcg sector grew in high double digits until 2012, its growth slowed over the past three quarters. though there was a growth of 6 per cent in value terms, all of it was driven by unit value increases. it adds, however: “the worst may be over for india’s fmcg industry, as the macro-economic situation improved in Q3 of 2013, led by a sharp pick-up in agriculture and a mild upturn in industrial output.”

deven choksey, market expert and managing director & ceo, K.r. choksey shares & securities, Mum-bai, says the concerns about ruchi are due to its deteriorating per-formance over the last few quar-ters. he notes that a weak demand pulled down sales and a depreciating rupee inflated the cost of imported raw material, putting pressure on profitability. increasing consump-tion of rice bran and sunflower oils also affected sales to some extent. “the company’s efforts to cope with changing consumer trends will, however, get it back on track,” he believes. “its new initiatives like launching of sunrich in tamil nadu and odisha and jvs in the ‘ready-to-cook business’ will be hugely positive as the use of sunflower oil for cook-ing is increasing rapidly.”

these initiatives, he says, will also

turn sentiments positive towards ruchi as also its forging of signifi-cant jvs, and utilisation of its produc-tion capacities which have expanded recently. “Moreover, its strong sourc-ing, processing units, logistics and a vast distribution network will help it cater to increasing demand, result-ing in increased turnover, and bet-ter margins and performance going ahead,” he notes. “ruchi is also eval-uating business opportunities in pro-cessing various oil seeds for value addition and in expanding and strengthening its relationship with the farming community.” he adds that the company has undergone a major operational restructuring to substantially increase the product and category level focus.

pointing out that ruchi has been working towards mitigating inherent business risks, such as the vagaries of weather and geo-political fac-tors, sarvesh shahra remarks, “since inception, the company has been registering profit and announcing dividends every year and we have achieved consistency in performance through de-risking our business by spreading our wings pan-india and establishing a robust retail and dealer distribution network.”

ruchi soya has also ventured into renewable energy, having set up a cumulative 85.3 mw of wind power generation at 11 locations across the country.

“while for venturing into new territories, we have already announced jvs with international players, we are not actively looking for partners for the edible oil man-ufacturing and marketing business in india,” says dinesh shahra. “But though ruchi soya has been grow-ing in an organic manner, we are open to acquisitions as and when they appear.”

he points out that there is a good combination of family expertise and high level professional function-ing. two of the eight directors on the board are executive whole-time direc-tors, while four are non-executive and independent. “our expertise and experience will stand us in good stead for years to come,” he says.

u s A r o s h B A n A

The Kakinada oil palm cultivators are a happy – and prospering – lot