Patanjali Foods: The Rise of an Indian Edible Oil Giant and Exceptional Financial Journey

The company, a subsidiary of Patanjali Ayurved, has become one of the largest players in the edible oil segment in India, with a turnover of over Rs 31,000 crore in 2022-23

MUMBAI (India CSR): Patanjali Foods Limited, formerly known as Ruchi Soya Industries Limited, has etched a formidable presence in India’s FMCG sector. Their financial year 2023 figures are a testimonial to this, with revenues crossing the impressive Rs. 31,000 crores mark, a robust 31% growth compared to the preceding year.

Patanjali Foods Limited (PFL) is an Indian company that manufactures and markets edible oils under various brands such as Kacchi Ghani, Refined, Soyabean, Sunflower, Mustard, Rice Bran, Groundnut, etc. The company is a subsidiary of Patanjali Ayurved Limited (PAL), the fast-moving consumer goods (FMCG) major founded by Baba Ramdev and Acharya Balkrishna in 2006.

PFL was incorporated in 2018 after PAL acquired Ruchi Soya Industries Limited (RSIL), a leading edible oil company that was undergoing insolvency proceedings.

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How did Patanjali acquire Ruchi Soya?

Ruchi Soya was one of the largest edible oil companies in India, with a market share of around 14%. It had a diversified portfolio of products, including cooking oils, soya foods, bakery fats, and vanaspati. It also had a strong distribution network of over 10 lakh retail outlets and over 5,000 distributors2.

However, the company faced severe financial stress due to high debt, low margins, and intense competition. It defaulted on loans worth Rs 12,000 crore and was dragged to the National Company Law Tribunal (NCLT) by its creditors in 2017. The NCLT initiated the corporate insolvency resolution process (CIRP) for Ruchi Soya and appointed a resolution professional to manage its affairs2.

Several companies expressed interest in acquiring Ruchi Soya, including Adani Wilmar, Godrej Agrovet, Emami Agrotech, etc. However, Patanjali emerged as the highest bidder with an offer of Rs 4,350 crore. The offer included Rs 1,700 crore as equity infusion and Rs 2,650 crore as debt repayment. The NCLT approved Patanjali’s resolution plan in December 2019 and transferred the ownership and management of Ruchi Soya to Patanjali.

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Infrastructure and Workforce:

• The company boasts an expansive manufacturing setup, comprising as many as 25 state-of-the-art manufacturing plants.
• Behind its operations, there is a dedicated workforce of 3,925 individuals. This includes 1,368 adept employees and the rest constituting the diligent workers who play a pivotal role in the company’s day-to-day functionality.

Significant Achievements in 2022

• The year marked a major financial feat for Patanjali Foods as it successfully completed its maiden Follow-on Public Offer (FPO), raising a colossal sum of Rs. 4,300 crores.
• Shortly after the FPO on April 8th, the company celebrated a momentous milestone by achieving a market capitalisation of a staggering Rs. 33,479 crores.
• With the aim of establishing a robust financial foundation, the company astutely utilised the proceeds from the FPO. They efficiently cleared their outstanding debts by redeeming the debentures, settling a portion of the preference shares, and repaying both the term and working capital loans. This significant move allowed them to boast a debt-free status.
• July 1st of the same year saw the company expanding its horizons further, acquiring assets on a slump sale basis for a considerable sum of Rs. 690 crores.

Triumphs of 2021

• Under the adept leadership and management of Patanjali, 2021 became a hallmark year. In its first full operating year, the company didn’t just sail but soared, registering impressive sales of Rs. 16,383 crores. Moreover, the EBITDA stood at a commendable Rs. 1,018 crores.
• Diversifying its product range, Patanjali Foods took a strategic step by acquiring the Biscuits, Cookies, and Rusk business from Patanjali Natural Biscuits Private Limited. This acquisition, part of a Business Transfer Agreement, was sealed at Rs. 60.03 crores.

Financial Prowess: Reflecting upon its journey from FY19 to FY23, the company’s financial metrics narrate a success story of their own. The net profit rose to an awe-inspiring Rs. 886.44 crores. Even more notably, the company showcased a phenomenal CAGR growth of 84.37%. Such achievements bear testament to the company’s relentless pursuit of sustainable growth and profitability. It’s a clear manifestation that with dedicated efforts, all stakeholders can enjoy the fruits of collective accomplishments.

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A Historical Glimpse: The Birth and Evolution

• 1986 – A Humble Beginning: Dinesh Shahra planted the seeds of this giant by founding Ruchi Soya Industries Limited with the primary aim of producing edible soybean oil.
• 2022 – A Strategic Transition: With the year came significant changes. The company underwent a rebranding, taking up the name ‘Patanjali Foods Limited’ which reflected its newfound association with the formidable Patanjali Group.
• Acquisition and Growth: In a game-changing move, Baba Ramdev-led Patanjali Ayurved Limited acquired the food business. This acquisition was not just strategic but also added a myriad of consumer-centric products to the portfolio.

Financial Highlights: A Closer Look The recently released Integrated Annual Report of Patanjali Foods Limited offers insightful details on the company’s performance trajectory, sustainable practices, and future strategies.

Yearly Financials At a Glance:

• FY 2019: Rs. 12,829 crores
• FY 2020: Rs. 13,175 crores
• FY 2021: Rs. 16,383 crores
• FY 2022: Rs. 24,284 crores
• FY 2023: Rs. 31,821 crores

This phenomenal growth is further accentuated by:

• 31.04% Year-on-Year Growth
• 25.50% Five Year CAGR

Revenue: Rs. 31,821 crores (31.04%)
EBITDA: Rs. 1,577 crores (0.73%)

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How did Patanjali turn around Ruchi Soya?

Patanjali rebranded Ruchi Soya as Patanjali Foods and leveraged its existing brand equity, distribution network, and customer base to revive the business. It also infused fresh capital, reduced costs, improved operational efficiency, and increased production capacity. Some of the key steps taken by Patanjali to turn around Ruchi Soya are:

It launched new products under the Patanjali brand name, such as Nutrela Honey and Nutrela Protein Plus. It also introduced new variants of existing products, such as Nutrela Soyabean Oil with Vitamin A and D.

It expanded its distribution reach by leveraging Patanjali’s network of over 5 lakh retail outlets and over 15,000 exclusive stores across India. It also increased its online presence by partnering with e-commerce platforms such as Amazon and Flipkart.

It reduced its debt burden by raising funds from various sources, such as qualified institutional placement (QIP), preferential allotment, rights issue, etc. It raised Rs 4,300 crore through QIP in February 2021 at a premium of over 500% to its market price.

It enhanced its production capacity by reviving idle plants and installing new machinery. It increased its crushing capacity from 3.72 million tonnes per annum (MTPA) to 6.72 MTPA and its refining capacity from 3.30 MTPA to 4.69 MTPA.

It improved its operational efficiency by adopting best practices, optimizing processes, reducing wastage, and increasing automation. It also implemented various quality standards and certifications to ensure product safety and hygiene.

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What are the results of Patanjali’s turnaround strategy?

Patanjali’s turnaround strategy has yielded remarkable results for Ruchi Soya’s business performance and financial position. Some of the key achievements are:

As of March 31, 2023, with a market capitalization of Rs. 35,084.54 crores, Patanjali Foods Limited’s ascent showcases a strategic amalgamation of decision-making, unwavering quality focus, efficiency, innovative pursuits, and sustainable commitments.

Net Worth: 6,665 crores (291.57%)
Profit After Tax: Rs. 886 crores (9.94%)

The company’s deliberate efforts in cost management played a pivotal role, marking an increase in profit after tax by 9.94%. It’s evident that the priority is set on optimizing various processes, including supply chain and production, ensuring that efficiency translates to enhanced financial results.

The Investment Strategy

Patanjali Foods Limited’s investment strategy is meticulously designed, focusing on sustainability. By making strategic investments, the company strives for risk minimization, value maximization, and alignment with core values.

Key Investment Areas

• Product Capabilities: The company emphasizes continuous enhancement of its product range to meet evolving customer needs. Investments are channeled towards modernizing and expanding manufacturing units, integrating state-of-the-art technologies, and ensuring cost efficiencies without compromising on quality.
• Expansion and R&D: The strategy also encompasses widening the distribution network for broader market access and enhancing brand visibility. An unwavering focus on research and development ensures the company remains at the forefront of innovation.

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Company Name Transition: An Overview

In the period under scrutiny, the company underwent a pivotal rebranding, transitioning its name from “Ruchi Soya Industries Limited” to the now recognized “Patanjali Foods Limited”. This change is emblematic of the broader shifts the company is steering, primarily moving deeper into the Food and FMCG sectors. The chosen name, “Patanjali Foods Limited”, aptly encapsulates the expansive FMCG ventures the company is currently engaged in.

To make this transition official and binding, a thorough postal ballot procedure was followed. After the company formally applied for a name change, the Registrar of Companies, based in Mumbai, Maharashtra under the aegis of the Ministry of Corporate Affairs, granted approval. This validation came in the form of a revised certificate of incorporation, which was dated June 24, 2022. This certificate marked the official commencement of the company’s new identity – “Patanjali Foods Limited”, effective from the same date.

Of course, such a transformation isn’t just about changing a name on paper. It necessitated amending foundational documents, including the Memorandum of Association and the Articles of Association, to align with the new identity.

In the stock market realm, the company’s securities are now traded under the name “Patanjali Foods Limited“. Investors and stakeholders can find it listed on both BSE Limited and National Stock Exchange of India Limited with respective codes – BSE’s ‘500368’ and NSE’s symbol ‘PATANJALI’.

Further Public Offer (FPO) Overview for the Year

The the year under review, the company initiated the Further Public Offer (FPO), leading to the allotment of 6,61,53,846 equity shares, which amounted to Rs 4,300 Crores. Following this allotment, public shareholding stood at 19.18%. To align with Rule 19A of the SCRR, the company is tasked with increasing the public shareholding to 25% to meet the MPS requirements.

What are the challenges and opportunities for Patanjali Foods?

Patanjali Foods faces several challenges and opportunities in the edible oil segment, such as:

The edible oil segment is highly competitive and fragmented, with several players offering similar products at different price points. Patanjali Foods has to differentiate itself from its rivals by offering superior quality, value, and innovation.

The edible oil segment is highly dependent on raw material availability and prices, which are influenced by factors such as weather, crop production, import duties, etc. Patanjali Foods has to manage its procurement and inventory efficiently to ensure consistent supply and cost optimization.

The edible oil segment is witnessing a shift in consumer preferences towards healthier and premium products, such as olive oil, rice bran oil, etc. Patanjali Foods has to cater to the changing consumer needs and preferences by launching new products and variants that meet their expectations.

The edible oil segment is also witnessing a growth in demand due to factors such as rising population, income levels, urbanization, etc. Patanjali Foods has to capitalize on this opportunity by expanding its production capacity, distribution reach, and market penetration.

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Opportunity and Challenges in India’s Edible Oil Market

India’s Position in Global Edible Oil Imports:
India has risen as the foremost global importer of edible oil, accounting for an estimated 15% of the world’s total edible oil imports as of FY23. Historically, imports were deemed cost-effective. However, recent challenges, such as pandemic-induced supply chain disruptions and geopolitical conflicts between Russia and Ukraine, have escalated imported edible oil prices. Consequently, there’s been a renewed emphasis by the Indian government on boosting domestic edible oil production.

Price Trend

The Wholesale Price Index of edible oils across India has seen a significant increase over the years.

• FY19: 117.6%
• FY20: 119.3%
• FY21: 143.5%
• FY22: 187.2%
• FY23: 181.9%

Outlook for the Future

The trajectory for India’s edible oil market is optimistic. By 2028, the market is forecasted to burgeon to 26.7 million tonnes, showcasing a compounded annual growth rate (CAGR) of 1.55%. This growth is primarily attributed to the rising consumer consciousness about health benefits and the versatility of edible oils in diverse cuisines. Additionally, the Indian government’s introduction of the National Mission on Edible Oil (NMEO) aims to fortify the nation’s edible oil production infrastructure and address its burgeoning consumption.

Key Growth Drivers

1. Rising Consumer Health Concerns:
   The current consumer demographic is progressively health-centric, gravitating towards diet enrichment with edible oils. Recognizing the health advantages, such as dietary balance and holistic well-being, associated with these oils, consumers are keen on sourcing premium quality for culinary uses.
2. Entry of New Market Players:
   The edible oil industry in India is vibrant, marked by an influx of new entrants. This surge results in a diversified product landscape, presenting consumers with a plethora of choices tailored to their unique dietary requirements. This competitive atmosphere not only broadens the consumer palette but also instigates continual product enhancements by the companies.
3. Domestic Production Focus:
   The Indian government is strategically pivoting towards diminishing its dependency on edible oil imports. To materialize this vision, a slew of policies and initiatives have been launched to invigorate domestic production. Even though global edible oil prices are expected to recede, India’s focal point remains steadfast on cultivating domestic self-reliance, mitigating the repercussions of international market volatility.

Also Read: Corporate Governance at Patanjali Foods Limited: Upholding Ethics and Integrity – 2023