Ruchi Soya launches Joint Venture with Kagome and Mitsui

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Ruchi Soya Limited (BSE: 500368), the flagship company of Ruchi group, and  among the top five among FMCG players, has announced an important joint venture with two leading Japanese companies, Kagome (TYO:2811) and Mitsui & Co (TYO:8031). The Kagome Company is a leading tomato product company and Mitsui is among the world’s largest trading, services and investments companies. Ruchi Soya will hold 40% of shares in the newly created joint venture, called Ruchi Kagome, and remaining sixty percent shares will be held by a special purpose company (SPC). Two thirds of shares of SPC will be owned by Kagome and remaining one third by Mitsui. The objective of the joint venture is to “Revolutionize the 17000 million ton tomato products market in India,” as stated in the company press release filed with the Bombay Stock Exchange.

The joint venture plans to help Indian farmers improve quality and yield through better agricultural practices, by providing better seeds and scientific farming technology, and through use of global knowledge and information. It proposes to set up local support centers to help and educate the farmers. The manufacturing facility for tomato products will be set up in Maharashtra, at an outlay of 440 million rupees, for which land has been identified. It will produce world class tomato products like ketchup, sauces and tomato puree. India is importing processed tomato products in a very big way, in spite of being second largest producer of tomatoes. The joint venture will result in import substitution, claims the press release.

With a rapid rise in middle class households, and changes in their lifestyle, demand for processed food is growing rapidly. There is a good demand in food services as well as in retail market segment. Mr. Hidenori Nishi, President, Kagome has stated, “Kagome Group supplies food and beverage products in approximately 50 nations throughout the globe. This new venture is a strategic fit for our global expansion plan. Kagome is aiming to contribute to the well being and longevity of people in the rapidly expanding Asian market, by creating new, regionally based solutions for the tomato. We strongly believe that the radical improvement in the purchasing power of Indians, health consciousness and change in the consumption pattern of people in the country are some of the potential future business drivers for us, as we are entering India”.

Ruchi Soya Industries is one of the largest edible oil producers and one among top five FMCG firms. It is the flagship company of Ruchi group and has a market capital of 23290 million rupees. Equity of the firm is 687 million rupees and earnings per share of face value 2 rupees is 3.67 as per audited results of  FY 2011-2012.

As per the unaudited reports of all the three quarters, there is all round improvement in profits. Half yearly results ended Sept, 2012 , show a 58% jump in net profits, compared to same period last year. Profits increase from 699.4 million rupees to 1082.2 million rupees. Q3 results for December 2012 show more than 100% jump in net profits from 240 million rupees to 494 million rupees. The improvements in profits realized through backward integration strategy and exports.

Meanwhile the company has moved up in the list of deloitte global top250 consumer product companies, 2013 from 175th position to 121 position. Other Indian company figuring in this list is ITC.

Based on 9 months results of FY 2013, annualized EPS (Face value 2) works out to be Rs.7.7

Current market price of 69 discounts audited EPS (of 3.67) almost 18.6 times and projected EPS (of 7.7) of FY2013, around 9.8 times.  Considering the PE enjoyed by other FMCG companies, around 25, and taking into account the sustained improvements in exports and domestic sales and  advantages of the latest joint venture with the Japanese companies, Ruchi Soya would be a good long term buy  at current price, and it will be a good share to accumulate on dips. Target price would be around 85-90.

(Source: )