Initiating Coverage Ruchi Soya Industries Ltd

CMP-NSE (1/7/2008) 86

Target Price12-15 months 131

Face value 2

Market cap(Rs in mn) 16169.87

Total O/S shares mn 188.79

Free Float 62.44%

52 week High/Low 165/68

Avg. Monthly Vol. (BSE) 126539

Avg Monthly Vol. (NSE) 157554

BSE Code 500368

NSE Code RUCHISOYA

Bloomberg code RSI IN

Beta 0.67

Date of Incorporation 1986

Last Dividend Declared 24%

Six month's return -44.80%

Indices BSE 500

Source: Capitaline

Established in 1986, Ruchi Soya is among the largest producer and suppliers of vegetable Oil and Soya Food in India. One of the highest exporter of Soya meal,Ruchi Soya Ltd., is the flagship Company of Ruchi Group of Industries with an annual turnover of Rs 11,000crs for FY 08 and one of the largest agribusiness company in India.Ruchi is having a well established market presence through its strong brand portfolio of Nutrela, Ruchi Gold ,Nutrela N'Rich,Mahakosh Oil.It has also marked its presence in the retail segment by tying up with retail giants like Pantaloon Retail,Reliance Retail, Aditya Birla etc.

One year price chart

Shefali DoshiResearch Analyst+91 022 4094 5500 Ext. [email protected]

KJMC RESEARCH

Solvent Extraction

2nd July, 2008

Ruchi Soya Industries Ltd.Buy

Initiating Coverage

- INSTITUTIONAL RESEARCH

Investment Highlightsn

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Favorable business model with increased share of manufacturing products from 33% to 76% in six years and is further expected to go up to 90% over a period of next 2-3 yrs.Higher EBITDA margins for the manufacturing products of around 6% to 9.5% as compared to the EBITDA margins of 1% for trading goods shall gear up the overall profitability of the Company.

Ruchi has carved a niche for itself by creating a strong branded portfolio which accounts for 29% of the business. It has recently launched low calorie, protein drink N'rich for its premium customers and expects to have a market share of around 10% within 2-3 yrs.

Branded Oil segment has been growing at a CAGR of 28% over a period of 6 years and maintains a leadership position in the branded oil segment accounting for 13% of the Indian edible oil consumption.

Venturing into high margin mustard oil segment targeting a turnover of Rs 1500 crs toRs 2000 crs over a period of next two to three years which shall add another Rs120crs to its EBIT.

Competitive prices and high quality of Indian Soya meal in the global markets places Ruchi in a sweet spot to capture the benefit of demand supply gap.A substantial 25% market share in the International markets for this DOC/Soya meal proves to be highly profitable for Ruchi.

Undertaking vertical integration of palm plantation and Jatropha plantation alongwith forward integration into the bio fuel business within next 2-3 years will help curbing against the increasing crude palm oil price and capitalize on the untapped potential in the bio fuel segment thereby resulting in an overall increase in the profitability of the company.

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Financial Snapshot FY06 FY07 FYO8a FYO9E FYO10E

Net Sales 7540 8625 11000 12650 14674

EBITDA 234 298 428.8 496 622

PAT 88 101 157 185 260

EPS(Basic) 24.2 27.6 8.3 9.8 11.9

EPS (Diluted) 4.7 4.6 7.2 8.5 11.9

P/E (x) 18.3 18.5 11.9 10.1 7.2

EV/EBITDA (x) 10.1 8.9 7.4 5.4 4.0

ROE(%) 14.34 11.94 15.81 15.51 17.27

Source : Company, KJMC Research

Shareholding Pattern

Source : KJMC ResearchRs in crs

Valuations

At the CMP of Rs. 86 stock is trading at a P/E of 11.9x, 10.1x and 7.20 x discounting its FY08E, FY09E and FY10E earnings respectively. On EV/EBIDTA basis, stock is trading at 7.4x, 5.4x and 4.0 x its EBITDA for FY08E, FY09E and FY10E respectively.

The rising demand for edibleoil, customers preference for branded products, firm demand and price scenario of soya meal in the international markets shall help Ruchi in scaling new highs and hence we recommend a “Buy” on the stock with a 12-15 month price target of Rs. 131 based on 11 x FY 10E.Our target price offers a potential return of 52% on the CMP.

Non Promoter

Holding, 20.99%

Promoters,

37.55%

FIIs, 26.47%

Public & others,

8.67%

Institutions,

6.31%

E : expected a : actual

KJMC CAPITAL MARKET SERVIES LIMITED is a full service, stock broking company, and is a member of BSE (Bombay Stock Exchange Ltd., and NSE (National Stock Exchange of India Ltd., KJMC group and its officers, directors, and employees, including the analyst(s), and others involved in the preparation or issuance of this material and their dependants, may on the date of this report or from, time to time have “long” or “short” positions in, act as principal in , and buy or sell the securities or derivatives thereof of companies mentioned herein. Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinion expressed herein. KJMC group may have earlier issued or may issue in future reports on the companies covered herein with recommendations/information inconsistent or different from those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, might give rise to potential conflicts of interest. KJMC group may rely on information barriers, such as “Chinese Walls” to control the flow of information contained in one or more areas with in KJMC group into other areas, units, groups or affiliates of KJMC Group.KJMC group and its associates may in past, present or future have investment banking/advisory relationship with companie(s) mentioned herein.

The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently

subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can

be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary

significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this

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This report/document has been prepared by the KJMC Group based upon information available to the public and sources, ( including company sources) believed to be reliable. Though utmost care has been taken to ensure its accuracy, no representation or warranty, express or implied is made that it is accurate or complete. KJMC Group or specifically KJMC Capital Market Services Ltd., has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. This information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific persons who may receive this document and should understand that statements regarding future prospects many not be realized. Investors should note that income form such securities, if any, may fluctuate (both downside or upside), and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance.

Disclaimer / Important disclosures

Analyst Certification

I hereby certify that the views expressed in this document reflect my personal views. I also certify that no part of my respective compensation was, is, or will be, directly or indirectly, related to the views expressed in this document. I do not own any amount of stock in the company recommended/covered in this report.

General data sources

Company, Capitaline, Public domain, Solvent Extractors Association of India, Rabo Bank and AC Nielsen.

KJMC RESEARCH2

Ruchi Soya Industries Ltd

Investment Highlights 4

Company Profile 9

SWOT Analysis 12

Industry Outlook 13

Outlook and Valuation 16

Financial Summary 18

Peer Comparison 14

C O N T E N T S

KJMC RESEARCH3


From Supply chain to manufacturing

Withfive standalone port based refiners,four standalone crushing plants

and five integrated crushing and refining plants, Ruchi Soya has re-

designed its business model to increase the contribution of its

manufacturing products to 76% from 33% in a period of 6 years. Currently

the manufacturing products contributes 76% and the Company looks

forward to increase the share of manufacturing products to 90% in a span

of another 2-3 years with 20% - 30% y- o - y growth in the manufacturing

sales. Over a period of 5 years the company has made significant

expansion and a multifold increase in its refining and crushing capacities

as a conscious move to redesign its business model.

EBITDA margins for manufacturing products are higher and hovers

anywhere between 6% to 9% as compared to trading products which are

around 1% and hence we expect that this will boost the overall profitability

of the company in future.

During the period of 6 yrs from 2002-2008, Ruchi had undertaken

substantial expansion plans for increasing its installed capacities to meet

the ever increasing demand.The installed capacities for various divisions

Investment Highlights

KJMC RESEARCH4

Capacities ('000 MTPA) 2002 2008 Multiplier

Solvent Extraction 600 2893 5x

Refinery 180 2112 12x

Vanaspati/bakery fats 112 470 4x

TSP 24 140 6x

Ruchi has carved a niche for itself by creating a strong branded

portfolio. Currently focusing to capture the markets for health

and diet related products

As per the AC Nelson data ,in refined oil in consumer pack(ROCP), Ruchi

have maintained leadership position on the branded sale both in terms of

volume as well as value with a market share of 19.8% in terms of volume

and 19.2% in value terms. Refined Palm and Soya Oil manufactured by

Ruchi has a market share of 17% and 28% respectively. Its brand “Nutrela”

has a market share of around 55% where as its second leading brand

“Ruchi Gold” is having a market share of 60% and has grown at a CAGR of

35% - 40% since its introduction. .

For the year ended March 08 the branded sales, which is 29% of the total

manufacturing sales have grown by 44.63% at Rs 3,218 crores which will

result in increasing the bottom line of the company as the branded

segment enjoys higher EBITDA margins of 6-9% in comparison to the

bulk side having EBITDA margins of 4.50 %. In the overall branded sales,

the soya and palm are having a significant share.

Ruchi has very recently ventured into the estimated Rs 2,250 cr package

and the branded fruit juice market and is targeting a 10% market share

over a period of next 2 3 years .In a move to capitalize on the growing

consumer demand for nutritious as well as health related products and as

a strategic move to cater to its premium customer segments in a better

way, Ruchi expanded its product portfolio by launching N'rich a low-

calorie protien drink containing ingredients from natural sources which


Looks forward to increase the share

of manufacturing products to 90% in

a span of another 2-3 years...

Branded portfolio constitute 29% of

manufacturing business...

Source: Company, KJMC Research

KJMC RESEARCH5

Maintains a leadership position in the branded oil segment

The size of the domestic edible oil Industry is about 80,000 crores growing

at 6.5% to 7% whereas the packaged food is growing at 15% for the past five

years.

50

1050

2050

3050

4050

5050

6050

Agro Tech Foods K S Oils Ruchi Soya Inds.FY

07-S

ale

sofO

ilin

Rs

(crs

.)

The Company currently accounts for around 13% of the Indian edible oil

Consumption and enjoys a 20% market share in branded packaged edible

oil segment which has an average EBITDA margins of 6.5% ,higher then

the margins for bulk manufacturing as well as trading. The Companies

branded Oil segment has grown at a CAGR of 28% over a period of 6 years

with brand Nutrela having a 13% market share in the entire branded

products sale.Ruchi is an undisputed leader in the branded edible oil

category with brands like Nutrela Soyumn -Soyabean Oil, Ruchi Gold -

Palmolein Oil, Sunrich Sunflower Oil, Mandap-Mustard Oil. Soyabean oil

and Palm oil are the two major edible oils in the branded segment

contributing 57% and 33% respectively to the sales of branded edible oil

category.

Currently the packaged edible oil consumption is only about 20% of the

total 12.5 million tonne of domestic consumption and with growing quality

consciousness and plummeting price differences between packaged and

non-packaged edible oils, the packaged edible oil sector will capture 50%

of the market share within three years. The packaged edible oil industry is

growing at 10% annually and half of the market will be controlled by

packaged oil manufactures within three years.

In view of the growing demand of branded edible oils and increase in

consumption of oil to 21.3 mln tonnes by 2015, Ruchi which is enjoying a

virtual leadership is well poised to capitalize the opportunity in the

branded edible oil segment.

Entering into low cost high margin mustard oil segment

Indian vegetable oil economy is world's third largest after USA and China .

Three oilseeds - Groundnut, Soybean and Rapeseed/ Mustard - together

account for over 80 per cent of aggregate cultivated oilseeds output.

Mustard seed alone contributes Rs.12,000crs turnover out of

Rs.80,000crs oilseed based domestic turnover.


helps to defend life style disease. Ruchi has already been selling soya

nuggets.Thus the additions of new products in its portfolio which enjoy

higher margins shall positively impact the revenue and the profitability of

the Company.

Accounts for around 13% of the

Indian edible oil Consumption and

enjoys a 20% market share in

branded packaged edible oil

segment...

Source: KJMC Research

KJMC RESEARCH6

With steady growth in population and personal income, Indian per capita

consumption of edible oil has been growing steadily. However, oilseeds

output and in turn, vegetable oil production have been trailing

consumption growth, necessitating imports to meet supply shortfall.

Though Mustard plants grow all over the world, their cultivation is mainly

confined to India, China, Canada, Germany, France, Australia and the

United States.

India is the third largest mustard seed producer in the world, with 12 per

cent of world's total production grown domestically and crop accounts for

nearly one-third of the oil produced in India, making it the country's

second most important edible oil after groundnut.

Considering the growth of the domestic oil consumption in edible oils such

as Mustard, Cottonseed and Rice bran, the company has aggressive plans

to expand in the higher margins lower capital cost segment for business

growth and more specifically the retail segment. Mustard suffers less from

the international competition and it is not likely to be affected by the

imports. Also the operations for mustard are less technology oriented. The

margins are higher (8% EBITDA margin) because the price realization of

the mustard is higher than say palm and soya.

Mustard oil segment is growing at a rate of 20% and considering a 15%

market share of the Mustard oil industry Ruchi expects a turnover of ~

Rs1,500 to Rs 2,000 crs which will add another Rs 120 crs to its EBITDA .

Hence on a long term basis the highly profitable mustard oil segment shall

propel the profitability of the Company and improve the earnings of the

Company.


Expects a turnover of ~ Rs1,500 to Rs

2,000 crs which will add another Rs

120 crs to its EBITDA...

Competitive Prices of Indian Soya meal in the global

markets places Ruchi in a sweet spot to capture the benefit

of demand supply gap.

The demand for soya meals is expected to increase significantly as the

feeding of livestock continues to expand, especially in rapidly developing

countries. Canada alone is expected to import $300 million of

soymeal.Indian Soya meal is having wider consumer base in International

markets on account of various factors viz:

Cheaper as compared to American or Brazilian Soya meal

Has a high protein content of 48%.

Only India supplies non genetically modified soya meal while other

countries manufactures genetically modified soya meal.

As a result there is a growing demand of Indian Soya meal from Countries

like China, Indonesia,Japan, Korea and to a lesser extent some European

nations.

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Is enjoying a 25% share in global

markets for this de-Oiled cakes...

7

Soymeal exports accounts for 84% of the total edible oilseed meal exports

from the country and India exports around 65% of the country's soymeal

production. In 2006-07 there was a record exports of oilmeals of 51.64

lakh tons valued at Rs 4,300 crs recording a growth of 17%. Ruchi which is

enjoying a 25% share in global markets for this de-Oiled cakes is stand to

gain in terms of improving the profitability of the Company in FY 08 as well

as in the long run.


Soy Meal Export from India

PortSoy Meal

Apr'07-Jan'08%Share

Vietnam

Japan

Indonesia

thailand

South Korea

China

Sri Lank

Phillipines

Malasia

S. Africa

Taiwan

Signapore

1019850

505475

312300

202675

161025

132325

41225

36875

29250

6850

2675

375

38.051

18.860

11.652

7.562

6.008

4.937

1.538

1.376

1.094

1.256

0.100

0.014

KJMC RESEARCH


KJMC RESEARCH8

Undertaking vertical integration of palm and Jatropha

plantation.

Over the last few years, per capita consumption of edible oil in India has

grown from 9.53 Kgs in 2002-03 to the current level of about 12.0 Kgs and

the total demand is expected to grow from current level of about 10 million

MTs to 16 Million MTs in 2010 and further 21 million MTs in 2015. In India

The domestic production of vegetable oils is only around 7 8 million MTs,

the balance requirement has to be fulfilled by imports of Palm oil from

Malaysia and Indonesia and Soya oil from Argentina and Brazil. Palm oil

imports have witnessed an increasing trend on account of it being

relatively cheaper.

2004 2010 2015

Total Demand (mln tonnes) 10.9 15.6 21.3

Domestic supply of edible oils(mln tonnes) 7 10.1 13.4

Total edible oil imports( mln tonnes) 4.3 5.9 8.3

Imports as share of demand 39.40% 38.10% 39.50%

India is one of the largest consumer importers of edible oil in the world,

next to China and US. Being the largest importer of palm oil, Ruchi is

considering on the vertical integration of its palm plantation as part of its

strategic move because it is absolutely critical in the years to come to

maintain its leadership position in the domestic markets in edible palm oil

segment. It is also eyeing an opportunity at setting up Greenfield palm

plantations in Indonesia. This will also prove as a shield against the rising

palm oil prices.

Currently the edible oil imports are around 4.5 to 5 million tons of which

palm oil has got more than 60% market share and hence acquiring palm

plantations will significantly reduce the procurement cost of the raw

material and thereby increase its profitability.

It is also considering to enter into Jatropha plantations and bio-fuel

business and effectively utilize its expertise in agri-crushing

business.

It is also considering to enter into Jatropha plantations and bio-fuel

business and effectively utilize its expertise in agri-crushing

business.


Acquiring palm plantations will

significantly reduce the procurement

cost of the raw material and thereby

increase its profitability...

Source: Rabo Bank

Ruchi Soya is one of the largest player in India's branded edible oil category accounting for 20 % of the domestic market share with over 7000 TPD of refining and over 9560 TPD of crushing capacities .It is the largest Company in the edible oil & Oilseed Industry with a distribution network of around 5,83,000 retail outlets. Being the first exporter of Soyabean meal from India, it has grown to become a multi-million US Dollar company with two of strongest brands, Nutrela and Ruchi Gold .It has to its credit Highest Importer & Exporter of Oil Meals for 2006 awarded by GLOBEOIL India.

Its leading brand "Nutrela" caters to premium segment and offers healthy options in soya foods and edible oils. The Company also have a firm footing in modern retail due to single minded focus on new channels of distribution through its alliances with big players like Pantaloon and has a visible presence in all leading national and regional supermarkets .It has huge expansion plans to grow and hold a firm footing in the market through expansion of its consumer base and product portfolio. Currently it operates through a network of five standalone port based refiners,four standalone crushing plants and five integrated crushing and refining plants. The various segments which generates revenue for the Company are:-

Company Profile

KJMC RESEARCH9



0

50

100

150

200

250

300

Oil Vanaspati Seed extraction Others

Rs i

n( crs)

FY 08 FY 07

EBIT FY 08 v/s FY 07Revenue Mix FY 08 v/s FY 07

0

2000

4000

6000

8000

Oil Vanaspati Seed extraction Others

FY 08 FY 07

Rs i

n( crs)


Revenue mix for FY08

67%

2%

22%

9%

Oils Vanaspati Extractors Others

Revenue Segments

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Oils Crude oils,Refined Oils

Vanaspati and specified fats

Extractions All types of seed extractions,Textured Soya Protein, Soya

flour.

Others trading in Rice,Wheat,Maize,Barley,Gram,Tuar,Peas,Soaps

Indore

Shriganganagar

ShujalpurKota

Gadarwara

Jabalpur

Nagpur

Patal Ganga

Chennai

Mangalore

Haldia

Kandla

Crushing

Refining

Crushing

Refining

BaranGuna

COMPANY'S PRODUCTS PORTFOLIO

NUTRIGOLD

Formulated after extensive

R&D, is a product which has

an almost 'ghee like grainy texture

VANASPATHI

RUCHI NO.1

Is a hydrogenated vegetable fat

NUTRELA

Chunks, Granules and

Mini Chunks

SOYA FOODS

NUTRELA

Proflo Soya Flour

Lime, Rose petals, Jasmine, Sandalwood

SOAPS

RUCHI NO.1

Flavored protein drinksrich in vitamins,

minerals and antioxidants.

BEVERAGES

NUTRELA N'RICH

MAHAKOSH OIL

EDIBLE OIL

RUCHI GOLD

Palmolein oil, Mustard oil

Soyumm oil, Sunflower oil, Mustard oil,

Groundnut oil, Rice bran oil

NUTRELA

Soyabean oil, Sunflower oil, Cottonseed oil, Groundnut oil,

Mustard oil

KJMC RESEARCH10



Ruchi has well diversified presence through its plants & storage locations. A good mix & proximity to raw

material as well as to market works in favour of the company.

PROFESSIONAL MANAGMENT

KJMC RESEARCH11


Dinesh Shahra

Managing Directors

S P Joshi

Director, Foreignn Trade

Sarvesh Shahra

Head - Food Division

Nitesh Shahra

President - Refinery

Harish Singla

VP Sales & Marketing

Naveen Gupta

VP. Operations

R L Gupta

V P Corp. Planning and Company Secretary

Vinay Shah

VP, Banking

A B Rao

Director, Legal

Pradeep Koolwal

President, Crushing

Amrita ShahraHead-New Business Dev

& P.R.

V Suresh Kumar

Head Corporate Finance

Dr. S K Singh

VP, HR

Mahesh Agrawal

VP, Corporate Account

Yateendra Chaturvedi

GM, Information Technology

SAP

Implementation

underway

Integrated

Risk

Management

System

BeingDesigned

By

Ernst & Young

Ruchi has assinged a project to Hewitt Associated for designing HR policies post consollidation

Source: Company

In order to fund the expansion plans, promoters of the Company have

infused Rs 275 crs during FY 08 by way of 3,53,25000 warrants issued at

Rs 77.50 and convertible into one equity share over a period of 18 months

,of which 64,00,000 warrants have been converted into equity shares as

on 31st March 08.The effect of dilution on account of conversion of the

entire 3,53,25,000 warrants have been considered in our projections.

KJMC RESEARCH12


SWOT Analysis Strengths

Weaknesses

Opportunities

Threats

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Multifold increase in capacity over years.

Well-dispersed mix of proximity to raw materials and accessibility to the

markets through its crushing and refining units.

Has smartly moved from supply chain to manufacturing.

Has an efficient network of qualified and experienced operators and

engineers.

Has built up a strong stable portfolio of brands.

Company’s raw materials are agro based and hence subject to volatility

in the national and international commodity markets.

Foraying into other healthy food products under the brand Nutrela.

Strengthening its leadership in the branded edible oil segments.

Setting up of commodity exchanges have provided reasonable

opportunities for the industry as well as the company to hedge and

manage the impact of price fluctuations.

Exposed to foreign exchange risk on account of products which are

imported and further processed before sales in the domestic markets.

Any change in Government policy with respect to edible oils /food items

can have a major impact on the profits of the company.

The business is subject to many regulations by several authorities

which could have an adverse effect on company's business and the

results of operation.

Efficient marketing and distribution network covering over 5,83,000

retail outlets.

Conversion of warrants

Indian Oilseed sector accounts for

During 2006-07 India accounted for

n

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n

Domestic turnover of Rs 80,000 crs .

Import and Export trade turnover of Rs 20,000 crs.

7.4% of world oilseed production

6.1% of world major meal production

3.9% of world meals export

5.8% of world oil production

11.2% of World import of oils

9.3% of world oil consumption

Industry Outlook

KJMC RESEARCH13

Inspite of being the fourth largest oil seed producing country globally,

India is also one of the largest importers of edible oils. India's oil seed

production is about 25 million tons compare to the world's oil seed

production of about 400 million tons per annum.

Category 2002 2003 2004 2005 2006

Palm Segment 2.93 3.81 3.41 3.00 2.57

Soybean Oil 1.48 1.20 0.91 2.03 1.72

Sunflower Oil 0.00 0.09 0.08 0.01 0.10

Other Oils 0.02 0.01 0.00 0.01 0.02

Total 4.43 5.11 4.40 5.04 4.42

Though, India is importing almost 50% of its consumption requirement in

the form of Soyabean oil, Sunflower oil and palm oil, the per capita

consumption in India is still low in consumption of edible oil as compared

to its global peers.

India is 3rd Largest importer of vegetable oil in the world

next to China & EU

Though, India is the fourth largest producer of oil seeds in the world, the

capacity utilization of this sector has been between 35 and 50% affecting

the health of the Industry adversely. The importance of the Industry can

be judged from the fact that this sector contributes about 17 billion US

Dollars in terms of turnover.


6050403020100

Oil and Fats Consumption

Kg/Y

r

US

A

E-1

5

Pola

nd

Tu

rkey

Mexic

o

Japan

S. K

ore

a

Egypt

Ru

ssia

INdon

esia

Ch

ina

India

Ban

gla

desh

51 49

27 27 24 22 21 18 18 16 15 128

Source: AC Nielsen

Source: Solvent Extractor's Association of India, Annual Report 05-06

Trends of Imports of Edible oils

KJMC RESEARCH14

During the current year, oil seed acreage has shifted to grains in the world

and the bulk decline occurred in US and China bean production. The total

production of 5 major oil seeds is expected to decline in 2007 -08 over last

year by 4 %. Of these crops, the world Soya production is likely to go down

from 236 million Tons in 2006-07 to 221million Tons in 2007-08 (a fall of

6.4%). The Gross Capital Formation (GCF) in agriculture as a proportion of

GDP in the agriculture sector has improved to 12.5% for FY 06-07 from a

low of 10.2% in 03-04.

With a view to give a boost to the farming sector which is considered as a

quintessential to the growth of the Indian economy the target for GCF has

been raised to 16% during the Eleventh plan to achieve a growth rate of 4%

from the current growth rate of 1.8% with a target GDP growth rate of 10%.

In a move to curb the rising inflation which has risen to the highest the

Government of India has scrapped the import duty on crude soybean and

palm oil, and lowered the levy on refined edible oil to 7.5 percent on March

31'08. India, imports almost half the vegetable oil it needs from overseas.


Peer Comparision

Company Name TTM End Price

Earning (P/E)

Price to Book Value ( P/BV)

Price/Cash EPS (P/CEPS)

EV/EBIDTA Market

Cap/Sales

Agro Tech Foods 200803 17.70 2.58 15.43 11.20 0.28

Guj. Ambuja Exp 200803 6.93 1.42 5.08 4.30 0.29

K S Oils 200803 12.12 3.50 11.05 6.56 0.73

Ruchi Soya Inds. 200803 10.47 1.66 7.11 5.71 0.15

Sanwaria Agro 200803 12.14 7.50 11.61 9.40 0.67

Vimal Oil Foods 200803 2.88 1.08 2.53 2.29 0.04

Price as on 1st July, 2008.

KJMC RESEARCH15


Result Update

Particulars 4th Qtr 200803 4th Qtr 200703 VAR [%]

Net Sales 3480.64 2740.12 27.00

Total Expenditure 3362.3 2654.02 26.70

PBIDT 129.34 89.6 44.40

Interest 41.01 29.5 39.00

PBDT 88.33 60.1 47.00

Depreciation 25.61 18.02 42.10

Tax 1.15 3.58 -67.90

Reported Profit After Tax 37.72 27.85 35.40

Equity 37.76 36.48 3.50

Face Value 2 10 -

PBIDTM(%) 3.72 3.27 -

PBDTM(%) 2.54 2.19 -

PATM (%) 1.08 1.02 -


PE -Band

Stock has been trading at an average

P/E of 16x; highest P/E of 24x and

lowest P/E of 12x...

10

60

110

160

210

2007

03

2007

04

2007

05

2007

06

2007

07

2007

08

2007

09

2007

10

2007

11

2007

12

2008

01

2008

02

2008

03

2008

04

2008

05

Rs

Ruchi Soya 6 8 10

12 14 16 18

20 22 24

KJMC RESEARCH16


Outlook & Valuations

CMP : Rs 86 (1/7/2008)

Target Price : Rs 131

Ruchi's deliberate shift towards manufacturing products backed by

buoyancy in consumption of branded edible oils and other health

products, higher operating efficiencies arising from consolidation have

helped the Company in demonstrating and delivering stable and improved

financial performances for past few years.

The Company has already installed its own 30.3 MW wind power plant at

an approximate cost of Rs 100 crs which will reduce the operational costs

of the company and increase its overall profitability.

We are of the view that Ruchi is very well poised for a even higher growth

trajectory in the next 2-3 years as the company's profitablitiy is expected to

get a further boost on account of its foray into new and more profitable

business segments like mustard oil, forward and backward integration

into Jatropha and Palm plantation and a substantial ramp up in its

installed capacity by another 1 million tonnes during FY08-FY11. Also the

Unchanged tariff value and decreasing duty will benefit importers like Ruchi

Soya by propelling their topline and the profitability.

Capacity (‘000 TPA) FY07 FY08a FY09E FY10E FY11E

Refining 2052 2112 2300 2472 2656

Seed crushing 2668 2893 3090 3320 3670

Vanaspati 470 470 470 470 470

TPA 140 140 140 140 140

Future Expansions

In the current scenario of more then 50% of the players having an output

of less then 60 MT/day with a capacity utilization of less then 30% and the

absence of major integrated players, Ruchi's all around presence augurs

well to capitalize on the 2300 crs untapped Indian branded edible oil

industry.

Ruchi's financial performance has remained very impressive with

revenues growing at a CAGR of 22% over the last 6 years with PAT growing

at a CAGR of 25% during the same period whereas its branded sales have

recorded a CAGR of 28%. We expect the Company's topline to grow at a

CAGR of 15% and the bottomline to grow at a CAGR of 29% for FY 08-FY10

For the quarter ended March,08 Net profit of the Company rose 35.44% to

Rs 37.72 crore as against Rs 27.85 crore during the previous quarter

ended March 2007 whereas during the same period Sales rose 27.03% to

Activity based Sales composition (%) and EBITDA Margins



a : actual E : expected

Activity FY 07-FY 08 FY 09E-FY11E

Manufacturing% 67%- 75% 80%-90%

EBITDA %

Branded- 5.5%-7.0% 7.0%-8.5%

Bulk 3.0%-3.75% 3.75%-4.5%

Trading% 33%-25% 20%-10%

EBITDA % 0.85-1.15% 1.15-1.25%

Rs 3480.64 crore as against Rs 2740.12 crore during the previous quarter

ended March 2007.

For the full year ended March 2008, net profit rose by 56.28% to Rs 157.36

crore in the year as against Rs 100.69 crore during the previous year

ended March 2007 and Sales rose 27.53% to Rs 10999.82 crore as

against Rs 8625.48 crore during the previous year ended March 2007.

At the CMP of Rs. 86 stock is trading at a P/E of 11.9x, 10.1x and 7.20 x

discounting its FY08E, FY09E and FY10E earnings respectively. On

EV/EBIDTA basis, stock is trading at 7.4x, 5.4x and 4.0 x its EBITDA for

FY08E, FY09E and FY10E respectively.

The rising demand for edibleoil, customers preference for branded

products, firm demand and price scenario of soya meal in the

international markets shall help Ruchi in scaling new highs and hence we

recommend a “Buy” on the stock with a 12-15 month price target of Rs.

131 based on 11 x FY 10E. Our target price offers a potential return of 52%

on the CMP.

KJMC RESEARCH17


Particulars FY06 FY07 FY08E FY09E FY10E

Sources of Funds

TOTAL 1932 2430 2699 2773 3023

Application of Funds

TOTAL 1932 2430 2699 2773 3023

Share Capital 82 82 83 83 89

Convertible warrants 22 22

Reserve & Surplus 718 807 1002 1176 1642

Total Debt 1076 1470 1520 1420 1220

Deferred Tax Liability 56 72 72 72 72

Net Block 1004 1058 1183 1245 1298

Capital work in progress 18 20 25 29 34

Investments 23 42 42 42 42

Inventories 870 958 2163 1349 1565

Sundry Debtors 661 826 1045 1202 1394

Cash & cash Equivalents 589 671 195 589 615

Loans & Advances 298 482 550 632 734

Current Liabilities 1531 1628 2506 2316 2659

Net Current Assets 887 1309 1447 1457 1649

Miscellaneous expenditure w/off 0.5 0.2 0.2 0.2 0.2

Profit & Loss Statement

Financial Summary

Rs. In Cr.

KJMC RESEARCH18

Particulars FY06 FY07 FY08a FY09E FY10E

EBIT 178.3 232.6 354.4 407.0 525.2

Net Revenue 7,540.4 8,625.5 10,999.8 12,649.8 14,673.8

Growth % 92% 14% 28% 15% 16%

Raw material cost 6,794.2 7,687.0 9,782.3 11,353.2 13,133.0

Employee Cost 23.4 27.0 44.2 41.7 48.4

Selling & Distribution exps. 219.5 271.9 330.0 316.2 330.2

Manufacturing expenses 242.5 276.3 275.0 316.2 366.8

Miscellaneous exps. 42.5 87.9 160.5 151.8 198.1

EBITDA 233.8 298.2 428.8 495.6 622.2

EBITDA Margin 3.1% 3.5% 3.9% 3.9% 4.2%

Other income 15.4 22.8 21.0 25.0 25.0

Dep.& Amortiz 55.5 65.6 74.5 88.6 97.0

EBIT Margin 2.4% 2.7% 3.2% 3.2% 3.6%

Interest Expenses 53.3 76.1 105.7 117.6 118.8

Tax 36.8 55.8 91.0 104.2 146.3

-5.4 0.0 0.0 0.0 0.0

Total Expenditures 7,322.1 8,350.0 10,592.0 12,179.2 14,076.6

PAT before exceptional items 88.2 100.8 157.4 185.2 260.1

Exceptional Items & Minority Int.

Adj PAT 82.8 100.8 157.4 185.2 260.1

Source : KJMC Research

Balance Sheet


Rs. In Cr.


E : Expected a : actual

KJMC RESEARCH2

Bharat Forge Ltd

Ratios

KJMC RESEARCH19



Profitability & Return Ratios

Operating efficiency and other ratios

Valuation Ratios

EBITDA Margin (%) 3.1 3.5 3.9 3.9 4.2

NP Margin (%) 1.2 1.2 1.4 1.5 1.8

EPS 4.7 4.6 7.2 8.5 11.9

CEPS 9.0 11.1 15.5 18.0 21.9

BVPS 207.0 243.6 50.9 58.9 79.5

ROE 14.34 11.94 15.81 15.51 17.27

ROACE 9.4 10.7 14.2 15.3 18.6

Debtors T/o 11.4 10.4 10.5 10.5 10.5

Inventory T/o 11.8 9.3 6.9 7.1 9.8

Interest Coverage (x) 3.3 3.1 3.4 3.5 4.4

Asset/Turnover (x) 4.9 4.0 4.3 4.6 5.1

D/E (x) 1.3 1.7 1.4 1.1 0.7

P/E (x) 18.3 18.5 11.8 10.1 7.2

P/CEPS (x) 9.5 7.7 5.5 4.8 3.9

P/BV (x) 0.4 0.4 1.7 1.5 1.1

Mcap/Sales (x) 0.2 0.2 0.2 0.1 0.1

EV/Sales (x) 0.3 0.3 0.3 0.2 0.2

EV/EBITDA (x) 10.1 8.9 7.4 5.4 4.0


Cash Flows


NET INCOME (LOSS) 125 157 249 289 406

Net Cash Flow from Operating Activities 109 (86) (383) 659 191

Net Cash Flow from Financing Activities 216 261 111 (111) (10)

Net Cash Flow from Investing Activities (268) (93) (205) (154) (155)

TOTAL CASH FLOW 594 83 (477) 394 26

Ending cash & cash equivalents 588 671 195 589 615


Rs. In Cr.

Du-Pont Analysis

Particulars FY07 FY08E FY09E FY10E

Profitability ratio 1.2 1.4 1.5 1.8

Asset turnover ratio 4.0 4.3 4.6 5.1

Leverage factor 2.6 2.6 2.3 1.9

Return on Equity 11.9 15.8 15.5 17.3


Mr. Vijay Dugad Senior V.P. & Head, Institutional Equities [email protected] 2282 0388(D)4094 5550(D)

For further details : visit our website - www.kjmc.com

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Expected returns in absolute terms over a one-year period

appreciate more than 20% over a 12- month period

appreciate up to 20% over a 12- month period

depreciate up to 10% over a 12- month period

depreciate more than 10% over a 12- month period

Buy -

Hold / Neutral -

Reduce -

Sell -

Recommendation Parameters

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KJMC RESEARCH20


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Initiating Coverage Ruchi Soya Industries Ltd

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Transcript of Initiating Coverage Ruchi Soya Industries Ltd