Ruchi Soya

With A Price-To-Earnings Of 15.4, The Stock Is Fairly Valued Vis-À-Vis Its Peers

 

RUCHI SOYA – the country's largest edible oil processing company – has been in the thick of action on the bourses. Appreciating by 360% in the past one year, the stock has outperformed the Sensex. Most of the action in the stock has occurred since July 2009.

   There have been a series of developments fuelling the rally in prices. Ruchi Soya has been reporting steadily improving performance since the past three quarters against the same periods in the previous year. The company, which is largely into processing of soy oil and soy products, has been on a capacity expansion drive. Recently, it signed a memorandum of understanding with the Ethiopian government for the cultivation of soybean and processing facilities on 61,775 acres land on a lease basis for 25 years.

   In a bid to diversify from soy oil, the company has planned capacity expansion for the production of palm and mustard oils. It is also looking at backward integration into palm oil plantation, resulting in better margins. In January this year, the company acquired Gemini Edibles and Fats. This was followed by the acquisition of Andhra-based palm oil firm Palm Tech India in February. The company's promoters recently hiked their stake in the company to 42.24% from 36.24%. C Sivasankaran-backed firms have also increased their stake from 6.87% to 9.52% in Ruchi Soya. These developments further boosted investor confidence in the company. Notwithstanding the rally in the company's stock price, there is no scope for re-rating. The stock has only managed to recover most of the gains that were lost in 2008. Despite the efforts made by the company to diversify into high-value branded business, it functions as a trading company. The company earns an operating profit margin of 2-3%, much lower than its peers like KS Oil and JVL Agro Industries.

   Trading at a price-to-earnings multiple of 15.4, the stock is fairly valued vis-à-vis its peers. With most of the company's future plans and positive developments already factored in the price, the upside in the stock appears limited.