Friday, December 2, 2022

Patanjali Foods Ltd

 



CMP = 1272


Patanjali Foods Ltd (erstwhile Ruchi Soya)  is fastest growing diversified FMCG  and  Fast Moving Health Goods (FMHG) focussed company with 25 strategically located manufacturing facilities, well recognised brands with pan India presence. The company is one of the largest FMCG companies in the Indian edible oil sector and one of the largest fully integrated edible oil refining companies in India. Being the pioneers and largest manufacturers of soya foods has aided its brand ‘Nutrela’ to become a household and generic name in India.





https://www.patanjaliayurved.net/



 Business Verticals







1) Edible oils & its By-products : One of the largest integrated oil seed solvent extraction and edible oil refining company in India.


2) Oleochemicals: Manufacturing products like soap noodles, glycerine, distilled fatty acids as well as value-based products of castor oil, soya, and palm-based derivatives.


3) Edible Soya Flour and Textured Soya Protein: Pioneered the concept of soya chunks through Nutrela™ brand. 


4) Honey and Atta (flour): Launched Nutrela High Protein Chakki Atta™ and Nutrela Honey™ in FY 2021. 


5) Oil Palm Plantation: Ventured into oil palm plantation development business as a route to backward integration and is now one of the largest palm plantation companies in India.


6) Biscuit Cookies and Rusks: Forayed into biscuits, cookies, rusk and other associated bakery products category in May 2021 by acquiring it from Patanjali Natural Biscuits. 


7) Noodles and Breakfast Cereals: Manufacturing and sale of healthier version (non-maida) of noodles predominantly available in India with high contents of fibre and protein.  Dalia, Poha, vermicelli, Oats etc are sold under the Patanjali™ brand.




8) Nutraceuticals and Wellness ProductsPatanjali Foods Ltd has forayed into a niche and a high growth FMHG segment with the launch of nutraceutical business in year 2022. The company has launched wide range of nutrition and wellness products like  Patanjali Nutrela Diabetic care, Patanjali Nutrela Collagenprash Skin Superfood, Patanjali Nutrela Weight Gain, Patanjali Nutrela Org Omega, Patanjali Nutrela Daily Active Capsule, Patanjali Nutrela 100% Whey Performance, Patanjali Nutrela Daily Energy Capsule, Patanjali Nutrela Women's and Men Superfood, Patanjali Nutrela Vit C+ Zinc Natural, Patanjali Immunity Bar etc. all these products are well accepted in the market. 


9) Miscellaneous FMCG  Product : Wide range of products like candy & sweets, sauces & pickles, jam & murabba, pulses, rice,  spices, salt, sugar, dried fruits & nuts, namkeen and papad etc


10) Renewable Energy (Wind Power): To counter its carbon footprint, company  generates 85 MW power from renewable energy sources.




Investment Rationale 



Ruchi Soya was oil extraction company with forward and backward integration. Ruchi Soya went under Insolvency Resolution Process (2017-2020) due to huge debt of Rs 4350 crores. It was acquired by Patanjali Group after long legal battle. After acquisition Ruchi Soya has made big turnaround and become profitable within 2 years. Ruchi Soya has raised Rs 4300 crores through FPO and paid the entire debt to creditors and become debt free company. Name of the company is changed from Ruchi Soya to Patanjali foods Ltd.






Major twist came in the fortune of company when Patanjali Group has decided to transfer Rs 5000 - 6000 crores entire food portfolio of  Patanjali Ayurveda Ltd (PAL) to Patanjali Foods Ltd on slump sale basis for consideration of just Rs 690 cores, effective from 1 July 2022. The value of this business has just started reflecting in recently posted Q2 result of Patanjali Foods Ltd. The Foods Business achieved sales of Rs 2400 crores with EBIT of Rs 611 crores in Q2FY23.



With the above acquisition, the food product portfolio of the Company has added 536 SKU’s over 8 products categories such as Ghee, Staples, Herbal Products, Honey, Dry Fruits, Spices & Condiments, Staples, beverages & Physically Refined edible Oils including Mustard oil. PAL has also transferred 2 plants at Newasa & Padartha and signed a Non Compete agreement with PFL as part of the slump sale.







Earlier in May 2021, company has  acquired biscuits, cookies, rusk and other associated bakery products business from Patanjali Natural Biscuits Pvt Ltd  for a lump-sum consideration of  Rs 60 crore. The company has further acquired the breakfast cereals and atta (wheat) noodles product category, in June 2021 from PAL. It has given access to portfolio of noodles product, hot cereals and ready-to-eat cereals. Ready-to-eat cereals include corn flakes, choco flakes, chocolious and muesli.







In beginning of this year company forayed into the niche and high potential market of nutraceutical and wellness product space. The nutraceutical business is launched under the joint branding of ‘Patanjali’ and ‘Nutrela’.  The Patanjali foods Ltd will get immense benefit from the experience of the Patanjali group which is an experienced player in natural and Ayurvedic FMHG segment. The company caters to all categories of dietary supplements nutraceuticals such as



1) Medical Nutrition – Nutrition to meet condition / disease specific goals for diabetic nutrition, dialysis nutrition, bone health, anemics etc. 


2) Sports Nutrition – Nutrition for energy supplements and mass / muscle gainers etc.


3) General Nutrition – Nutrition for overall health and general wellness such as multi vitamins and weight management etc.








The Patanjali Foods Ltd is pioneer  in atta biscuit and atta (wheat) noodles product category. The company is one of the leaders in milk biscuits category under the brand name ‘Doodh’. The biscuits, cookies and rusk product portfolio includes milk biscuits, cookies, bakery biscuits, cracker, marie, cream, crunchy and digestive and rusks. The noodles and breakfast cereals business focuses on manufacture and sale of healthier version (non-maida) of noodles predominantly available in India with high contents of fibre and protein and are sold under the ‘Patanjali’ brand.







The Patanjali Foods is pioneer for soya foods in India. The company launched ‘Nutrela’ soya chunks in the 1980’s and  brand ‘Nutrela’ has become a household and generic name for textured soya protein, it command 40% market share in branded soya products.



Patanjali Foods Ltd has 3.9 million tonnes (MT) of oilseed crushing & refining capacity with current utilisation of only 40%. The company would be able to increase capacity utilisation by leveraging its existing & Patanjali brand to drive volumes.



Patanjali Foods  is one of the largest palm plantation companies in India with allocated zones (6.02 lakh hectares). The public-private partnership model has been promoted by the government of India, which assists the company in backward integration of sourcing palm oil. The company has already developed 60k hectares of palm plantation area on asset-light business model.







Leveraging on brand ‘Nutrela’ associated with nutrition and good health, company launched ‘Nutrela High Protein Chakki Atta’ and ‘Nutrela Honey’.  The atta is a combination of wheat and soya flour, and contains 30% more protein than regular wheat atta, to meet the body’s daily proteins requirement. It is also fortified with iron, folic acid, and vitamin B12. This presents opportunity for branded wheat flour which is expected to grow at healthy pace. 



In the last few years, Ayurveda, naturals & immunity boosting products like Chyawanprash and honey have seen robust growth, specifically in a post-Covid world.  Patanjali brands are associated with Ayurveda & naturals products, Patanjali foods would be able to leverage the tailwinds of healthier consumption. Acquired foods business consists of  Rs 262 crore sales of juices (Aloe Vera, amla juices among others), Rs 136 crore of Chyawanprash, Rs 250 crore of honey and Rs 1197 crore of cow ghee. These products offer a health and wellness proposition. The niche juices and honey categories also have high potential to grow to a sizable category in future with very healthy operating margin.








The combined distribution network of PAL & Patanjali Foods Ltd has expanded the company’s reach to 1 million retail touch points. The company has edible oil distribution network with 4763 distributors and 5 lakh retail touch points. It has 100 sales depots and presence in 31 countries for its soya product & oleo chemical business. On the other hand, the company’s products have access to PAL’s distribution network through a distribution agreement from June 2021. PAL has 2839 distributors, 1092 Chikitsalaya, 3260 Arogya Kendra, 78519 pharmacies and 5 lakh customer touch points.  Moreover, Patanjali foods Ltd has a strong presence in modern trade & e-commerce channel as well. The company would be able leverage its edible oil distribution network for foods business & vice versa. The edible oil and soya products are also retailed through Wal-Mart India, More Retail and Spencer Retail etc. 



Patanjali Group also has a strong reach among masses through Yoga. Its advertisement on cultural broadcasting TV channels and strong following on social media helps in promoting Patanjali brand without much advertisement cost. The group is unique given a robust rural presence in 2.5 lakh villages and continue to focus on expanding its distribution network, going forward.



Patanjali Foods Ltd has  access to several contract manufacturing units at Rajasthan, Uttarakhand and Haryana under the “Patanjali Assignment Agreement”. The contract manufacturing enables it for low capital expenditure and work on asset-light business model.






Acquired foods business of PAL commands 16% operating margins with high sales contribution of ghee, juices, atta and honey.  Overall margins of the company will improve significantly in coming quarters with consolidation of foods business.



Backward integration in palm plantation is likely to reduce its dependency on imported edible oil. Moreover, expansion in palm extraction capacities by the company would help in improving margin in the edible oil business in the next three to four years.



Conclusion



The Patanjali Foods Ltd has transformed itself from edible Oil extraction company to leading health and wellness company (FMCG + FMHG). It has also shifted itself from low margin edible Oil (commodity) business to high margin FMCG and wellness-oriented brand. It is only food company with such huge product portfolio and there is immense growth potential.








The nutraceutical and premium food businesses (Ghee, Chyawanprash, Honey, Juices etc) have the potential to grow exponentially with  strong leverage from Patanjali brand and the pan India distribution network. The Patanjali Foods will maintain the growth momentum with complete reflection of the acquired foods business in the coming quarters.



Patanjali Foods Ltd  at cmp Rs 1272 is giving excellent investment opportunity for both short term and long term. It can be bought + / - 15% from cmp with 10 - 20 %  allocation.