Atta, honey & more — Ramdev’s Patanjali plans to boost Ruchi Soya portfolio ahead of 2021 FPO

Experts have urged caution, saying the categories Patanjali is eyeing are low-margin products dominated by bigger brands.

Illustration: Ramandeep Kaur/ThePrint

New Delhi: Baba Ramdev’s Patanjali Ayurved is planning to strengthen edible oil maker Ruchi Soya’s Nutrela brand as it prepares to launch a follow-on public offer (FPO) next year to bring down promoters’ shareholding in the company, ThePrint has learnt.

A senior official involved with the FPO plan said the company is working to offer several FMCG products under the brand Nutrela, including “oil, atta, honey and milk”.

“Our plan is to strengthen the brand reputation of Ruchi Soya and diversify its portfolio,” the official added. “We are working to launch oil, atta, honey and milk under Ruchi Soya’s brand Nutrela. Many more FMCG products will be lined under the umbrella of Ruchi…” 

Patanjali had acquired Ruchi Soya in December 2019 for Rs 4,350 crore under the provisions of the Insolvency and Bankruptcy Code. Currently, the promoters have a 99 per cent stake in the company.

However, in keeping with guidelines issued by market regulator SEBI for listed companies, the company has to increase public shareholding to 25 per cent, which is why Patanjali will issue fresh shares as part of an FPO in 2021. 

Discussing the company’s plans, the aforementioned official said the company is also trying to figure out if they can introduce different products under the new brand. 

“While we already have the existing products under the brand Patanjali, we are trying to introduce some differences under Brand Nutrela,” the official added. “For instance: We sell cow milk under Patanjali, we are planning to launch buffalo milk under Nutrela.” 

“Increasing the market share of the brand may also impact its share prices as buyers would become more confident,” the official said. 

Reached for comment, Patanjali Ayurved Chief Executive Officer (CEO) Acharya Balkrishna, who serves as chairman and managing director of  Ruchi Soya, said they were planning big for the FPO but refused to offer details.  

“As the date for the FPO is coming closer, we are preparing in full force. Right now, I cannot reveal much information, however, we are planning big,” he added.

‘A common FMCG strategy’ 

Experts say it is a common strategy for FMCG (fast-moving consumer goods) companies to strengthen their portfolio before FPOs. But they urged caution, pointing out that the categories Patanjali plans to launch under Nutrela are low-margin products dominated by bigger brands. 

“Honey, oil, atta are very competitive segments. While honey is dominated by Dabur, profit margins in atta and oil are very low. Also, players like Adani Wilmar and Saffola dominate oil, which have massive pockets for advertisements and promotion of their products,” said Abneesh Roy, FMCG expert and executive vice-president at Edelweiss Financial Services.

“In atta, ITC and Hindustan Unilever already dominate the market,” he added. The best strategy for Patanjali Ayurved, he said, would be to let Ruchi Soya “sell the categories it is present in followed by strengthening its distribution chain, complementing Patanjali’s own distribution strength”.   

“In the current scenario, advertisements of new products and premiumisation of products also play an important role,” he added. 

Another expert, Arvind Singhal, chairman and managing director of consultancy Technopak, said, “Usually, FMCG companies adopt similar plans of strengthening their portfolio before launching FPO. It is common to make the brand more powerful.” 

However, he added, “Patanjali must consider that they should also work on building their credibility, which is poor. It has made certain claims about its financials which are not verifiable.

“Also, the product categories they plan to expand into the Nutrela segment are already crowded by big and regional players.”