After FPO shares were listed, Ruchi Soya saw an 8% increase. Should You Buy, Sell, or Hold?

Ruchi Soya FPO: Following the commencement of trading on the exchanges today for 66.15 million equity shares that were allotted in a follow-on-public offering (FPO), the stock of Ruchi Soya Industries increased 8% to Rs 883 on the BSE on Friday, extending its 8.5 % gain on Thursday. On the BSE, the Ruchi Soya stock opened up 3.8% higher at Rs 850 than when it closed the previous day at Rs 818.85.

The stock of the edible oil company, however, underperformed the market over the preceding week, declining 12% compared to a 1% increase in the benchmark index.

Ruchi Soya gave her approval on April 5, 2022, for the FPO issue's allocation of 66.15 million equity shares for a total of Rs. 4,300 crores The issuance price set by the firm was Rs. 650 per share. The paid-up equity share capital of the company increased from Rs 59.16 crore to Rs 72.40 crore as a result of the allocation of equity shares in the issuance, the company said.

The goals of the new issue are the prepayment or repayment of borrowings totaling Rs 2,664 crore, funding of additional working capital requirements totaling Rs 593 crore, and general corporate use of the remaining cash.

According to SEBI guidelines, a publicly traded firm must have a minimum of 25% of its shares held by the general public. Thus, Ruchi Soya has announced an FPO, as the promoters of the company seek to reduce their shareholding to comply with SEBI’s guidance.

Ruchi Soya FPO: Should You Sell, Hold or Buy?

Investors in the stock market advise those who applied for Ruchi Soya FPO arbitrage gains to book profit and exit, as opposed to those who applied for Ruchi Soya shares with a long-term time horizon in mind. Those who applied for Ruchi Soya shares with a long-term time horizon can book 50% profit and hold the remaining investment for 3 months with a target price of Rs 1,000 per share while maintaining a trailing stop loss at Rs 740 per share levels.

Speaking about the Ruchi Soya FPO IPO, Ravi Singhal, vice chairman at GCL Securities, recommended those who received shares book a 50% profit and hold the remaining shares for three months with a target price of Rs 1,000 per share while keeping a strict trailing stop loss at Rs 740 per share. Ravi Singhal of GCL Securities continued by saying that the company has adequate buffer stock that would give them margin benefit shortly despite the rising raw material prices in the FMCG category. Therefore, in the short to medium term, the company is anticipated to record strong quarterly results.

Santosh Meena, Head of Research at Swastika Investment Ltd., echoed the sentiments expressed by Ravi Singhal, stating that "Ruchi Soya share price may see some selling pressure on an immediate basis as it may see unwinding in FPO arbitrage positions, therefore, investors who applied for arbitrage gain, should book profit while long-term investors can remain invested because multiple positive things are going for the company, shortage of Palm oil and oilseeds will improve the realizations which Technically, the stock should have an immediate floor near the 700 level.

"Incorporated in 1986, Ruchi Soya Industries Ltd (RSIL), a member of the Patanjali Group, is one of the top FMCG brands in the Indian edible oil market," stated Amarjeet S. Maurya, AVP – Mid Caps, Angel One Ltd. RSIL is currently trading at 34.5x (TTM PE), which is a cheap valuation compared to its competitors Adani Wilmar (TTM PE -80.7x). ISIL also enjoys widespread distribution, a good brand memory, and a healthy ROE (FY21). We consider this valuation to be appropriate given all the favorable aspects. We, therefore, have a favorable outlook for the stock.

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