Ruchi Soya sells subsidiary to Singapore's Golden Agri for Rs 110 cr

Edible oil major, Ruchi Soya Industries Ltd has divested its majority stake (50.001%) in a Hyderabad-based subsidiary Gemini Edibles and Fats India (GEFI) to Singapore-based Golden Agri International India Holding Pte Ltd at a total consideration of $17.88 million (Rs 109.92 crore).

GEFI incurred losses three out of five years since existence due to unfavourable government policy, which made edible oil business unviable in India. During the last financial year i.e. 2013-14, GEFI recorded a net loss of Rs 4 crore, a small yet significant amount for edible oil companies.

Operating as a subsidiary of the world's second largest palm oil plantation company Golden Agri-Resources Ltd (GAR), Golden Agri International Pte Ltd is engaged in the production of palm based edible oils and fats. With a market capitalisation of $5.7 billion, GAR has 470,600 ha area under palm plantation in Indonesia. The company posted an operating profit of $31.86 million in the third quarter of 2014 as against $65.99 million in the corresponding quarter last year.

"There is a direct business synergy between the two companies. Both are engaged in the production nof palm-based oils and fats. Nothing could have been better than the current selling," said an edible oil analyst.

Gold Agri International bought 71% stake in GEFI in all with 50.001% from Ruchi Soya and 20% from Pradeep Chowdhry, the current chief executive officer of the company. Chowdhry continued to hold around 19% stake in the company of his total holding of 40% before the said sale. Another Singapore based company holds 10% stake in GEFI which will continue, said Chowdhry.

"GEFI had lots of forex exposure which due to depreciation in the rupee turned out as losses. That apart, the company invested immensely in brand building and other promotional activities. The most striking of the reasons for the sell off was the business un-viability," said Chowdhry.

He added that the edible oil industry had recommended the government to raise import duty on crude palm oil to make refining and fats business viable in India. Owing to a marginal 5% difference in crude and refined oil, edible oil business suffered immensely.

GEFI, the producer of Freedom brand edible oil in addition to cheese and fats, has a long term debt of Rs 67 crore on its books in addition to around Rs 160 crore working capital loan.

"Ruchi Soya has entered into a share purchase agreement with Singapore - based Golden Agri International Holding Pte Ltd. The transaction is neither a slump sale nor a related party transaction. During the financial year 2013-14, GEFI contributed 5.23% or Rs 1,507 crore of Ruchi Soya's revenue and 0.79% or Rs 19.18 crore of its net worth.