The Ruchi Soya Case Study


Ruchi Soya, a Madhya Pradesh based edible oils company is making headlines every day in the stock market world. With Reserve Bank of India declaring it as one of the major wilful defaulters, people are raising various questions. Everyone is curious to know what went wrong with Ruchi Soya, whether people should buy the stock of Ruchi Soya and what are the financial predictions and the path company is to take. Today, let's dwell into details to crack the mystery behind Ruchi Soya dream run. Before diving directly, let’s rewind the situation a little. Ruchi Soya is one of the largest manufacturers of edible oils in India. Ruchi Soya Industries Ltd., incorporated in the year 1986 is a small cap-company operating in Agro-Processing sector. The company which has its roots in Indore, Madhya Pradesh became a household name under its brands Nutrela, Sunrich and Mahakosh. However, the past decade has been a rough ride for Ruchi Soya. After almost two decades of successful functioning, the unfortunate fate of Ruchi Soya began in 2011 when Indonesia raised export duty on crude palm oil. Since the company imported most of its raw materials, the input costs skyrocketed. Moreover, Indonesia had also cut the export duty on refined edible oil (a business that contributes more than 70% of Ruchi Soya sales). Now Ruchi Soya had no option but to compete with the cheap imports in the market which eventually resulted in strikes on their sales and profit. These exports and imports duties and taxes adversely affected the company and took it on an inevitable path towards bankruptcy. But wait, this was just the beginning of a long tiresome journey for Ruchi Soya. Excess Monsoon in India in 2014 and 2015, two consecutive droughts impacting Soya cultivation and failing of the seed extraction business( which accounts for 15% of the sales) damaged Ruchi Soya and exactly when we thought Ruchi Soya had hit an all-time low, the company in 2015 bet on castor seeds due to high prices. They didn’t hedge the exposure and the unprecedented crash in global prices as well as the weak demand of castor seed broke all record and destroyed the already failing company. Ruchi Soya suffered an estimated loss of 4 billion. Later that year, the company was also barred by SEBI in securities market due to manipulative trading in castor seeds. Now the creditors had enough. Among financial creditors, State Bank of India (SBI) had the maximum exposure of around Rs 1,800 crore, followed by Central Bank of India Rs 816 crore, Punjab National Bank Rs 743 crore and Standard Chartered Bank - India Rs 608 crores.

Everyone could see the drowning future of Ruchi Soya. The two financial creditors of the company, Standard Chartered Bank and DBS bank made applications against the company under insolvency and bankruptcy code. In December 2017, Ruchi Soya Industries entered into Corporate Insolvency Resolution process because of its total debt of 12,000 crores. Shailendra Ajmera, a partner at consulting firm EY, was appointed as Resolution Professional (RP) by National Company Law Tribunal (NCLT). Among the two highest bidders were Adani Wilmer, which sells edible oil under the Fortune brand and Patanjali Ayurvedic. However, despite being the highest bidder Adani Wilmer dropped out of the race citing significant delays in a resolution process that led to the deterioration of assets. Thus, Patanjali won the bid to acquire Ruchi Soya for 4350 crores. In April 2019 Patanjali Ayurvedic received approval from creditors' committee to take over Ruchi Soya. Later in September, NCLT gave nod to the resolution plan. After a murky past, the stock was relisted once again on January 27th, 2020 at Rs 17 after equity restructuring. Out of the total 29.58 crore outstanding shares, 99.03% per cent is held by 15 Patanjali Group entities. These shares are locked in for three years. The remaining 0.97% (28.59 lakh) owned by 82,000 public shareholders. Patanjali under the NCLT resolution plan and the securities and exchange board of India (SEBI) has to increase the public shareholdings to 10 per cent in 18 months of relisting. Ruchi Soya rose 8988% in a period of 103 days. Some believed it being the greatest miracle of 2020 while some believe there is something sketchy and calls for an investigation. It is not unknown that Patanjali is aggressively trying to increase its market share and plan to ramp up its product line and increase palm plantation as well. Since only 1% of the share of Ruchi Soya is traded in the open market it’s being assumed that this lower level of public shareholdings keeps boosting the stock price and as such will increase the value of Patanjali. In order to compile with SEBI guidelines, Patanjali Ayurveda has to offer more shares which will be traded publicly in 18 months of relisting so increasing the share price would allow to the company to offer shares at a higher rate and Patanjali is taking full benefit of it. After this roller coaster journey, we are left to only say, Well Played Patanjali! References

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