Ruchi Soya is one of the largest FMCG companies and major manufacturers of edible oil in India. They have been acquired by Patanjali Ayurved in 2019. They process crude palm oil to create refined oil – it’s the specialty. According to the reports published by Deloitte Touche Tohmatsu, Soya has been ranked at 175 out of 250 consumer product companies. You must have heard brands such as Mahakosh, which is an umbrella brand that contains soybean and various other types of oil, Nutella, or Sunrich. They all come under Ruchi Soya.
But the journey never comes easy, they faced various upside down this past decade, especially, in October 2011 when India raised their export duties on crude palm oil. The overnight wing in the input cost on their raw material, which ultimately they can’t bear it on themselves and tries to pass it on the consumers. However, there is a tiny bit of change, when Ruchi Soya spots that Indonesia has also cut the import duties on refined crude oil which is actually they are famous for. Therefore, they decided to pick the alternative.
Then another problem came up when their seed extraction begins to fail. The dry spell in many parts of India destroyed majorly the oilseed industry. And when they thought this is all, their margin starts tumbling, also lost fortune betting on castor seeds. Soon after, they faced customer bailing too. After some years, Ruchi Soya was all covered in debts, when they tried to rebuild their business which eventually didn’t turn out to be successful. And in late 2017, the couple of banks finally gave up on Ruchi Soya and declared bankruptcy.
Here, when Patanjali comes into view. Some of the lenders took an initiative to resolve the bankruptcy proceedings and decided to sell it to an FMCG company, there were two contenders who jump to this opportunity Patanjali and Adani Wilmar. And we know the results! Patanjali won.
After this Ruchi Soya was back in the market on Jan 27, 2020. And ready for a turnaround and take a step to reach a hike from a void once again. They began their shares at 16.5, but then in an almost spectacular fashion, the rise in the companies stock price brings a bolt from the blue. A week ago, the company was worth 45,000 crores with a leap of 8929% in 5 months. On June 29, the company first time hit the highest of Rs. 1,535 since then the stock consistently faces bear by 5% for six consecutive days.
BSE data shows that the promoters owned 99% of the equity shares, which gives only 1% of Ruchi Soya to be traded on the open market. This low level of public shareholding could keep pumping the value of companies stock and in turn, can help to boost the Patanjali Ayurved. As per the existing listed guidelines, they have to give 25% of their shares to the public, since, Ruchi Soya has been relisted, so they have almost 3 years to reach 25%. Therefore, they are making full benefit out of it.
The stock price experienced a downward slide from June 29, when the official first quarterly results were released after the acquisition, stating that Ruchi Soya Industries has faced a loss of Rs. 41 crore and total revenue of Rs. 3190 crore. The pandemic is to be blamed said one of the members while declaring the results. Due to the national lockdown, the unavailability of the labor and transportation strictness affects their workflow. However, they feel a benefit at the part of trade receivables.
Some called this event as the greatest miracle of 2020 amongst the industry how Ruchi Soya hit the hottest spot in the stock market in just 5 months and some called that there is a need for an investigation. Of course, Ruchi Soya is not the only one. Shares of other companies who are relisting after the bankruptcy should be examined such as Alok Industry Ltd., who also behaved strangely post the resolution process. SEBI needs a process to examine and frame special policies for the stock relisting.