What Explains The Over 6,200% Jump In Ruchi Soya’s Share Price
Patanjali Ayurved Ltd.’s investment in Ruchi Soya Industries Ltd. has multiplied in value as shares of India’s largest edible oil maker jumped manifold since relisting - on the back of an illiquid stock and capital infusion-led prospects of a turnaround. This despite a spike in volatility amid the coronavirus pandemic.
Ruchi Soya was relisted at Rs 17 apiece in January, after the Yoga guru Ramdev-backed company acquired it. The stock, with a 5% circuit limit and trading in the compulsory delivery window, surged to a lifetime high at Rs 1,080 apiece this month, taking its market capitalisation to Rs 31,693 crore. That’s higher than some better known India-listed firms such as Bosch Ltd., Punjab National Bank and Motherson Sumi Ltd., among others.
Ruchi Soya was acquired by a Patanjali Ayurveda-led consortium last year via an insolvency resolution process . The resolution plan included reduction of share capital to Rs 2 face value, followed by a reverse merger of Patanjali Consortium Adhigrahan Pvt.—a venture by Patanjali Ayurved and three other companies—with the insolvent edible oil maker.
Ruchi Soya now has 29.59 crore shares, of which 28.59 lakh or 0.97% are owned by public, while the Patanjali group holds 99.03%. If the company is to remain listed then Patanjali group will have to over time reduce its shareholding to the maximum permissible limit of 75% as per market regulations. Till then, the miniscule public shareholding and hence short supply of shares may be one reason for the rising share price.
Also, as part of the acquisition Patanjali infused Rs 450 crore into Ruchi Soya via preference shares. Interestingly, in April the company’s board approved 1.87 crore shares at Rs 7 apiece to a non-promoter entity, Ashav Advisory LLP, on a preferential basis. The shares are yet to be allotted due to the Covid-19 outbreak. These shares are currently valued at Rs 1,829 crore compared with Rs 13 crore at the time of allotment, making Ashav among the luckiest investors in this stock.
“Ruchi Soya’s liquidity position remains adequate as of nine months ended financial year 2020, considering the absence of fixed debt obligations during financial year 2021, a low average collection period and availability of unencumbered liquid assets of over Rs 380 crore for meeting its required working capital needs,” said Brickwork Ratings, as it assigned a stable outlook to company’s long-term and short-term borrowings in May this year.
The rating agency expects the company to ramp up operations under the new management, improving its credit profile over the medium term.
Patanjali—the maker of Dant Kanti toothpaste and Kesh Kanti shampoo—has been aggressively eyeing to increase its market share in the country and plans to ramp-up its product line and increase palm plantation. The company is aiming to beat Hindustan Unilever Ltd.—India’s largest fast-moving consumer goods maker—in terms of turnover by the next financial year, Ramdev had in January told BloombergQuint in an interview.
After Ruchi Soya’s takeover, Patanjali owns its oilseed processing facilities and popular brands like Nutrela, Ruchi Gold, Ruchi Star. At the time of acquisition, Patanjali had expected the combined turnover to be Rs 20,000-25,000 crore in the financial year ended March 2020, of which around Rs 13,000 crore would come from Ruchi Soya alone.
This business restructuring is what might be working for Ruchi Soya as people have got more clarity, according to Deven Choksey, promoter and managing director of KR Choksey Investment Managers. “There is complete back-end to front-end tie up, which is why it is seen as a valued brand.”