Ruchi Soya Industries Ltd, among the largest manufacturers of edible oil in India, was a dream stock for any investor prior to 2015 because of its high dividend payout from 2001-2015.
However, the company made continuous losses for the next 3 years and accumulated a huge debt of Rs. 12,000 crores, forcing it to enter insolvency proceedings in December 2017.
The insolvency proceedings saw a bidding war that Patanjali eventually won against the mighty Adani Group. In December 2019 Patanjali completed the acquisition of Ruchi Soya for Rs. 4350 crore by acquiring a loan of Rs 3200 crore-
1) Rs 1,200 cr from SBI
2) Rs 700 cr from Punjab National Bank
3) Rs 600 cr from Union Bank of India,
4) Rs 400 cr from Syndicate Bank
5) Rs 300 cr from Allahabad Bank.
The shares of Ruchi Soya were delisted in November 2019 due to the restructuring process which saw the dilution of the stake held by existing shareholders in the ratio of 100:1. In other words, a shareholder who held 100 shares, now had 1 share. This was done in order to make way for Patanjali which now has a stake of roughly 99%.
Ruchi was relisted on January 27 at Rs 17, with the share price of Ruchi increasing consistently by 5% for the majority of the days, triggering circuit breakers every day.
As a result, it's market cap has swelled from Rs 499 crore on January 27 to Rs 44,592 crore as of June 26. Consequently, the company entered into the list of 100 most valued companies by m-cap, overtaking the FMCG major Marico and the banks from which the loan was sanctioned (excluding SBI).
Everyone wonders if this really is sustainable or not?
The answer is both yes and no.
Yes, because Ruchi is the market leader in edible oils with sales of over 13000 crores and has great long term potential.
But in the short to medium term, the share price might decrease as Patanjali will sell its stake to meet the current shareholding norms which caps promoter holding at 75%. With this wonderful acquisition, Ramdev is one step closer to achieving his dream of racing past HUL to become the largest FMCG player in India.
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