A few years back, Ruchi Soya was the talk of the town. Why? You may ask. Because of its extraordinary rise in share price & bankruptcy case. Ask a person who is well-versed in the stock market about the Ruchi Soya case. You won’t find a single market maven who is unaware of it! But the whole scenario was quite complicated for ordinary folks to understand. So, here we are presenting the curious case of Ruchi Soya which is now known as “Patanjali Foods.”
A Brief Background Of Ruchi Soya & How The Tables Turned
Ruchi Soya Industries Limited was one of the largest FMCG companies in our country. (Note: FMCG means Fast Moving Consumer Goods) It was a manufacturer of packaged food like palm oil, soya flour, crude oil, refined oil, bakery fats, etc. Established in 1986, it was a publicly listed company. So, here is the set of events that led to the financial troubles of Ruchi Soya-
1. Change in Indonesian Export Duties
Everything was going well and good till 2011. But suddenly, Indonesia set a huge blow on export duties of crude palm oil and refined edible oil. But how did the export duties of a foreign country lead to the collapse of an Indian company? Because this Indian company was completely dependent on Indonesia for its raw materials like crude palm oil. Do you know what was more heart-wrenching for Ruchi Soya? The increase in export duties on crude palm oil and the decrease in the export duty on refined edible oil. Basically, Indonesia’s objective was to coax the globe to buy Indonesian refined oil instead of buying cheap Indonesian raw materials.
So, the input costs of Ruchi Soya soared overnight! However, Ruchi Soya competed with those cheap imported refined edible oil. But how? By compromising the cost of procurement and low-profit margins. India was the only alternative left for Ruchi Soya to get the raw materials at an affordable cost. Unfortunately, here also things didn’t go as planned…
2. Droughts in India and the Fall of Seed Extraction Business
India faced El Nino till 2018. As a result, our country faced a severe drought in those years. Nature’s rage hit the oilseed industry of India. Our indigenous seed extraction businesses fell drastically. Even the manufacturing facility of Ruchi Soya was running at half capacity. Their balance sheet began to tumble. Therefore, taking loans from financial institutions was the last straw for Ruchi Soya.
3. Piling Up Of Debts
To stabilize its finances, Ruchi Soya approached numerous financial institutions (banks) for loans. Those banks were SBI, PNB, Union Bank of India, Syndicate Bank, and Allahabad Bank. Over the course of time, its debt piled up to a whopping amount. Rs.12,000 crores! Finally, in 2017, the banks lost their patience and dragged the company into a bankruptcy case. This was the time when the company was no longer famous for its products. Rather, it became infamous for its debts and insolvency.
4. Patanjali Steps in to acquire Ruchi Soya in 2019
The lender banks decided to resolve the bankruptcy case of the company by selling it to a potent FMCG company. Do you know who the top competitors for this acquisition were? Patanjali and Adani Wilmar! The latter was a joint venture between India’s Adani Group and Singapore’s Wilmar International.
Patanjali won it by acquiring 99% of the shares. Also, it settled approx. Rs.4000 crores. So, the lenders recovered nearly half of the amount. The rest was gone. Thereafter, Ruchi Soya was rebranded as “Patanjali Foods.”
Sounds like an unfortunate and smooth journey of “Ruchi Soya.” But do you know its shares delivered nearly 96% returns to its shareholders after its acquisition? But how? You will get to know it in the next section.
Lousy Banking Practices & Ruchi Soya
Indian banks are infamous for their illogical decisions and lousy banking practices. Ruchi Soya aka Patanjali Foods was a live example of this. As you know, Patanjali acquired Ruchi Soya for Rs.4,350 crores. Out of which, it took a loan of Rs.4,235 crores from the same lender banks who lent money to Ruchi Soya before. Look at the following data-
|Name of the Bank||Amount (Loan) taken by Patanjali Ayurved|
|State Bank of India (SBI)||Rs.1200 crores|
|Punjab National Bank (PNB)||Rs.700 crores|
|Union Bank of India||Rs.600 crores|
|Syndicate Bank||Rs.400 crores|
|Allahabad Bank||Rs.300 crores|
It is just like I am taking a loan of Rs.4000 from you. So that I can repay the debt of one of your lenders who took a loan of Rs.10,000 from you. Officially only Rs.6000 is the remaining amount left from the lender. But from a broad point of view, you still need to recover Rs.10,000 in total.
That is the same case for banks. Their lending amount hasn’t been recovered yet! Banks need a smart strategy to overcome these sorts of hurdles.
Mysterious high share prices of “Patanjali foods”
Within 6 months of the acquisition, the share prices soared very high. Reason? Because the market values a company differently when it is free from bankruptcy or comes under new ownership. Patanjali was already a famous company and had a significant number of franchises. Therefore, Patanjali’s acquisition served a positive impression on the public. But if you look at the timeline from a stock market analyst’s point of view, you will find something fishy.
|Timeline||Event||Equity Capital (INR)|
|November 2019||Ruchi Soya was suspended from trading||Rs.66 lakhs|
|January 2020||The company restructured itself under Patanjali||Rs.59 crores|
The stock prices of the company increased by 9100%. But it is quite incredulous! But hardly 1% of its share is tradable in the open market. Many entities have sought an investigation into the rapid surge of Ruchi Soya’s stock price.
Don’t you wonder, why there was stiff competition to acquire a company drowned in immense debts? Because acquisitions diversify the product portfolio and expand the market reach of the parent company. As you know, Patanjali’s image was limited to Ayurvedic medicines and personal care products before acquiring Ruchi Soya. As soon as it rebranded it as “Patanjali Foods,” it covered over 40,000 retailers and 3,000 distributors in India. Also, Patanjali integrated its own operating strategies.
Patanjali restructured Ruchi Soya’s manufacturing facilities, supply chain, and distribution channels. It standardized it with Patanjali’s processes and standards. Also, it invested in upgrading Ruchi Soya’s research and development capabilities.
After the acquisition, Patanjali reported revenue of around $1.4 billion, a 15% increase from the previous year. The acquisition of Ruchi Soya also helped Patanjali to reduce its debt burden and improve its credit rating. Eventually, it enabled the company to secure better financing terms for future investments. These days, Patanjali Food’s share price is Rs.942.90. Also, its total income rose to Rs.23,858.5 crore in FY22.
So, this was the miraculous journey of Ruchi Soya i.e. Patanjali Foods!