"You either get it all or go home empty-handed. "
While everyone expected this year to be another joyous ride, it didn't turn out to be so. The world was soaked with unfortunate events right from the beginning. And the stock market has been no exception.
Amidst all the chaos, one company seems to be having a somewhat good year altogether. Ruchi Soya had recently captured the headlines of the business world. This was after the company made a heroic comeback into the markets.
This company which was once on the brink of bankruptcy has now taken the market by storm within just a few months of its relisting in the stock exchanges, as the prices witnessed a heavy rally and are fetching enormous returns.
What is happening with the company? What are we missing here? Let's analyse it from the start.
Origins of Ruchi Soya
Starting its journey in 1986 in Indore, Ruchi was one of the country's top edible oil producers. Soya food, Vanaspati, Lecithin were its other products. Do the brand names like Nutrela, Sunrich, Mahakosh ring a bell?
These day-to-day edibles were a part of Ruchi's product line. Despite their wide variety of product base, a huge pie of their revenue came from palm oil and soya chunks.
Climbing up the Ladder (Growth of Ruchi Soya)
Ruchi Soya soon became one of the country's largest FMCG companies. It was holding a good market share and had a strong distribution channel as well. Spread over 7 lakh+ retail stores, with 6000+ distributors, Ruchi Soya produced about 3 million tonnes of oil per year.
Further, it also had approximately 13 well-maintained refinery units. Customers cherished it, and so did the markets. It was one of the go-to options for any investor who was looking out for good dividends.
In short, everything was rainbows and unicorns for Ruchi Soya until 2011. In fact, it still held good profits until the end of 2015.
But soon the tides turned against it, bringing along a series of less fortunate events, which rewrote its success story. Yes, the company suffered a nasty fall down from its peak. So what went wrong?
The Beginning of the Fall of Ruchi Soya
The trouble started when the government of Indonesia, which imports the majority of its raw materials, imposed a new law. As per the new regulation, the country increased the tax on the export of crude oil and other raw materials.
Now, usually, a company under such a scenario would simply pass on all the extra charges onto the customer. So, where was the issue?
The Indonesian government did not stop with that. Correspondingly, the government reduced the duties imposed on the export of refined oil. Thus, an increase in the price of its product might cost its customer. Ruchi Soya was caught in a serious problem altogether with fewer options to choose from. It had to bear the burden of the increased cost. This had a toll on its margins as well.
For a company which was already struggling to deal with it's expanding manufacturing costs, the loss in the castor oil business hit harder on Ruchi Soya. Though castor seeds formed a minor portion of its profits and revenue, the losses were hefty.
In 2017, the global market of castor seeds saw a drastic decline. Ruchi Soya had invested huge sums into it only to see a serious loss. Apart from this, the seed business in India faced a rough patch when there was a serious drought followed by the failure of crops in various parts of India. All this affected their production to a great extent. For a company which is already going through a nightmare, things only turned to be worse.
Ruchi Soya, which once was a profit generator, was now showing humongous losses in its balance sheets. For instance, as of March 2016, the financial statements projected a loss of roughly 800 crores. Further, the company's debts kept climbing new heights and stood approximately at 9000 to 10000 crores. It also started witnessing an increase in unrecoverable dues as its customers failed to pay back. Dues which summed up to 5000 crores were written off as bad debts.
The company was also under the spotlight of the SEBI for fraudulent trading practices in the commodity exchange. Soon they were forced to delist from the stock exchanges.
What Happened After?
Given the scenario, what will you do when a friend to whom you lent money to, is suffering some serious setbacks and losses. You will most probably try to get back your money as soon as possible. The banks did the same.
Mounting losses and failing business caused the banks to panic. Eventually, they started knocking the doors of Ruchi Soya to pay back its debts.
The company was dragged to the bankruptcy court in 2017 by its creditors which included SBI, IDFC, etc. for the repayment of the pending dues of Rs 9.63 crores. Unable to meet its obligations, the company announced bankruptcy and was declared insolvent.
But rather than opting for liquidation, the banks, which offered a loan, opted for another alternative. And this is where fate played its game and gave the once greatest FMCG another shot towards success.
The Revival of Ruchi Soya
The bankers were in favour of the idea of "selling it to another FMCG". Among the top contenders which included Adani and Wilmar, Baba Ramdev's Patanjali bagged the deal. Almost the entire stake of 99% was acquired by Patanjali.
Patanjali, which had to pay a sum of about 10,000 crores, didn't give a single penny from its own pocket. So how did it go about with the purchase?
Patanjali actually took a new loan from the very banks which suffered losses due to Ruchi Soya and repaid half the debt while the other half was written off. And this loan was taken in exchange for the shares of Ruchi soya. In fact, the entire stake was kept as collateral. It's like buying a car by keeping the ownership of the car as collateral.
While all this was on one side, Ruchi Soya's business, on the other was all set for a comeback. It was relisted on the stock exchanges this year and was traded at a price of Rs.16.5. New management and a new action plan were all set to revive its long lost history and heritage.
What the Future Has in Store for Ruchi Soya
The Chief Operating Officer of Ruchi Soya claimed that the company is taking various rebranding activities. It is cutting costs and adding new categories to its product line. It has tied hands with Adani and is working together with Wilmar in order to reposition its business altogether.
Further, imports and distribution channels are also being looked into. An investment of Rs 5000 crores has been made for the same purpose. The company also saw an increase in its sales.
The Price Rally
The stocks of Ruchi Soya did see a good welcome in the markets as well. After the stocks were relisted, the price increased heavily to about 9000%. This left the market puzzled.
Just after five months from it being listed again, it rose to a market cap of 45000 crores. The price of the stock stood at 1500. However, starting at a huge height, it thereafter started falling for 6 consecutive days.
The heavy inflation and volatility that the stock acquired in a matter of just a few months made it the talk of Dalal street.
Why is this happening?
You should not forget that only 1% of Ruchi Soya's entire stake is being freely floated in the markets. The rest 99% of its stake is with the promoters. This happens to be a major reason for its inflated price.
Apart from that, the P/E of the company is also quite higher than usual, owing to the extraordinary profits. SEBI is looking into the matter.
As per the regulations, Patanjali is now forced to increase the free float in the market by either going in for a further issue of shares or by giving up its ownership on existing ones. Whatever the decision might be, we will be hearing back from the company in no time.
A list of companies has made it from the dust and went on to build a huge empire. Ruchi Soya, no doubt, is sure to join the list.
The company had suffered a bump, but it is now back on its feet, and with a loud bang. With enormous potential and a well-framed plan, the company is eyeing at a bright future with great opportunities ahead.
Having said that, we shall have to wait and watch to find out as to how Ruchi Soya is going to step up its game.