Why Ruchi Soya is most talked stock?
What’s happening with Ruchi Soya?
Wasn’t it under bankruptcy?
How has its stocks reached so high?
Everyone seems to be perplexed by the performance of Ruchi
Soya stocks in the market. So, what has caused this stock to be hottest talk of
the market?
If you don’t know, Ruchi Soya is one of the largest FMCG
companies that is involved in processing crude palm oil and turn it into
refined oil. Its wide range of food products includes soya foods, bakery fats,
cooking oil, etc. Many brands such as Mahakosh, Nutrela, Sunrich, etc are all
Ruchi Soya products.
The company was doing well until in October 2011 Indonesia
raised export duty on crude palm oil which resulted in increased cost of input
for the company. Adding to the problem Indonesia had cut export duty on refined
oil as well.
Well, that’s not good!
The unfavorable duty structure and low monsoon levels along
with a long working capital made the situation worse. Ruchi Soya had to take a
hit on its margins. The losses made during all this time lead the company to
borrow more money to pay back its existing already due short-term loans.
The final blow to the deteriorating situation was when it
hedged on castor oil futures at a high of around Rs. 5100 without analyzing
losses. The castor oil futures fell to about Rs. 3100 leading to huge losses
for the company. Such huge losses led to deteriorating financial health when
the company's debt burden was out of control.
When things spiraled out of control, its lenders had enough,
they dragged the company to the bankruptcy court.
The lenders agreed to resolve bankruptcy proceedings by
selling Ruchi Soya to another FMCG company. Things took a turn when out of the
top contenders i.e., Patanjali and Adani Wilmer, Patanjali acquired 99% of the
company and settled ~4000 crores in dues. The total debt burden was a whopping
amount of ~9000 crores i.e. the creditors recovered only about half of what
they had lent.
Such a huge loss!
What is more interesting is that Patanjali did not have
resources to complete the acquisition by the date set by NCLAT, so it asked
more time. It paid for the transaction after borrowing funds from the lenders
itself that had taken the company to bankruptcy proceedings.
So, the lenders who took the company to bankruptcy court
lent for the acquisition of the company!!
As Patanjali acquired Ruchi Soya, it was all set for a
turnaround. The company relisted on the market back in Jan 27th, 2020. The
shares started trading at 16.5. This acquisition led to a loss for existing shareholders as
an individual who owned 100 shares earlier was left withholding only 1
share.
So now analysts point out that such a sharp rise in the
price of shares was mainly due to the low level of free float or shares with
the public. This significant reduction from 100 to 1 share has led to increased
volatility.
Thus, the company's stock price rallied by ~9000% in 5
months, which is considered to be a miraculous event in share markets. The
market share of the company rose to over 45,000 crores.
According to existing listing guidelines, companies have to
ensure 25 percent public shareholding. Since, Ruchi Soya Industries was
relisted following the resolution process, the promoters have 18 months to
raise the non-promoter shareholding to 10 percent and 3 years to take it to 25
percent.
Now some may call it a miracle, others have been skeptical
about such an event and called for an investigation about the same!!
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