Ruchi Soya: A vehicle to ride on the Patanjali Phenomenon

Patanjali Ayurveda is the most talked about FMCG company in India, giving stiff competition to established players like HUL, Colgate, Nestle etc. However, Patanjali Ayurveda is not listed in the stock market and does not provide an opportunity to for the retail investor. We have been keenly watching the collaboration between Patanjali Ayurveda and Ruchi Soya since the start of 2017 and are wondering if Ruchi Soya could be vehicle to ride the Patanjali phenomenon.

Ruchi Soya is India’s largest manufacturer of edible oil. However, it is going thru a difficult period facing insolvency, bankruptcy notice and winding petition as it struggles to service the debt it carries on its book. Ruchi Soya is part of a list of 28 defaulters that the RBI sent to banks, asking them to conclude a debt resolution process. The debt is because of certain speculative activities, basis which capital markets regulator SEBI had barred Ruchi Soya from dealing in the securities market.

To address its financial situation Ruchi Soya was at one time in 2016 considering a JV with Adani Wilmar and had signed a non-binding term sheet which went into cold storage in early 2017. In January 2017, Patanjali Ayurved and Ruchi Soya signed certain agreements which could help Ruchi Soya get out of the financial difficulties it currently is in.

In Feb-2017 Ruchi Soya has signed an agreement with Patanjali Ayurved Ltd for refining and packaging of edible oils for a period of 3 years. As per the agreement, Ruchi Soya Industries would process the crude oil provided by Patanjali Ayurved and pack the refined oil as per their specifications. The agreement is expected to help Ruchi Soya to improve capacity utilization and enhance productivity, efficiency and profitability.

The agreement in Feb-2017 had been signed for processing and packaging only at the Rajasthan plant. In Sep-2017 the refining and packaging tie-up had been extended to include processing and packaging of edible oils at Ruchi Soya’s plant in Madhya Pradesh and Gujarat, along with Rajasthan.

The expanding agreements between Ruchi Soya and Patanjali Ayurved could help deliver a turnaround in the financial situation of Ruchi Soya. Ruchi Soya is planning to ride the Patanjali Ayurved phenomenon.

“Patanjali is eyeing sales of Rs 20,000 crore in three to four years time from the cooking oils business. The agreements will have positive benefits for Ruchi Soya Industries as it will allow the company to lease out spare capacities as well as bringing down the overall cost of processing for the respective units and improve profitability,” Satendra Aggarwal, Chief Operating Officer, Ruchi Soya said.

We have not discussed the financials of Ruchi Soya in this note. Given the debt Ruchi Soya carries and the losses its making, we don’t see any merit in discussing it. However, those believing the power of the Patanjali phenomenon could speculate on Ruchi Soya for gains. Given that everything that Patanjali touches, turns into gold, who knows Ruchi Soya may also turn into gold for its investors. However, this note is not backed with any objective analysis. It stands on the momentum associated with Patanjali.

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