BS READS: The mystery investor who made a killing in Ruchi Soya

A Delhi-based company put Rs 13 cr for a 5.94% stake in Ruchi Soya soon after it got relisted; today that investment is worth Rs 1,500 crore

Indore-based edible oil maker Ruchi Soya Industries has been having a stellar run ever since it was relisted on the bourses, emerging from a bankruptcy with a new promoter on board — yoga guru Ramdev's Patanjali Ayurved. On January 27, the shares were listed at Rs 17 apiece. The stock price rallied to a 90x growth in just five months to Rs 1,535 per share on June 29. For a company that had been acquired in a bankruptcy sale just months ago, this was an incredible feat.

After hitting a peak, the stock is now shedding some of its value, triggering the lower circuit almost daily. Even so, it is still trading at an upside of over 48 times its listing price, valuing the edible oil maker at over Rs 24,000 crore (at the time of publishing of this report).

Ruchi Soya is currently valued at about six times its peak valuation under the previous management — Rs 4,200 crore in November 2010.

The rally in the share price must have come as a respite for many shareholders who had held on to their investments in the company, or rather had got stuck with Ruchi Soya when the shares of the company went kaput and the firm was sent to the National Company Law Tribunal (NCLT).

But there is one investor that stands out as the key beneficiary of this windfall — Delhi-based Ashav Advisory LLP. 

The firm subscribed to a preferential allotment of Ruchi Soya shares within a month of its relisting on the bourses. The 5.94 per cent stake Ashav Advisory acquired in the company for just Rs 13 crore is currently valued at about Rs 1,530 crore — a return of over 118x in less than five months.
 

The current valuation is notional as share price valuation is dynamic and the actual returns on the investment made by Ashav Advisory can be calculated once they decide to sell their stake.

While Ashav Advisory is a newly-incorporated firm not capitalised enough to fund the acquisition on its own, it raised finances for the same, it emerges after a deep dive into the corporate filings and the ensuing money trail, from firm linked to a Delhi-based auto-component manufacturing group.

Journey back from the brink

Ruchi Soya entered the Reserve Bank of India’s (RBI’s) list of major wilful defaulters in early 2017 and was admitted to NCLT in December 2017 when two foreign banks, Standard Chartered Bank and DBS Bank, filed an insolvency suit against the company. Ruchi Soya’s total debt as of March 31, 2017, had swelled to over Rs 12,000 crore, or nearly 12 times its equity.

In September 2019, the company ended its two-year-long insolvency process when NCLT approved its acquisition by the Patanjali group for Rs 4,350 crore. During the insolvency process, the company had become the centre of a takeover battle between Adani Wilmar and Patanjali. 

A joint venture between Adani Group and Singapore-based agri-business group Wilmar, Adani Wilmar was initially named the highest bidder in the acquisition race, but Patanjali appealed against it, seeking disqualification of the plan it submitted, citing a conflict of interest. Later, Adani stepped aside and withdrew its offer, citing delays in the resolution process in January 2019, making Patanjali the only suitor to acquire Ruchi Soya. 

Ruchi Soya Industries—Timeline of events

Sep' 2017

Standard Chartered and DBS Bank filed insolvency suit against Ruchi Soya

Dec' 2017

NCLT had referred Ruchi Soya for insolvency proceedings

Apr' 2017

Over 25 companies expressed interest in acquiring Ruchi Soya

Jun' 2018

Adani Wilmar and Patanjali emerged as the top two bidders

Aug' 2018

Lenders of Ruchi Soya approve Adani Wilmar's bid

Aug' 2018

Patanjali objects to lenders' decision citing issues related to conflict of interest

Jan' 2019

Adani Wilmar withdrew its offer citing delays in the resolution process

Apr' 2019

Patanjali group's Rs 4,350 crore resolution plan to take over Ruchi Soya

Dec' 2019

Patanjali completes acquisition of Ruchi Soya

Jan' 2020

Shares of Ruchi Soya gets relisted on the bourses

Ruchi Soya’s major brands include Nutrela soya foods, Mahakosh soyabean oil and Sunrich sunflower oil. In its first quarterly results under the new promoter, the company recorded net sales of Rs 3,191 crore during January-March 2020, an improvement of 1.42 per cent from the same quarter the previous year, and posted a net loss of Rs 41.25 crore during the same period.

A deeply discounted share allotment

As of March-end Ruchi Soya is 98.87 per cent owned by the Patanjali group through four entities (see graphic) and only 0.97 per cent is held by public shareholders. According to Sebi’s guidelines, all listed companies are to maintain at least 25 per cent public shareholding. 

Analysts have pointed out that the meteoric rise in Ruchi Soya’s stock price is mainly due to its thin free float — shares held by public shareholders.“Ruchi Soya has sub-one per cent of free float. The lower the number of shares held by members of the public, the higher the volatility in share price movements due to lack of liquidity,” says Abneesh Roy, executive vice-president (research), Edelweiss Securities.

But since Ruchi Soya was acquired as part of the bankruptcy resolution, in this case, the new promoter is allowed to increase its free float to at least 10 per cent within 18 months and can reach the prescribed limit of 25 per cent public shareholding within three years of relisting.

In order to reduce the promoter shareholding, just within a month of its relisting, Ruchi Soya’s board had approved a fresh allotment of shares to a non-promoter entity on February 20. The company had informed the stock exchanges that the funds would be used to finance growth capital needs. This is the first stake sale with Patanjali as promoter.

According to a stock exchange filing by the company on April 9, the board had agreed to issue 18.67 million shares to Ashav Advisory LLP on a preferential basis at mere Rs 7 per share — a massive discount to the market price. The shares of Ruchi Soya were trading at Rs 48.7 at the closing of market hours on the same day.

The paperwork and a few other formalities regarding this preferential issue are still pending, as the company has sought an extension from stock exchanges due to the Covid-19 outbreak. “The formalities will be completed within a reasonable time period after restrictions are lifted in the cities of Mumbai and New Delhi,” the company filing said.

The investors’ Rs 13 crore (for roughly six per cent stake) has now skyrocketed to over Rs 1,500 crore.

Who is behind the multi-bagger bet?

Delhi-based Ashav Advisory, a limited liability partnership firm, was incorporated in August 2019.

The firm’s filings with the Registrar of Companies (RoC) have listed two designated partners — Tribeni Agarwal and Ashish Jain. Agarwal is also a director and 50 per cent stakeholder in Delhi-based K R Handloom Pvt Ltd, registered at the same address as Ashav Advisory. Jain, the other partner in the firm, is an authorised representative of the Agrawal-owned K R Handloom.

Ashav Advisory, incorporated less than a year ago, didn’t have capital of its own to buy the stake in Ruchi Soya, and had taken a loan to make the investment. The firm received Rs 35 crore as an unsecured loan from a Delhi-based company called Yojana Management Tech Pvt Ltd on February 10, just 10 days prior to the share allotment approval in Ruchi Soya.

Incorporated in 2004, Yojana Management Tech operates as a management consultancy and has two directors on its board — Amit Jalan and Sunil Goel. 

According to the financial statement of the company for 2018-19, it earned zero income in the last two financial years and posted a loss of Rs 2.86 lakh and Rs 18,321 in 2018-19 and 2017-18, respectively. 

Yojana Management Tech also doesn’t have substantial assets on its books — assets worth only Rs 98 lakh as on March 31, 2019. Since the company has no business operations and has negligible assets, it couldn’t have managed to lend Rs 35 crore to another entity on its own. It had taken unsecured loans from its promoter entity in 2018-19, which were further lent to Ashav Advisory.

Yojana Management Tech is a wholly owned subsidiary of Minda Capital Pvt Ltd. Minda Capital owns 88 per cent in the company, while Whiteline Barter Ltd owns the remaining 12 per cent on behalf of Minda Capital.

Minda Capital is the promoter group company of the Ashok Minda Group, also known as Spark Minda Group, a leading auto-component manufacturer in India.

Ashok Minda, the promoter and group CEO, owns 90.39 per cent in Minda Capital. His personal shareholding in the company is 55.01 per cent, while the rest is owned by other Minda family members and a promoter-owned company, as on March 31, 2019, according to RoC filings. 
 

Made with Visme Infographic Maker

Apart from the Minda family and companies owned by them, Minda Capital also lists 14 minority shareholders, which together hold a 10.61 per cent in the company. The list also counts Jain, the partner in Ashav Advisory, as its shareholder, though he holds a mere eight shares in Minda Capital.

The list further shows that Pramode and Anita Parasramka hold 0.11 per cent each in the company. The Parasramka family owns 50 per cent in KR Handloom, and the other half is owned by Agarwal.

KR Handloom was also holding a 2.16 per cent stake in Minda Corporation, the flagship company, until March 31, 2018, and reduced it to 0.74 per cent by March 2019.

Who is Ashok Minda?

Ashok Minda is the second-generation promoter of the group, founded by his father S L Minda in 1958 in Delhi. The group is now a leading automotive-component player with a global presence and is also listed on Indian bourses. 

Minda Corporation, the flagship holding company of the group, recorded a consolidated revenue of Rs 3,027.5 crore during 2018-19 and made a net profit of Rs 159 crore. The company is currently valued at around Rs 1,600 crore, going by its market capitalisation as on July 7, 2020. 

Emailed queries to the Patanjali group, Ashav Advisory LLP, and Ashish Jain (designated partner at Ashav Advisory) did not elicit an immediate response. Ashok Minda did not respond to the detailed queries. However, the official spokesperson of Minda Corporation responded by saying: “Minda Corporation has nothing to do with this transaction.”

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