Mapping insolvency: Why list of suitors for debt-laden Ruchi Soya is long

At the heart of the bidding war lies the firm's edible oil refining capacity

Baba Ramdev-co-founded Patanjali Ayurved is the latest entrant in the race to acquire Ruchi Soya, the debt-ridden edible oil maker dragged to the National Company Law Tribunal (NCLT) last year by lenders. Among the other interested companies are names such as Godrej Agrovet, Emami and ITC apart from private equity majors such as KKR and Aion Capital.

Patanjali's entry takes the total number of players vying for the business to over 25, a figure which has left most wondering: Why the interest? 

As on December 31, 2017, Ruchi Soya's total debt stood at Rs 120 billion. In four years, the company's turnover has more than halved from Rs 315.61 billion (in 2014-15) to Rs 93.75 billion (first nine months of 2017-18) as the company struggled with its business. If annualised, the 2018-19 turnover of the company works out to Rs 125 billion, which means the drop in top line between FY15 and FY19 is 60 per cent. (See chart)

Analysts say at the heart of the bidding war lies the company’s edible oil refining capacity, which stands at 3.3 million tonnes per annum. Ruchi Soya has around 13-14 refining plants across the country, of which five are port-based.

“This is critical,” says an edible oil industry executive, who declined to be quoted, since he belongs to one of the bidding firms. “Port-based refining capacity makes it easier for companies to refine edible oil imported into the country. And 70 per cent of edible oil is imported into India. So, if there is ready capacity available (at ports), players will scoop down to acquire it,” he says.

Edible oil refining, for the record, gave Ruchi Soya nearly 83 per cent of its top line in the first nine months of 2018-19. Seed extraction, vanaspati production and manufacture of food products were some of the other contributors to its top line for the current financial year. The company’s key brands include Nutrela, which is a range of soya-based products and Mahakosh, Sunrich, Ruchi Gold and Ruchi Star, which are all edible oils.

While Godrej Agrovet is keen to acquire Ruchi Soya’s palm-oil plantation business, companies such as Emami and Patanjali are interested in the firm’s larger edible oil business, analysts tracking the firm said. On Tuesday, Ruchi Soya’s stock was up 3.03 per cent on the BSE to close trade at Rs 17 per share. The rise, coming amid the interest evinced by Patanjali and other players, is equal to the increase it has seen in its stock price in the past one month.