Patanjali's quest for Ruchi Soya: Valuation hurdle may impede growth plans

Just when it seemed on the brink of ending to Patanjali’s management, its battle for acquiring beleaguered edible oil maker Ruchi Soya has hit another hurdle. This time, the objections have come from a couple of creditors of the debt-laden firm —  DBS Bank Singapore and DBS India.

DBS India, the local unit of Singapore-headquartered financial services group DBS, and DBS Bank Singapore have approached the National Company Law Tribunal (NCLT) in Mumbai challenging the recently approved deal to sell Ruchi Soya. The group — one of the many creditors that dragged the edible oil maker to the insolvency tribunal — told NCLT that it finds the deal insufficient to cover its dues. And it wants a larger share of the money that Patanjali has offered to pay for Ruchi Soya.

According to Ruchi Soya’s latest release, dated April 26, DBS Bank Singapore and DBS India are two of its financial creditors to whom it owes Rs 297.24 crore. In the pecking order of the amount of money due, DBS Bank Singapore is Ruchi Soya's 15th largest creditor with pending dues worth Rs 242.96 crore, and DBS India stands at 23rd place with dues amounting to Rs 54.28 crore.

DBS’ opposition has come at a time when it seemed that Patanjali had bagged one of the largest edible oil companies in the country, after the Committee of Creditors (CoC) approved the Ayurveda major’s proposal last week. Now though, according to informed sources, other private lenders, too, are planning to revisit the blueprints of the proposal.

The problem is rooted in the Indore-based firm’s valuation. According to Ruchi Soya’s calculations, it owes its creditors Rs 12,146.58 crore against a total claim of Rs 13,742.86 crore. Out of the total amount claimed by its financial and operational credits and various government departments, Ruchi Soya disapproved claims worth Rs 1,596.28 crore. The oil maker's 27 financial creditors, of which DBS is a part, have approved dues worth Rs 9,384.75 crore, while the approved amount of the operational creditors is Rs 2,716.6 crore. (see table)

However, the money that financial creditors of Ruchi Soya would receive, if the Patanjali deal goes through, is a little less than Rs 4,350 crore — or just 46.35 per cent of their approved dues. The banks are reluctant to take the haircut at a time when the cumulative non-performing assets (NPAs) of top six private banks is in excess of Rs 1 trillion and even higher for public sector lenders. Global ratings agency Fitch, in a February report, said loans worth Rs 3.5 trillion have not yet been recognised by banks in India as non-performing assets  and they run the risk of turning bad.

Patanjali’s revised bid of Rs 6,000 crore, against Ruchi Soya’s total approved debt of Rs 12,146.58 crore, is not enough to cover even the half of the debt. Patanjali had virtually lost the race in mid-2018, when the CoC had given its consent to Adani Wilmar’s bid. Then, in December, Adani Wilmar withdrew its proposal to acquire Ruchi Soya, citing prolonged delay as a concern, while Patanjali revised its offer to Rs 4,350 crore for financial creditors — from Rs 4,100 crore.

The latest round of trouble may be of greater concern to the Haridwar-based firm. After growing at a breakneck pace between 2011 and 2016, its top line growth has muted to less than 15 per cent in 2017-18. And its scope for portfolio expansion has reduced significantly, after a period of aggressive product launches and entry into new but unrelated categories.

The company is now more dependent on financial lenders to fund its capacity expansion plans and thus more open to scrutiny. At least five new food parks are coming up across the country — in Uttar Pradesh, Maharashtra, Andhra Pradesh among others.

This is having an impact on its ratings. In April, rating agency ICRA revised Patanjali Ayurved’s long-term credit rating to ‘A plus’ and for short term to ‘A1’. On March 30, another rating agency, Brickwork, reduced the firm’s ratings for bank loan facilities to Rs 2,612.15 crore from Rs 3,005.55 crore. “The revision in the ratings takes into account the overall declining financial performance during 2017-18, sharp increase in debt borrowings with increase in interest cost and financial charges owing to large debt-funded capex incurred over the past two years and lower turnover and profitability levels reported in 2017-18 and first nine months of 2018-19”, it noted.

Ruchi Soya could have gone a long way in lifting its fortunes. Edible oil is the largest packaged food category in the country (Rs 1.63 trillion in size) and is growing at over 20 per cent, according to Euromonitor International. Ruchi Soya’s wide portfolio of brands and export markets is expected to fit well into Patanjali’s scheme of things, as it looks to expand into West Asia and the US.