Financial wizardry takes center stage in the fascinating saga of Patanjali Foods, a company founded by Baba Ramdev. With an annual turnover now hovering around INR 35,000 Cr., Patanjali Foods has achieved remarkable success through unconventional means. Rajat K Baisya delves into how this company emerged from thin air, transforming itself from a non-existent entity to a thriving business powerhouse.

I was travelling to Haldia, the port city in West Bengal, last month, which is known for its petrochemical refineries, large chemical plants, fertilizer plants, and large numbers of ancillary industries supporting the huge complex of industrial activities. All petrochemical refineries like IOCL, BPCL, HPCL, and Haldia Petrochemicals Ltd (HPL) are located there. Air is polluted. I could even smell obnoxious sulphur fumes in the air emanating from fertilizer plants.

In that environment, I found Patanjali Foods Ltd’s manufacturing plant adjacent to Exide battery and HUL’s detergent plant. I was surprised to see a food processing plant in that environment. I got down from my car and enquired about Patanjali Foods to find out what they were producing here. I found that it was the erstwhile Ruchi Soya Ltd’s plant, which was acquired by Patanjali. As Patanjali’s entry into the food business is an interesting case study, I thought of covering that in this month’s issue of PFI.

Ruchi Soya Industries Ltd, a listed company, manufactures oils, vanaspati, soya chunks, and nuggets and is a market leader in the soya business, having its headquarters in Indore, Madhya Pradesh. Ruchi Soya had its edible oil refining plants located in MP, Maharastra, Haldia in West Bengal, and in many other places. Ruchi Soya is one of the largest palm plantation companies in India who owned 22 manufacturing plants across pan India, which would translate to a refining capacity of over 11000 tons per day, a seed crushing capacity of 11000 tons per day, and a packaging capacity of 10000 tons per day.

However, the company incurred an accumulated loss of about INR 12000 crores and was declared bankrupt and insolvent. The company’s net worth was completely eroded, and the valuation was zero. This situation of Ruchi Soya was attributed mainly to the company’s edible oil business because of cheaper oil imports from other countries like Malaysia and competition from other local brands like Fortune edible oil from Adani Wilmar. There are other reasons for Ruchi Soya’s financial crunch, including huge debts. And unsold stock built up in the trade for its soya business, amounting to bad debts. Despite having huge assets, Ruchi Soya was declared bankrupt.

Incorporated in 1986, Patanjali entered the market with its Ayurvedic range of products. Ramdev became Baba Ramdev after his initial long journey of teaching yoga to the general public and advocating yoga as a solution to all kinds of human ailments and also for their general wellbeing. Ramdev succeeded in creating general awareness about yoga in India, and TV channels helped him a lot to spread that awareness. He made his initial capital from these programs to launch a series of ayurvedic products from Patanjali. Ramdev even got into a lot of controversy regarding his past. Even well-known yoga guru, Late B.K.S. Iyengar, once said that Ramdev’s yoga teaching was not correct. While I cannot comment on that but, Iyengar was an acknowledged yoga guru and globally recognized. Later, Patanjali introduced the entire range of household products, then selected natural food products like honey and ghee and grocery items, and challenged multinationals like HUL.

Legal Troubles and Financial Penalties

Controversial Takeover of Ruchi Soya by Patanjali Foods

Ruchi Soya Industries faced extreme financial difficulties. Lenders lost hope of recovering their money, and Ruchi Soya was dragged to an insolvency court by its creditors. Two companies were interested and placed their bids to buy Ruchi Soya – Patanjali and Adani Wilmar. Patanjali did not have oil business, but Adani had. Patanjali won the bid and virtually bought the company for free. After the turbulent takeover, the company’s share price soared to an unimaginable high, filling the pockets of all investors. It is rare to see such a comeback in the world of Indian business. The story of the takeover is controversial and worth studying.

Ruchi Soya was a listed company. However, Ruchi Soya’s lenders (mostly PSU banks) dragged Ruchi Soya to bankruptcy court and was taken off the stock exchanges. The banks were unsure if Ruchi Soya would be able to pay back its dues. Therefore, they wanted to liquidate the company to clear the pending dues. Two companies were frontrunners in the bidding process – Adani Wilmar and Baba Ramdev’s Patanjali. Adani Wilmar has synergy in the portfolio, as Ruch Soya was also in the edible oil business. Adani-Wilmar was the owner of the powerful Fortune brand. But in the bidding process, Patanjali won the bid, acquiring Ruchi Soya for around INR 4,350 crore to acquire a company whose valuation was zero.


But how did Patanjali arrange the funds for acquisition?

Out of the total bid amount of INR 4,350 crore, around3,200 crore were lent to Patanjali by the very same banks that lent money to Ruchi Soya initially. Around INR 1,200 crore from SBI, 700 crore from Punjab National Bank, 600 crore from Union Bank of India,400 crore from Syndicate Bank, and 300 crore from Allahabad Bank. As banks were keen to recover their investment in Ruch Soya, they extended support to Patanjali by granting loan to acquire Ruchi Soya. Banks played the role of changing the ownership. One can even read more than what it appeared, as stated above.

After Patanjali’s takeover, the company was relisted on the stock exchanges, and its shares rallied by whooping 8,000%. One of the reasons for such strong inflation in price is that 1% of the total shareholding was public. The rest was with Patanjali and other promoters. A small group of traders could have pumped the price of Ruchi Soya. Many investors questioned the sudden rally and accused Patanjali of foul play and manipulation. They demanded even a SEBI probe. Patanjali has a debt of Rs 3200 crores extended by banks that it has to repay for having borrowed money to acquire Ruchi Soya.

Ruchi Soya’s business continues as usual, but the company’s valuation has skyrocketed. It is when Patanjali decides to dilute its shareholding through a follow-on public offer (FPO) at a discount of around 30%. Patanjali decided to reduce its shareholding to around 80% through the FPO by offloading around 18-19% of its stake for4,300 crore. It is practically the same amount it bought Ruchi Soya for. Around the time of the FPO, suspicious emails and texts started circulating, nudging Patanjali consumers to invest in the FPO. In one of his speeches, Baba Ramdev stated that investing in Ruchi Soya’s FPO was the secret to being a ‘crorepati’.

This didn’t go down well with SEBI. The market regulator stalled the FPO, allowing investors a window of three days to withdraw their bids from the FPO. They also asked Patanjali to put out advertisements in national newspapers, discrediting the SMS and emails. In the meantime, nearly 97 lakh bids were withdrawn from the FPO.

Ruchi Soya, acquired by the Patanjali group in 2019 for INR 4350 crores through an insolvency process, had a revenue of nearly INR 16,400 crore in FY21. In a regulatory filing, Ruchi Soya subsequently informed that it has entered into a “Business Transfer Agreement” with Patanjali Ayurved Ltd to acquire the food retail business of the latter as a going concern on a slump sale basis. In that arrangement, which will fall into the category of ‘related parties’ transaction’ Baba Ramdev-led Patanjali Ayurved Ltd will sell its food retail business to group firm Ruchi Soya Industries Ltd for INR 690 crore as part of its strategy to focus on non-food, traditional medicine and wellness business.

It was also proposed that the name of the company be changed from Ruch Soya Ltd to Patanjali Foods Ltd. The transaction shall consist of the transfer of employees, assets (excluding Patanjali’s brand, trademarks, designs, and copyrights), current assets (excluding debtors, vehicles, cash, and bank balance), contracts, licenses, and permits, distribution network, customers related to the food retail business of Patanjali Ayurved.

Ramdev had said Ruchi Soya would focus on four business verticals – edible oil, food, and FMCG, nutraceuticals, and oil palm plantation. Last year, Patanjali transferred its biscuits business to Ruchi Soya for a nominal consideration of Rs60 crore. Baba Ramdev said “We have set a target to make Patanjali Ayurved and Ruchi Soya, India’s largest food and FMCG company in the next five years,”

The combined annual turnover of Patanjali Ayurved group and its Patanjali Foods Ltd now is around 35,000 crore. Patanjali Foods Ltd is a unique story that a company is created free by Baba Ramdev which now has a revenue of Rs 18000 crores only through financial engineering. The same set of banks who funded Ruch Soya gave money to Patanjali to buy Ruchi Soya. Patanjali went ahead with a follow-on public offer (FPO), and just by diluting 18% of the holding, Pantanjali generated enough cash to pay back the3200 loan that it took to buy Ruch Soya. Patanjali now controls 80% of Patanjali Foods Ltd for free.

Ruchi Soya also came out as a winner with 4350 crores in cash for the bankrupt company and wiped out all their losses as well. It is public who funded the whole deal. The 2% initial shareholders of Ruchi Soya, who lost hope of getting anything out of the bankrupt company, also made huge profits from the public offer. Ruch Soya managed to become debt-free and profitable again from once a bankrupt company. It is the public who paid4350 crores for 20% of the holding, and Baba Ramdev got 80% holding with zero investment. And Patanjali Foods Ltd was thus created for free.

*The author is the chairman of Strategic Consulting Group and served as Professor and Head of the Department of Management Studies, IIT Delhi, India.

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