Successfully copied

Riding Ruchi Soya

Can the acquisition help Baba Ramdev and Acharya Balkrishna grow Patanjali Ayurved into India's largest FMCG company?

Please rotate your device

We don't support landscape mode yet. Please go back to portrait mode for the best experience

Yoga guru-turned- corporate honcho Baba Ramdev can make you believe that setting up a business empire is child's play. Not only is his appetite to take risks extremely high, but his confidence to succeed against all odds is even more compelling. His company, Patanjali Ayurved, acquired the bankrupt Ruchi Soya through an NCLT (National Company Law Tribunal) process in 2019. And in the two years since, the company has turned profitable. When asked what he did differently to turn it around in such a short span, Ramdev laughs aloud and says, "Ruchi Soya is Patanjali Ayurved's kulvadhu (bride). When a girl becomes a part of a renowned family, her brand equity automatically goes up. That's what has happened with Ruchi Soya, too."

Glib rhetoric aside, Ruchi Soya's turnaround story indeed sounds remarkable. Patanjali Ayurved bought out the company when it was staring at a debt of Rs 12,000 crore. In a short span of two years, the debt has reduced to Rs 3,300 crore. It also boasts net profit of Rs 680.77 crore and EBITDA of Rs 1,018.37 crore in FY21. Now, having transformed Ruchi Soya from a white elephant to a clear, deep grey, the 50-year-old swami wants to ride it to make Patanjali Ayurved India's largest FMCG company with international presence to boot — in at least 50 countries — within the next one year.

His track record with Ruchi Soya could lend some credence to this ambition. However, Ruchi Soya is a listed company, unlike Patanjali Ayurved. So, market watchers will have their say—stock market analysts as well as the industry at large are decidedly cynical. Both Ramdev and his close associate, Acharya Balkrishna (Joint Managing Director of Patanjali Ayurved), are no strangers to controversy. Chatter about the lack of corporate governance and transparency in Patanjali Ayurved has come out in the open far too often. The duo's political leanings make the analysts even more uncomfortable. Ruchi Soya was bought through an NCLT process after the banks took a haircut of over 60 per cent and that further adds to market scepticism. "Analysts are also sceptical because even during the heydays of Ruchi Soya, the owner never gave disclosures. After the takeover, there is again a perception issue as nobody [really] knows Baba Ramdev," says Arun Kejriwal, Founder of Kejriwal Research and Investment.

Patanjali didn’t acquire dead plants, they acquired emi-operational plants... They were kept operational even during the NCLT process (making the turaround easier)

Arun Kejriwal,
Founder of Kejriwal Research and Investment

Expectedly, the swami and Balkrishna scoff right back at the sceptics — they know nothing of the company and its workings; Patanjali is the very epitome of transparency and high quality; and yes, the 'strategy' is a very sound one, thank you very much.

A most unusual story, you will agree, of two spunky monks and their spirited moves in the corporate battlefield of suits, ties, MBAs and M&As. And it has its natural twists.

The Monk Who Bought a Listed Company

The Ruchi Soya acquisition has been the yoga guru's introduction into the complex world of IPOs and stock markets. Ramdev claims it took him all of two hours to understand how the market functions. Soon after he bought out Ruchi Soya, a senior stock market analyst delivered a Markets 101 to him in his Haridwar office. "The analyst explained to me about market capitalisation and how market value is created. He told me the three things that I need to keep in mind while running a listed company — return on investment, debt and zero working capital. He was taken aback when I started telling him about my plan to make Ruchi Soya debt free and give maximum RoI (return on investment) to my shareholders. He then asked me how I would manage my working capital. I told him – udhaar mein paise lo aur nagad mein becho (borrow money and sell in cash); your working capital becomes zero," he laughs.

He's only half-joking. "To be an investor-friendly company, we need to give our investors RoI of at least 20 per cent and we are working towards it," says Ramdev. "Our dream is to optimise our working capital and make it zero, too." He also wants to make Ruchi Soya debt-free within the next six months, riding an FPO (follow-on public offer) in September. It seeks to dilute 9 per cent equity for Rs 4,300 crore, over 62 per cent of which would be used to retire debt, and 14 per cent would be used for working capital needs. More money can be raised within the next 12-15 months because Patanjali Ayurved currently owns 98.9 per cent of Ruchi Soya, and as per Sebi guidelines, it has to dilute at least 25 per cent of its equity by December 2022. The markets experience has been good enough for Balkrishna to say that a Patanjali IPO isn't too far away. "Our learning from the Patanjali journey is coming in handy to grow Ruchi Soya."


Saving Ruchi Soya and bulking up Patanjali Ayurved beyond HUL and ITC are two different ballgames, but bear in mind that Patanjali Ayurved and Ruchi Soya combined is already a Rs 25,300-plus crore entity, bigger than Nestle, Britannia and Dabur. Standalone revenues of HUL (Rs 45,996 crore) and ITC (Rs 48,524.54 crore) are some distance away, but the train has started to roll — Ramdev is eyeing a turnover of Rs 25,000 crore for Ruchi Soya alone by FY23. And Balkrishna admits that their growth strategy has been unconventional. "Most organisations do a market survey and then build a business plan; we took the plunge in things we believed in and we grew."

I Trust You, I Trust You Not...

Market observers find the Ruchi Soya story too good to be true, especially because Patanjali Ayurved's meteoric growth and subsequent rapid fall plays large in their mind. After touching revenues of Rs 10,000 crore in 2017, it fell to Rs 8,500 crore within a year. Although the promoters attribute the fall to demonetisation, GST and a weak distribution system, industry perception is that Patanjali Ayurved lacks corporate governance and transparency. The constant chatter around the company's quality standards also adds to the mistrust.

"Patanjali promoters are known for making bombastic statements and subsequently one can't probe them as they are not answerable," says a senior analyst in a leading broking firm. "If you are listed, you have to be answerable to shareholders. However, one isn't sure how much they will fulfil their duty, given their past record." Adds Arvind Singhal, Chairman of retail consulting firm Technopak: "When you invest in stocks, you look at transparency, good governance standards, as well as the company's willingness to share information on a regular basis. Since Patanjali's track record on all these isn't too good, investors don't feel comfortable."

Balkrishna challenges the transparency and governance allegations. "No MNC has the level of transparency that Patanjali has. You use so many [of their] products without knowing anything about the manufacturer. Here, Swamiji's image is there on the packs; he is there to face the brunt of the consumer's likes or dislikes."

Talk about Ruchi Soya's stock taking flight after the acquisition (see chart Soaring Stock), and the analyst community remains cynical. Patanjali Ayurved owns 98.9 per cent of Ruchi Soya and Technopak's Singhal points out that with such little float, even a small trade of 1,000 shares will bump up or bump down the share price. "You will need a decent float of 15-20 per cent of capital, and that too widely distributed, to have some depth as far as the stock market is concerned," he says.

Moreover, since Ruchi Soya has largely been a commodity business that barely generates 3-4 per cent margins, it has never attracted the market. The recent spike in its stock, say analysts, has nothing to do with Patanjali taking over but is the result of the current bull market.


Through the acquisition and growth of Ruchi Soya, Baba Ramdev’s ambition is to make Patanjali Ayurved the largest FMCG company in India, overtaking the likes of HUL and ITC.

Ramdev's strategy for Ruchi Soya's growth is another point of contention. The swami plans to convert the commodity business of Ruchi Soya into a branded business, but analysts are incredulous. Abneesh Roy, Executive Vice-President (Research), Edelweiss Securities, calls Ruchi Soya a quasi-FMCG. "Ruchi's mainstay is lower-end edible oil, which is extremely price sensitive. Therefore, it is quasi-FMCG. Pure-play FMCG has a much higher pull from consumers." Roy says that brands such as Saffola and Fortune, which play in the premium- to mid-premium segments, can command much higher value. "In fact, ITC's FMCG is a much better business than Ruchi. ITC is in the mid and premium segments, focusing on margin improvisation, premiumisation, innovation, and is much more tech savvy."

According to Raghu Vishwanath, MD of brand valuation company, Vertebrand, Ruchi Soya in its prime had greater brand equity than Patanjali has today. "It is another matter that the company didn't succeed. The reasons for that were extraneous, more in terms of product irrelevance and company mismanagement. I don't think the acquisition by Patanjali is likely to be a magic wand."



How Patanjali's technology innovations are adding to its muscle

Acharya Balkrishna, the Ayurvedic doctor who seldom uses a laptop, claims most of his tech knowledge has been acquired by listening to leading tech consultants. “I did learn but I also realised that their solutions won’t serve my purpose,” he says. In March 2020, Patanjali Ayurved launched its tech start-up, Bharuwa Solutions, through which it has put together a DMS or dynamc marketing software to manage its supply chain, distribution and retail billing.

Balkrishna is planning to offer this to other consumer product companies, too. He is also piloting a fintech solution that promises to offer post-due diligence services to MSMEs and banks. The biggest challenge for MSMEs, says Balkrishna, is finance. "As of today, only predue diligence solutions are available, but there is no post-diligence mechanism. Our solution will enable banks to analyse the health of the company it has offered a loan to.”

Bharuwa Solutions is test-marketing its solution by partnering with Punjab National Bank. “We have told them to offer loans to our distributors and retailers. Banks can monitor business health in real time. They can make out how much stock or inventory the retailer or distributor has,” explains Balkrishna.

The Ayurveda vaidya’s thirst for tech solutions doesn’t end here. His Rs 20-crore Bharuwa Solutions, which is eyeing a revenue of Rs 100 crore by end-FY22, is also working on a host of agri-tech solutions. It is piloting an e-mandi at Haridwar that helps farmers to sell their output virtually.

“We are building a dashboard for the government and an app for the farmer, which will give solutions such as soil testing and fertilizer and seed recommendation,” says Balkrishna.

Resuscitating a Dying Elephant

Disapproval from the market notwithstanding, the fact is that a few smart moves, and some favourable conditions, helped Patanjali Ayurved turn around Ruchi Soya's financials. The smart moves first. Ramdev's first step after acquiring Ruchi Soya was to bring in professional management. He hired former Reliance Retail and Cargill Chief Executive, Sanjeev Asthana, as CEO, and Sanjeev Khanna, who had previously done stints with ITC, Metro Cash & Carry and BigBasket, as COO.

We improved production capex. If we were running a refinery at 40-50 per cent efficiency, we have increased it to 60-65 per cent

Sanjeev Khanna,
COO of Ruchi Soya

At the time of takeover, 12 out of the 23 manufacturing facilities of Ruchi Soya were functional. Today, that count is 17. "The idea was to make each plant profitable, and to do that it was important to optimise the resources deployed there," says COO Khanna. "We improved production capex. If we were running a refinery at 40-50 per cent efficiency, we have increased it to 60-65 per cent. Similarly, in crushing, if we were working at 30 per cent, we are in the 50 per cent bracket now."

To make this happen, the company introduced technology in multiple areas, and focused on compliances. "Our last year's performance has been the best in the history of Ruchi Soya, which proves that our strategy was right," says Khanna. "It helped us in rebuilding and targeting higher throughput as well as bottom-line improvement."

Ramdev says that he brought in accountability in the manufacturing units. "None of the plants had a quality control manager at the time of the acquisition," he says. "Our first step was to appoint a quality control manager at all the locations. We have given the responsibility to individual plant managers to ensure that their unit is profitable. By doing so, we have made them fully accountable. None of our plants is running at a loss today."

Apart from making the plants functional and profitable, Ramdev claims he went around the country meeting each and every distributor to lift their morale. "I told them they are family and all of them are owners of the business. The earlier owners of Ruchi Soya had never met their distributors. I met them in person and also took photographs with their families. Not only have I managed to retain the existing distributors, I have also brought in 2,400 new distributors into the fold."

Tathagata Roy, a Ruchi Soya distributor in Kolkata, says his business has grown by over 15 per cent in the past one year. The biggest advantage that the new management has brought in is technology, says Roy. "They have launched an app called BPos, which has resolved the supply issues that we earlier faced. Today, the retailer places his order online, and I am at once able to facilitate the order."

The Sage's Vision Chart

And now, the external factors that helped Patanjali. Kejriwal of Kejriwal Research and Associates says turning around Ruchi Soya would have been relatively easier for Ramdev and his team as they didn't inherit a defunct business. "Patanjali didn't acquire dead plants, they acquired semi-operational plants. The Ruchi Soya plants were kept operational even during the NCLT process. If oil plants are not kept functional, they tend to rust and become redundant."

According to Kejriwal, the challenge with Ruchi Soya had nothing to do with the core business per se. "The [earlier] promoters had run into losses as they were unable to manage their affairs outside of their core business," he says. "They made huge losses in trading activities and in their international business, which amounted to debt in the core business. If you process oil and sell oil, you can't make losses."

The banks that had given loans to Ruchi Soya had taken a haircut in the NCLT deal, and this would have also come in handy for Patanjali Ayurved to carry out the financial transformation faster. "Having done the haircut for the NCLT resolution, Ruchi Soya changed hands and was acquired by the Patanjali Group. After this, Patanjali has injected capital by way of taking loans and set around the task of running Ruchi Soya and turning it around," Kejriwal adds.

Dance of the Elephant

Having covered the bases of turning around Ruchi Soya, Ramdev and Balkrishna are now focused on giving the company a new direction. "Around 80 per cent of our profits will come from our premium, branded FMCG products," says Ramdev. Currently, Ruchi Soya's commodity products, which generate low margins, are consumed by the masses, whereas premium products, which have higher margins, are necessary for the kind of growth needed to meet Ramdev's ambitions.

The groundwork towards making this shift began earlier this year when Ramdev and his team brought Patanjali's biscuits, noodles, breakfast cereals and nutraceuticals businesses under the Ruchi Soya fold. A bulk of the premiumisation activities will happen under the foods business. "Ruchi Soya now has four verticals — commodities; nutraceuticals; biscuits & breakfast cereals, staples; and premium edible oil," says CEO Asthana. "All four are growing and have their own distribution, sales and marketing teams. Commodities give us only 6-7 per cent margins. Now that we are into other high margin products, it will completely change the profile of the business."

Commodities give us only 6-7 per cent margin. Now that are we into other high margin products, it will completely change the profile of the business

Sanjeev Asthana,
CEO of Ruchi Soya

Biscuits and breakfast cereals put together is already a Rs 950-crore business. It is growing at 20 per cent and generates margins in the region of 8-10 per cent. Similarly, Nutrela (soya nuggets, atta, honey and noodles) is generating margins of 20-25 per cent, while the margins in nutraceuticals are as high as 30-36 per cent. "Nutraceuticals alone will be a Rs 2,000-crore business in the next couple of years," says Asthana. "It is a Rs 50,000-crore market, growing by 25 per cent year-on-year. It is expected to touch Rs 1,25,000-crore in five years. In the past two months itself, we have done invoicing of more than Rs 100 crore." The company is also premiumising its edible oil portfolio with the launch of Nutrela Gold, which competes with Saffola Gold. It is also shortly going to foray into virgin palm oil.

Balkrishna claims that Ruchi Soya's food portfolio is best in class. "We haven't pushed non-performing products into Ruchi Soya. We have already removed the non-performers in the breakfast and biscuit categories. Our nutraceutical products are completely herbal. Ruchi is a public company, so we have to ensure that the products are world class." Ramdev is confident that Ruchi Soya will impress the market in the next few months. "When you see our results next year, we will be at the top in terms of profits, distribution and brand loyalty."

The Ruchi and Patanjali food portfolios have quite a few product overlaps (such as ghee, honey and atta) which could lead to confusion. Ram Bharat, MD, Ruchi Soya says, "We have a non-compete agreement with Patanjali; it will never launch a breakfast cereal or nutraceutical product that will have conflict of interest with Ruchi."

As far as products such as atta are concerned, Bharat says that Nutrela atta is a protein enriched variant, quite different from the atta that Patanjali sells. Similarly, Ruchi ghee is a mix of buffalo and cow milk, whereas Patanjali sells pure cow ghee. "The idea is to ensure that consumers remain within the Patanjali fold and don't go outside looking for different products," explains Balkrishna.

We have a non-compete agreement with Patanjali; it will never launch a breakfast cereal or nutraceutical product that will have conflict of interest with Ruchi

Ram Bharat,
MD, Ruchi Soya

The plans sound, um, sound, but it's hardly going to be a cakewalk, according to market experts. "Merely putting existing products under the Ruchi Soya umbrella may not work. They have to really work to build a brand equity in the branded foods business in order to capture the attention of the stock market," says a senior stock market analyst.

Roy of Edelweiss Securities agrees: "Ruchi might be giving Patanjali a good back-end, but the front-end is hyper-competitive. At the top there is Marico, which is not just into the edible oil business, it has also entered soya chunks. It has the ability to take market share, and it has done that with Amla hair oil [against Dabur] and also in oats. If Saffola remains for a longer term in soya chunks, it will be a big cause of worry for Ruchi."

In this overall strategy, Ramdev believes the game changer would be the Union Cabinet's approval of an outlay of Rs 11,040 crore to promote domestic cultivation of oil palm, to reduce the country's dependence on edible oil imports (currently worth Rs 1.5 lakh crore). "We want to make India self-sufficient in edible oil. The Prime Minister has himself called for self-sufficiency in edible oil and Ruchi will play an important role in this." His confidence stems from the palm plantations set up by the erstwhile owners of Ruchi Soya. "We will ensure that we scale them up by 10 times. We have already started coordinating with farmers and training them." Ruchi Soya, says Asthana, has access to 250,000 hectares of land and has already planted 54,000 hectares.

'Nobody is as transparent as Patanjali'

Acharya Balkrishna,
Joint Managing Director of Patanjali Ayurved

Analyst Kejriwal, too, feels this backward integration will help Ramdev take his business to the next level. "Ruchi already has manufacturing facilities spread across the length and breadth of the country, it has crushing capacities wherever oilseeds are available, and it has packaging plants, too," says Kejriwal. "Oil seed cultivation will be a bonus as there is ample demand for edible oil in India."

He believes this focus on edible oil self-sufficiency could also help in improving Ruchi Soya's perception in the stock market. Plus, Ruchi Soya's competitors Adani Wilmar and Gemini are also known to be filing for IPO. "If there are four-five listed oil companies, analysts will have no choice but to track all of them," says Kejriwal. "If there are disclosure issues, they have to raise them."


Cautious Optimism

Ruchi Soya's current EBITDA margin is in the region of 6.5 per cent and its target in the next few years is to take it to double digits. "We will keep growing all our businesses and we will expand our EBITDA margin by 10-11 per cent in the next three years. Unlike HUL, Nestle or Britannia, whose EBITDA margin every year is in the region of 14-20 per cent, our target is more modest because of our large commodity business, the dependence on which we will reduce in the next three years," explains Asthana, who is confident that all his new businesses would grow in the region of 20-30 per cent. "We are targeting revenues of Rs 23,000-25,000 crore in the next three years," he adds. Will Patanjali Ayurved-Ruchi Soya succeed in becoming India's largest FMCG company? While stock market analysts are unconvinced, a section of the industry is cautiously optimistic. "The fact that they are able to achieve such high turnover for Patanjali and Ruchi Soya, one has to give them credit for their capabilities in terms of sourcing and supply chain," says Technopak's Singhal. "One can't run a business of this scale without having the necessary capabilities. They deserve a bit more respect than what we have given them so far."

When you invest in stocks, you look at transparency, good governance standards... Patanjali's track record on these isn't too good, so investors aren't comfortable

Arvind Singhal,
Chairman of Technopak

On the other hand, Vertebrand's Vishwanath is not sure if Ruchi Soya can carve a niche for itself. "Brand Patanjali and its founders are still shrouded in a lot of mystery. The sudden rise of their business and the company's source of funds are not transparent. When huge players with the best of in-house marketing talent like ITC are still struggling to find their way in the intensely competitive foods market, it may not be that easy for Patanjali-owned Ruchi Soya."

The Trump Card — The Cult of the Guru

Well, nothing comes easy, in life or in business. Patanjali Ayurved, too, has seen both ups and downs. There was a time when all the leading modern retail chains had an exclusive Patanjali aisle, without the latter spending a penny on them. But when product replenishment became a huge concern, the retail chains stopp ed giving them preferential treatment and Patanjali lost out on consumer confidence. However, although revenues did drop, sustaining a Rs 8,000-odd crore business is certainly not child's play. "There is a latent loyalty to the products as far as consumers are concerned," observes Technopak's Singhal.

That's the big variable at play — the aura of Ramdev, the lean, saffron-clad saint who dispenses yoga lessons, Ayurvedic medicines, advice for his followers, and now, products from Patanjali Ayurved that he champions with nationalistic fervour. He is a man admired, almost worshipped, by millions in India's Tier III/IV markets. All Patanjali products have his image on the packs and consumers in these markets more often than not buy Patanjali products because of Ramdev.

That is the one variable that could potentially tilt the scales in favour of a Patanjali-Ruchi Soya combo. "If you go to a Tier IV/V town, consumers swear by Baba Ramdev. They trust the individual more than the brand," says Prem Kumar, Founder and CEO of retail tech start-up Snapbizz. "For them, Ramdev is the brand." The man in question is confident that he can capitalise on his personal brand equity even in Ruchi Soya's premium product portfolio, the lynchpin of his future strategy: "I have a reach of 200 crore people and I am going to capitalise on that."

Whatever one might think of the monk who seeks to make billions, he does deserve credit for confidence and perseverance. And, his punch lines personify these traits. Savour this one: "We only know how to run, we can't walk." This will be a marathon to watch.


Story: Ajita Shashidhar

Producer: Vivek Dubey, Rashi Bisaria

Photos: Bandeep Singh

Creative Producer: Raj Verma, Anirban Ghosh

Video Editor: Mohsin Sheikh, Vivek Sheel

UI developer: Ravi Kumar, Mohd. Naeem Khan