Why Baba Ramdev’s Patanjali is offloading shares at a discount

The offer for sale (OFS) of Patanjali Ayurved Ltd., Baba Ramdev co-founded Patanjali Group’s flagship entity, received a tepid response as it opened today. The Haridwar-based firm, which holds around 40 per cent in BSE listed Patanjali Foods (earlier Ruchi Soya), plans to sell 9 per cent of the total shares within two days, starting today. The move, however, has resulted in a sharp decline in its market valuation as its stock plunged 5 per cent in early trade, hitting the lower circuit.

One of the key factors that led to this sharp fall in its share price lies in its OFS. While the stock was trading at Rs 1,228 a share at the end of July 12, a day before the OFS began, the company launched its OFS at a floor price of Rs 1,000 a share, a discount of 18.6 per cent, resulting in public shareholders liquidating their positions.

The Patanjali Foods (PFL) promoter’s bid to reduce its holdings in the company is not without reason. At the end of the June quarter, the promoter and promoter group held 80.82 per cent in PFL, with Patanjali Ayurved holding 39.37 per cent, followed by Yogakshem Sansthan (16.57 per cent), Patanjali Parivahan (13.81 per cent) and Patanjali Gramudhyog Nayas (11.05 per cent). 

It is this shareholding pattern that prompted the management to dilute its stake. As per Securities and Exchange Board of India (SEBI) norms, companies need to bring down promoter shareholding in a listed entity to 75 per cent or lower within three years of listing on the BSE. In the case of PFL, the three-year timeframe had already been breached. As a result, the Sebi had frozen some 292.6 million PFL shares on March 16, resulting in a 5 per cent plunge in its stock price that day.

“We have received a communication from our promoters that they are fully committed to the mandatory compliance of achieving minimum public shareholding and they have been discussing various modes best suited for increasing the public shareholding. They are confident of achieving mandatory MPS within next few months,” the company had said at the time.

Ruchi Soya, the Nagpur-based beleaguered edible oil and soya chunk maker, was taken over by the Patanjali Group in 2019 following an insolvency proceeding. While it was a listed entity earlier as well, following the approval of Patanjali Group’s acquisition, the company’s public shareholding was brought down to 1.1 per cent. After the acquisition, Patanjali’s promoters rearranged some of its packaged food portfolio and renamed it Patanjali Foods Ltd in 2022.