Investing in Ruchi Soya Shares: Is It Worth the Risk?

Introduction

Investing in the stock market can be both exciting and challenging. For investors looking to enter the edible oil sector, one company that has garnered significant attention is Ruchi Soya. However, potential investors should be aware of the complexities and challenges faced by Ruchi Soya. In this article, we will explore the factors that should inform your decision on whether to invest in Ruchi Soya shares.

Ruchi Soya's Current Situation

Ruchi Soya is a well-known name in the edible oil market, with a significant presence in India. On 27th January 2020, it was acquired by Patanjali Ayurved, a unit of the Acharya Balkrishna group. This acquisition marks a significant change for the company, as Patanjali is known for manufacturing high-quality, unadulterated products at competitive prices. This move indicates that Ruchi Soya's machinery will be used to produce more soya oil, aligning with Patanjali's business model.

Risks and Challenges

Investing in Ruchi Soya shares comes with several risks and challenges that potential investors must consider:

NPA and Debt Settlement

The company is currently a Non-Performing Asset (NPA) in the NCLT (National Company Law Tribunal). This means that the outstanding debt needs to be settled. When Patanjali takes over, it will inherit Ruchi Soya's debt and other liabilities. This could lead to financial instability and affect the company's financial performance in the short term.

Management and Culture Shift

With the acquisition, Ruchi Soya will be under new management. It is likely that the working style and company culture will change to align with Patanjali's model. While the name remains the same, the operation and leadership may drastically change, which could influence shareholder value.

Market Position

Ruchi Soya has been re-listed on the BSE and NSE on or around 20th January 2020. This re-listing signifies the company's viability and potential for growth. However, it's important to note that the market can be volatile, and further corrections are expected. It is crucial to wait for market corrections before making any fresh buys.

Tips for Investing in Ruchi Soya Shares

Given the uncertainties and risks associated with Ruchi Soya, here are some tips for investors:

Initial Investment Strategy

Instead of investing a large sum initially, consider investing a small portion to start with. Allocate 30% of your intended investment initially. Wait until the company declares its first annual report or performance over four quarters. After that, you can evaluate the results and decide on further investment.

Long-term Strategy

For the remaining 70% of your investment, keep it on hold until Ruchi Soya becomes a mid-cap company. This phased investment approach allows you to assess the company's performance over time without taking on undue risk.

Conclusion

Investing in Ruchi Soya shares is not without its risks. However, with the right approach and careful consideration, it can offer potential rewards. Always conduct thorough research and make informed decisions based on your own financial situation and investment goals.

Disclosure: The author has passed the NISM Investment Advisor Level I II and NISM Research Analyst Examination.