If you are among those investors who got into Ruchi Soya as a small-cap stock, consider yourself lucky because even many market veterans, well-known for their incisive stock-picking abilities, failed to see its surprising bull run when it was relisted on January 27, 2020.
Shankar Sharma, vice-chairman and joint MD of First Global said in an interview with CNBC-TV18 that Ruchi Soya is giving him sleepless nights!
"Ruchi Soya is giving me sleepless nights. How could I miss it? Now I am talking about it with a deep sense of regret," Sharma said.
Perhaps many people share this regret.
Haridwar-based Patanjali group, which owns a 98.87 percent stake in Ruchi Soya, acquired the company in a corporate insolvency resolution for around Rs 4,500 crore in September 2019.
Also Read: Ruchi Soya resumes trading, share price locked in 5% upper circuit
In December 2017, the NCLT had referred Ruchi Soya for insolvency proceedings on the application of financial creditors Standard Chartered Bank and DBS Bank.
On January 27, 2020, the stock resumed trading at Rs 16.10 and closed at Rs 16.90 on BSE. On June 26, 2020, the stock closed at Rs 1,507.30 on BSE. In these five months, the stock has seen an astonishing rise of 8,819 percent.
While the coronavirus pandemic wreaked havoc, Ruchi Soya continued its upward march. It suffered losses on only 6 sessions since its relisting to June 26. The stock has emerged as the lockdown winner as it rallied 1,026 percent since March 24.
Ruchi Soya's market capitalisation (m-cap) on January 27 was Rs 499.97 crore and on June 26, it stood at Rs 44,592.11 crore. The company has entered into the list of top-100 most valued companies in terms of m-cap, overtaking the FMCG major Marico whose m-cap stood at Rs 44,495.88 crore.
The biggest reason behind the stock's rise is its intrinsic value.
Also Read: After a bout with NCLT, this stock has rallied over 1700% in 3 months
"If we talk about the profit growth of the company, it was 41.72 percent over the last 5 years, 27.49 percent over the last 3 years and 101.38 percent in the last 1 year. Ruchi Soya has a PE ratio of 10.99 which is low and comparatively undervalued. Ruchi Soya also has a low proportion of debt in its overall capital. Also, the operating profit has shown an increase over last the 3 financial years," said Gaurav Garg, Head of Research at CapitalVia Global Research - Investment Advisor.
On June 26, the company reported a standalone net loss of Rs 41.25 crore in the March quarter of FY20 against a net profit of Rs 32.11 crore during the corresponding quarter of the previous financial year.
The company's sales rose to Rs 3,190.96 crore in the March quarter against Rs 3,146.33 crore during the same quarter of the previous financial year.
Should you buy the stock?
Experts raise concerns that with a very low float of 0.97 percent, Ruchi Soya’s share price is not a reflection of its true value. It is only after the Patanjali group brings down its stake, the stock will reflect its true value.
Also Read: Ruchi Soya locked at lower circuit for 5th straight session after rising 4,058% in 74 days
As per current rules, the company will have to increase its public shareholding to 10 percent in 18 months and to 25 percent within a three-year period.
Rahul Sharma, Research Head- Equity99 is of the view that Ruchi Soya is one of those company which has a good hold on the base product line and great promoter background. However, he advises avoiding buying or selling the stock.
"If you are looking judgement over buying or selling, I would rather opt to avoid on both sides because public holding in Ruchi Soya is very much low at 0.97 percent and after the restructuring, the face value of the stock has also shifted to Rs 2," he said.
"There is no technical decision or fundamental analysis as the company is having no background post-restructuring. These figures or charts are just handsome in presence, not from inside. It is better to avoid," Sharma said.
Nitin Shahi- Executive Director, Findoc highlighted that Patanjali owns most of the equity of the company and the stock has been rallying in one direction for the last three to four months while the number of shares traded in the stock is very low.
"Investors needed to be cautious with these types of stocks and should avoid fresh positions in Ruchi Soya at these levels. Investors can also book profits at these levels or at least reduce their position to some extent," Shahi said.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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