SEBI sends Ruchi Soya a message

any publicity is good publicity. at least that is how it appears to be working out Ruchi Soya, which has run into some unusual complications with its Rs 4,300 crore Follow-on Public Offering (FPO). on March 29, a day after the FPO ended, Ruchi Soya’s stock price hit the upper circuit of a 20% jump despite those troubles.

what is the issue and how will it impact the stock in the big picture?

successful FPO

he FPO which launched on March 24 received applications for 3.6 times the number of shares that were on offer. it wasn’t overly surprising either, given that the upper end of the price band was Rs 650/share while the listed stock traded at around Rs 870/share at the time. the surprise came on the final day of the offering when SEBI, looking into unsolicited messages for the offer that were sent out en masse, made an unusual order. it asked Ruchi Soya to allow applicants to withdraw their bids until March 30.

market reacts

the order made a small dent in the overall subscription figures, and even saw the stock price drop to just below Rs 800/share in trading on the day. but once Ruchi Soya clarified, on March 29, that the unsolicited messages weren’t sent out by it and filed a complaint regarding the matter, the stock rebounded to around Rs 978/share. this makes it less likely that applicants will withdraw their bids, given that the price represents a straight 50% jump on the issue price.

it is important to remember here that the FPO was driven by the regulatory need to reduce promoter holdings in the company from >98% prior to the issue to 75% or lower soon. the company’s financials are reasonably well aligned and it has been one of the biggest outperformers on the stock market over the past couple of years. from around Rs 20/share in February 2020 to nearly 50x that price now. the current price bump may however be driven purely by the headlines surrounding the FPO. in that case it might be wise to wait for the stock price to retrace in order to buy in.