Riddhi Siddhi shareholders in the dark on sale of starch biz to French firm   

January 21, 2011

The market leader says it plans to transfer its units to a subsidiary in which Roquette Freres will be the majority stakeholder

When, or rather, why does a winner quit? Shareholders of starch and starch derivatives giant Riddhi Siddhi Gluco Biols Limited are pondering over this question.

Riddhi Siddhi, the market leader in India and the largest exporter of starch and starch derivatives, has decided to transfer all its units to a subsidiary in which French company Roquette Freres will be the majority stakeholder.

But what prompted the company to take this decision so suddenly? The shareholders don't have a clue. They are not happy about it, and have accused the company of cheating them.

Indian Air Force group captain, MP Surange, who has a minority stake in Riddhi Siddhi, said, "The promoters of the company are in the process of selling the assets to a French company in a manner that the entire proceeds will flow into the corpus of the promoters, with very little or no benefit to the minority holders."

Some days ago, Ganpatraj Chowdhary, managing director, Riddhi Siddhi said in a television interview, "Among all the manufacturing units of Riddhi Siddhi, three of them will be tasked to the subsidiary company. Roquette will take a majority stake in this subsidiary company. The enterprise value is estimated approximately at Rs 1,250 crore." Roquette Freres, which already has a 14.96% stake in the company, will initially have the majority stake, and may then move up to a 100% stake. Mr Chowdhary said the deal would take around six to nine months to be completed.

While the management is glowing, shareholders are puzzled by the lack of communication from the company on this decision. The Riddhi Siddhi stock, which was trading at about Rs500 levels end-October has dropped to Rs350 levels now in just two months and this is giving minority shareholders sleepless nights. Now, no one knows how the valuation money will be distributed among the stakeholders.

According to a financial analyst with a reputed firm, "The move will definitely affect shareholders adversely. If there is no communication from the promoters and no indication on how the money will be distributed, there is room for confusion and suspicion. This, in turn, will affect the goodwill of the company."

Many shareholders don't understand the rationale for giving up a very profitable business. That too, when the company is the market leader with a more than 35% market share. Mr Chowdhary claimed on television, "We are confident of receiving Rs1,000 crore turnover for the current year, with the EBITDA margin of 20%. We are expecting EBITDA for the current year to be around Rs200 crore-plus."

Generally, companies that sell a majority stake in the unit use the funds for new ventures. What has Riddhi Siddhi planned? The management was not available for an answer.

Earlier last year, Dutch paints and chemicals manufacturer AkzoNobel sold its National Starch arm to American Corn Products International (CPI). Now with Roquette Freres' making a move on Riddhi Siddhi, other companies may follow.

Even experts, who are optimistic on the sector following the entry of foreign MNCs, agree that selling off a profitable business is baffling. Will Riddhi Siddhi sort out the matter with stakeholders in the coming six months? Looks unlikely.— Shukti Sarma