Adani Wilmar Limited

About the company:

Adani Wilmar IPO

The IPO of Adani Wilmar Limited (AWL), a joint venture between the Adani Group and the Wilmar Group, is set to hit the market on January 27, 2022. The Rs. 3,600 crores IPO public offering comprises of fresh issue of new equity shares only. Post listing promoters would hold 87.92% of the equity stake.

Issue Details

Ø  Dates: January 27, 2022 to January 31, 2021

Ø  Price Band: Rs. 218 to Rs. 230 per share

Ø  Minimum Lot: 65 shares

Ø  Minimum Application Amount: Rs. 14,950

Objects of the Issue

Proceeds from the fresh issue are expected to be utilized towards:

Ø  Funding capital expenditure requirements to the tune of Rs. 1,900 crores

Ø  Repayment/pre-payment of borrowings availed up to Rs. 1,059 crores

Ø  Funding strategic acquisitions and investments worth Rs. 450 crores

Ø  The remainder for general corporate purposes

Company Overview

Incorporated in 1999 as a joint venture between the Adani and the Wilmar Group, AWL, is one of the largest FMCG food companies in India offering most of the essential kitchen commodities. The company’s product portfolio encompasses three major categories namely - edible oil, packaged food &  fast moving consumer goods (FMCG) and industry essentials.

As of March 31, 2021, the market share of their edible oil, through their flagship brand ‘Fortune’, was 18.3%, pegging it as the No. 1 edible oil brand in India. The edible oil portfolio includes soyabean oil, palm oil, sunflower oil, rice bran oil, mustard oil, groundnut oil, cottonseed oil, blended oil, vanaspati, specialty fats and a range of functional edible oil products. As of March 31, 2021, they were present in 1 out of 3 households in India with a household reach of 90.51 million through their Fortune brand.

AWL, one of the top 5 fastest growing packaged food company (based on 5-year revenue growth), offers a wide array of packaged foods, including packaged wheat flour, rice, pulses, besan, sugar, soya chunks and ready-to-cook khichdi. In 2021, AWL’s packaged wheat flour and basmati rice under the Fortune brand with a market share (by volume) of ~3.4% and ~6.6%, respectively, ranked second and third in India.

AWL offers a diverse range of industry essentials. It is one of the largest basic oleochemical manufacturers and exporters domestically in terms of revenue, and the largest manufacturer of stearic acid and glycerine in India with a market share of 32% and 23%, respectively. The company is also the largest exporter of castor oil in India as of March 31, 2020.

In recent years, AWL has placed a greater emphasis on value-added products in order to diversify revenue streams and generate high profit margins. Accordingly, the company launched value-added products including functional edible oil products such as rice bran health oil, fortified foods, ready-to-cook soya chunks & khichdi, and FMCG.

Manufacturing & Distribution Prowess

AWL currently has 22 plants strategically located across 10 states in India, which include 10 crushing units and 19 refineries. Its refinery in Mundra, Gujarat, is one of India's largest single-site refineries, with a designed capacity of 5,000 Metric Tonnes Per Day (MTPD).

As of September 30, 2021, the company boasted of a strong network of 5,590 distributors across India, catering to over 1.6 million retail outlets (~35% of retail outlets in India), 88 depots and 685 personnel in its sales and marketing team. In addition to traditional retail distribution channels, AWL also serves its customers offline and online through Fortune Mart (franchised physical stores), Fortune Online (online portal for all Fortune brands) and Fortune Foods (website). The company also empowers kiranas and small retailers with Fortune Business (B2B app) to provide business owners with one-stop access to a wide selection of its products. In the past, the company has been able to leverage its wide distribution network while foraying into different categories.

Financial Snapshot

^not annualized

AWL has a strong financial profile with revenue/EBITDA/net profit registering a 3-year CAGR growth of 13.5%/6.8%/39.2%. While EBITDA margin slid slightly, net profit margin and return on net worth (RONW) have risen steadily.

Despite the company’s continued capital expenditure, the fixed asset turnover has jumped to 9.31x in FY21 from 7.77x in FY20 indicating good operational efficiency. Further, gross debt as on September 30, 2021 stood at Rs. 1,944 crores while D/E ratio was reported at 0.34. A back of the envelope calculation reveals that the D/E ratio could drop further after IPO proceeds are utilized to partly repay debt which hints at a stronger balance sheet in the future. Additionally, lower interest costs could also help in improving the margins going forward.

Strengths

Ø  It is one of the leading consumer product companies in India with leadership in branded edible oil and packaged food business.

Ø  The shift of consumer preference to branded products coupled with favorable demographics result in an immense market potential for the company. 

Ø  Aided by a strong brand recall for its ‘Fortune’ brand, AWL is present in most of the packaged food categories. The brand structure using a single brand identity for multi-categories optimizes their marketing costs and enhances their brand equity.

Ø  AWL has a strong parentage and benefits from Adani Group’s in-depth understanding of the local markets, extensive experience in domestic trading and advanced logistics network in India. It also leverages the Wilmar Group’s global sourcing capabilities and technical know-how.

Ø  Wilmar International, AWL’s promoter group company, is the world’s largest palm oil supplier (Source: Technopak Report), providing AWL with a competitive edge since it does not need to rely on third party suppliers for sourcing of palm oil. The company also benefits from the market intelligence on price movements in the international market from Wilmar Group to manage its price risk associated with imports of raw materials.

However, the company does have a few risks:

Ø  Steady supply of raw materials (RM) is critical for the company’s operations, a significant portion of which is sourced internationally (~30% from Wilmar). The financial and operational performance could be hampered by unfavorable local and global weather patterns, insufficient supply leading to higher RM cost and lower margins.

Ø  As of September 30, 2021, 82.7% of revenue was derived from the edible oil portfolio. Any reduction in demand or in the production of such products, the inability to introduce new products and respond to changing consumer preferences in a timely and effective manner could have an adverse impact on business, operations and the financial condition.

Ø  The company operates in a competitive industry with low barriers to entry. Increased competition could lead to a loss of market share, propelling managers to undertake promotional activities. This may further put the already low margins under pressure.

Ø  Moderation in rural demand is a significant near-term headwind. However, the management expects a turnaround in this trend towards the end of FY22.

Peer Comparison (FY21)

Samco’s Stance

Adani Wilmar Limited has demonstrated a good financial and operational performance over the last three years. Driven by a strong brand recall and extensive dealer network, the company is one of the leading consumer product companies in India across different product offerings. With a P/E of 36.86x based on the annualized FY22 earnings, at the upper price band, the issue seems to be reasonably priced considering the industry average of 62.11x. Aided by shift in consumer preference to branded and packaged products, rising middle-class population and formalization of the economy, Adani Wilmar Limited has strong growth prospects over the long term. However, considering the current market conditions, this IPO may not generate bumper listing day gains. Thus, we recommend investors to ‘SUBSCRIBE FOR LONG-TERM’ to this IPO.