Adani Wilmar IPO Fundamental Analysis (May Apply)

Key Business Highlights

Adani Wilmar is a FMCG food company in India which offers essential kitchen commodities consumers, including edible oil, wheat flour, rice, pulses and sugar. We offer a range of staples such as wheat flour, rice, pulses and sugar. The products are offered under a diverse range of brands across a broad price spectrum and cater to different customer groups. Edible oils contribute 65% of sales volume, food and FMCG contribute 11% and 25% is contributed by industry essentials.
The Issuer is a joint venture incorporated in 1999 between the Adani Group, which is a multinational diversified business group with significant interests across transport and logistics, and energy and utility sectors, and the Wilmar Group; Asia’s leading agribusiness groups which were ranked among the largest listed companies by market capitalization on the Singapore Exchange as of June 30, 2021.
The joint venture benefits from the Adani Group’s in-depth understanding of local markets, extensive experience in domestic trading and advanced logistics network in India, and leverage on the Wilmar Group’s global sourcing capabilities and technical know-how.
Key Business Categories
1. Edible Oil
  The company offers a comprehensive portfolio of edible oil products, including 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. Fortune, the Issuer’s flagship brand, is the largest selling edible oil brand in India. As of March 31, 2021, the ROCP (refined oil in consumer packs) market share of branded edible oil was 18.30%. Products also include various specialty fats, including (i) industrial margarine, bakery shortening and vanaspati, (ii) lauric fats as substitutes for milk fat and cocoa butter substitutes, and (iii) bulk packaging of frying oil.
2. Packaged Food and FMCG
  The Issuer’s product portfolio comprises of a wide array of packaged foods, including packaged wheat flour, rice, pulses, besan, sugar, soya chunks and ready-to-cook khichdi. The Issuer is one of the fastest growing packaged food companies in India, based on the growth in revenues during the last five years. In 2021, the market share of packaged wheat flour and basmati rice under the Fortune brand was approximately 3.4% and 6.6% by volume. The Issuer also offers FMCGs, including soaps, hand wash and sanitizers. The revenue generated from sales of soap increased by 175.60% from 15.97 crore for FY 20 to Rs 44.01 crore for FY21.
3. Industry Essentials
  Industry essentials include oleochemicals, castor oil and its derivatives and de-oiled cakes. The company is one of the largest basic oleochemical manufacturers in India in terms of revenue, and the largest manufacturer of stearic acid and glycerine in India with a market share of 32% and 23%, respectively as per the RHP.
A significant majority of sales pertain to branded products accounting for approximately 73% being contributed by edible oil and food and FMCG sales volume for FY21 (excluding industry essentials which were offered on a non-branded basis).
The company has 22 plants strategically located across 10 states in India, comprising 10 crushing units and 18 refineries. Out of the 18 refineries, ten are port-based to facilitate use of imported crude edible oil and reduce transportation costs, while the remaining are typically located in the hinterland in proximity to raw material production bases to reduce storage costs. Refinery in Mundra is one of the largest single location refineries in India with a designed capacity of 5,000 MT per day. Additionally as of March 31, 2021 the company also used 28 leased tolling units which provided additional manufacturing capacities. Thus the Issuer intends to continue to have an asset-light business model.
Adani Wilmar has the largest distribution network among all the branded edible oil companies in India. As of March 31, 2021, the company’s Fortune brand is present in one out of three households in India with a household reach of 90.51 million. As of March 31, 2021, the Issuer had 5,566 distributors; the company is located in 28 states and eight union territories throughout India, catering to over 1.6 million retail outlets. These retail outlets represent approximately 35 % of the retail outlets in India.
As of March 31, 2021, the company had (i) 85 depots, with an aggregate storage space of approximately 1.6 million square feet across the country to ensure availability of our products; and (ii) 619 personnel in our sales and marketing team. In addition to traditional retail distribution channels, products are offered online through Fortune Mart and Fortune Online and provide them with ease of ordering our products from home.

Financial Review of Adani Wilmar

The revenues for 6MFY22 increased by 53% to Rs 24957.29 crore as against 6MFY21 and it was attributable to increase in unit selling price of the products. Total revenues for FY21 increased by 25% in FY21 to Rs 37195.66 crore from Rs 29766.99 crore for FY20. The increase was primarily driven by rise in the unit selling price however sales volume grew by only 4% for FY21. (Sales volume rose to 4484175 MT from 4311492 MT). PAT increased to Rs 727.65 crore as against Rs 460.87 crore due to decrease in tax expenses.

The revenues for FY20 increased by 2.93% to Rs 29766.99 crore from Rs 28919.68 crore with increase in sales volume of edible oil. EBITDA and the net margins have remained constant being 3-4% and 1-2% respectively throughout the last three fiscals. The margins are very limited in this type of business.

Debt to equity is 0.68x as at the end of 6MFY22 which is slightly higher. Return on net worth is 9.78%, 22.06%, 17.93% and 17.79% for 6MFY22, FY21, FY20 and FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	6MFY22	FY2021	FY2020	FY2019
Total Revenue	24957.29	37195.66	29766.99	28919.68
Other Income	82.77	105.24	109.95	122.22
PAT	357.13	727.65	460.87	375.52
EBITDA	889.66	1430.56	1419.47	1253.45
Total Assets	17923.71	13326.64	11785.92	11602.87
Cash generated from operations	1022.65	926.07	781.30	1693.04
EBITDA Margin	3.56%	3.85%	4.77%	4.33%
Net Margin	1.43%	1.96%	1.55%	1.30%

Valuation and Peer Comparison

The IPO is priced at 36.86x at annualised EPS of 6.24 as at the end of 6MFY22 calculated at the upper band price of Rs 230 per share. P/BV is 7.20x with NAV of 31.95 per share as at the end of 6MFY22. The average peer P/E is 66.31x which indicates that the Issue is attractively priced. HUL, Britannia, Tata Consumer, Dabur India, Marico, Nestle are shown as the peers of the Issuer and one can refer to key peer comparison features below.

Table 2 - Adani Willmer valuation and peers comparison
Particulars	HUL	Britannia	Tata Consumer	Dabar India	Marico	Nestle	Adani Wilmar
Total Income for FY 21 (Cr)	47028	13136.10	11602	9561.7	8048	13350	37195.7
EPS(21st jan 2022)	35.76	66.17	7.87	10.25	9.22	232.48	6.37
NAV per share	202.99	148.8	169.57	43.57	25.23	209.44	28.86
Return on net worth	16.80%	51.60%	6.00%	22.00%	36.80%	103.10%	22.06%
P/E(21st jan 2022)	65.03	54.68	73.3	63.49	51.83	81.62	NA
P/B(21st jan 2022)	11.46	34.51	4.3	12.67	19.13	90.6	NA
Share Price	2325.4	3618.3	726.55	551.55	477.85	18974.3	NA

The Issue Snapshot

Adani Wilmar IPO opens on 27^th Jan 2022 with an IPO size of Rs 3600 crore (100% fresh Issue) with price band of Rs 218-230 per share. The issue consist of shareholders quota and employee reservation of Rs 107 crore. Retail quota is 35% and minimum application amount is Rs 14,950. The Issue closes on 31^st Jan and is expected to list on Feb 8, 2022. The net proceeds would be utilised towards:

Capital expenditure – Rs 1900 crore

Repayment of borrowings- Rs 1058.90 crore

Funding acquisitions and investments- Rs 450 crore

Sector Outlook

The demand for packaged food in India is growing rapidly increasing with urbanisation, rising middle class and the pandemic has further accelerated the growth in packaged food categories. The spend on the essential kitchen commodities accounts for 23% of the total spend on food and grocery estimated to be INR 39,45,000 Cr thereby presenting an opportunity size of Rs 9,00,000 Cr for any player in the essential kitchen commodity segments.

The key brands in the packaged and branded edible oil segment are Ruchi Soya, Emami Agrotech, Cargill, Marico, Bunge and Gemini. Adani Wilmar and Ruchi Soya are few of the largest suppliers of edible oil with outputs of 2.8mn MT and 1.4mn MT respectively in FY 2020. Adani Wilmar contributed a share of 12% and Ruchi Soya contributed a share of 6% in the total oil consumption of 22 Mn MT in India.

Conclusion and Investment Strategy

Adani Wilmar has a comprehensive product portfolio across oil types catering to various price points. It has the widest array of oils products in their portfolio with Fortune as its well known brand. The Issuer has a sustained market leadership position in edible oil and is expanding its share in packaged foods and other industry essentials segment.

The Issuer has a reasonable financial profile, though its margins look reasonable at this time but its profitability would be strong as it continues to expand in other categories with its pan India distribution network and well established operational infrastructure. Further, the company plans to grow through enhancing customer base and strategic acquisitions as highlighted in its objects of offer. Peer competition exists from both the organised players like Ruchi soya, Gemini, Dhara and other unorganised players. Hence looking at all these factors one may subscribe to the IPO.

Reviewer recommends May Apply to the issue.

Review By CA Priyanka Choudhary on 17th Oct 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.