Should You Subscribe to Adani Wilmar IPO? | Adani Wilmar Limited IPO Detailed Analysis

One of the large few FMCG companies in India- Adani Wilmar Limited which is a seller of popular Edible Oil brand- ‘Fortune’ has come up with its Initial Public Offer (IPO) which opens on 27^th January 2022 and closes on 31^st January 2022. Is this IPO good for long-term investment and should you subscribe to this IPO or not. Know all about this IPO in detail in this article as we move ahead.

1) IPO Details:

• The IPO Window of Adani Wilmar is open between 27^th January 2022 to 31^st January 2022.
• The Issue Size of the IPO is Rs. 3,600 Cr. which is fully a fresh issue.
• The IPO is getting listed at both the stock exchange- Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
• The price band of the IPO is Rs. 218 to Rs. 230 per equity share.
• The Face Value is Rs. 1 per equity share.
• The Investor Quota of the IPO is as follows Qualified Institutional Buyers (QIB)- 50%, Non-Institutional Investors (NIIs)-15%, and Retail Investors- 35%.
• The IPO Lot consists of 65 shares in 1 lot and multiples thereof up to 13 Lots.
• The Allotment Date for Adani Wilmar IPO is 3^rd February 2022 and it will get listed on the Stock Exchange on 8^th February 2022.
• The objective of the Issue :
• Funding capital expenditure for expansion of existing manufacturing facilities and developing new manufacturing facilities- Rs. 1,900 Cr.
• Repayment/prepayment of borrowings- Rs. 1,059 Cr.
• Funding strategic acquisitions and investments- Rs. 450 Cr
• General Corporate Purposes- Rest of the proceeds i.e., Rs. 191 Cr.
• The stake of Promoter’s & Promoter’s Group in the company Pre-IPO was 100% which will go down to 87.92% post listing of the IPO.

2) About the Company:

• Adani Wilmar Limited (“AWL”) was incorporated on 22^nd January 1999. The company was promoted by Adani Enterprises Ltd (“AEL”), Adani Commodities LLP (“ACL”), and Lence Pte Ltd. (“LPL”). As a 50:50 joint venture between the Adani Group and the Wilmar Group., AWL benefits from its strong parentage. Wilmar Group, one of Asia’s leading agribusiness groups was ranked among the largest listed companies by market capitalization on the Singapore Exchange as of September 30, 2021.
• AWL is one of the few large FMCG food companies in India to offer most of the essential kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses, and sugar. AWL has also offered a wide array of packaged foods since 2013, including packaged wheat flour, rice, pulses, besan, sugar, soya chunks, and ready-to-cook khichdi. They also offer a diverse range of industry essentials, including oleochemicals, castor oil and its derivatives, and de-oiled cakes.
• About Wilmar: Wilmar International Limited, founded in 1991 and headquartered in Singapore, is today Asia’s leading agribusiness group. Wilmar is ranked amongst the largest listed companies by market capitalization on the Singapore Exchange. It is engaged in an agricultural commodity business, from cultivation and milling of palm oil and sugarcane to processing, branding, and distribution of a wide range of edible food products in the consumer, medium, and bulk packaging, animal feeds, and industrial agri-products such as oleochemicals and biodiesel. It has over 500 manufacturing plants and an extensive distribution network covering China, India, Indonesia, and some 50 other countries and regions. 
• As of September 30, 2021, they had 5,590 distributors located in 28 states and 8 union territories throughout India, catering to over 16 Lakh retail outlets. These retail outlets represent approximately 35 % of the retail outlets in India.
• The company’s portfolio of products spans 3 categories: (i) edible oil, (ii) packaged food and FMCG, and (iii) industry essentials. They have a presence across a wide array of sub-categories within each of these 3 categories.

Manufacturing Facilities:

• Currently, AWL has 22 plants that are strategically located across 10 states in India, comprising 10 crushing units and 19 refineries They have an aggregate designed capacity of approximately 8,525 MT per day and 16,285 MT per day, respectively.
• The company also leased 36 Tolling units.
• The company has a research and development team comprising 12 personnel in India as of September 30, 2021, at the centralized research and development center and application technology center, both in Hyderabad, Telangana.

Distribution Network:

• AWL has the largest distribution network among all branded edible oil companies in India with 5,590 distributors.
• The company is having 88 depots in India, with an aggregate storage space of approximately 18 Lakh square feet as of September 30, 2021.

Past- Acquisitions:

AWL had made some acquisitions in the past which are as follows:

i) Edible Oils:

• As of March 31, 2021, the Refined Oil in Consumer Packs (“ROCP”) market share of branded edible oil was 18.3%, AWL is having dominant No. 1 edible oil brand in India (Source: Nielsen Retail Index – MAT March 2021). “Fortune”, its flagship brand, is the largest selling edible oil brand in India. A significant majority of their sales pertain to branded products accounting for approximately 73% of their edible oil and food and FMCG sales volume for the financial year 2021.
• They offer 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 with distinctive health benefits.
• They also offer 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. They are one of the largest players in specialty fats and oils in India.
• Market Share of Adani Wilmar of its Branded Edible Oil Products and in the Edible Oil categories are as follows:

ii) Packaged Foods & FMCG:

• AWL also offers a wide array of packaged foods, including packaged wheat flour, rice, pulses, besan, sugar, soya chunks, and ready-to-cook khichdi. They are one of the fastest-growing packaged food companies in India, based on the growth in revenues during the last 5 years.
• In 2021, the market share of their packaged wheat flour and basmati rice under the Fortune brand was approximately 3.4% and 6.6% by volume, respectively, ranking 2^nd and 3^rd, respectively, in India.
• They also offer FMCGs, including soaps, hand wash, and sanitizers.
• Market Share of AWL across the packaged foods & FMCG categories are:

iii) Industry Essentials:

• AWL also offers a diverse range of industry essentials, including oleochemicals, castor oil and its derivatives, and deoiled cakes.
• They are one of the largest basic oleochemical manufacturers in India in terms of revenue, and the largest manufacturer of stearic acid and glycerin in India with a market share of 32% and 23%, respectively.
• They were the largest exporter of castor oil and one of the largest exporters of oleochemicals in India as of March 31, 2020. Adani Wilmar is the largest exporter of castor oil and derivative from India with a market share of 25-26% in overall castor oil exports with a strong presence in the international market through global operations.

3) Industry Overview:

Branded Edible Oils, Packaged Foods, and FMCG:

i) Packaged Food Retail Market:

• The Indian packaged food retail market, estimated at ~Rs. 6,00,000 Cr in FY 2020 contributes only 15% to the total food and grocery retail market estimated at Rs. 39,45,000 Cr in FY 2020.
• The Indian Food Retail is largely dominated by unbranded products, the packaged food market is growing at almost double the pace of the overall category and is expected to gain a market share of 17% by FY 2025 from a share of 14% in FY 2015.
• Annual per capita spend on all categories of packaged food in India is estimated to be ~Rs. 4,650, much lesser as compared to China at ~Rs. 16,000 and the USA at more than Rs. 1,12,500.

ii) Edible Oil Market:

• The edible oil retail market is estimated to be ~Rs. 1.8 Lakh Cr in FY 2020 and is expected to grow at a CAGR of 6% in the coming 5 years.
• The share of unbranded play is consistently dropping and is estimated to shrink to ~ 10% by FY 2025.

iii) Branded Edible Oil Market:

• Adani Wilmar and Ruchi Soya are a few of the largest suppliers of edible oil with outputs of 28 Lakh MT and 14 Lakh 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 2.2 Cr MT in India.
• Adani Wilmar is the largest player in branded refined soyabean oil having a market share of 28% followed by Ruchi Soya with a share of 11% by value.
• The branded mustard oil market is led by Adani Wilmar with a share of almost 10% and many other regional brands like Saloni and Bail Kolhu.

iv) Industry Essentials:

• India is the largest manufacturer and exporter of castor oil in the world and is responsible for 88% of total global exports.
• The castor oil production in India is estimated to grow at a CAGR of 7% in the coming 5 years.
• Oleochemicals are chemicals manufactured through the organic route by using vegetable oils and derivatives
• The three main product segments of the oleochemical industry i.e. fatty acids, fatty alcohols, and glycerol, have multiple industrial applications. 

Key Opportunities & Challenges in the Industry:

i) Key Opportunities:

• Demographic change is powering the transition from unbranded to branded products
• Gradual expansion of modern retail including e-commerce
• Formalization of Food Service Industry
• Government policies supporting food processing
• Consumers shifting towards packaged and branded products

ii) Key Challenges:

• Lack of integrated supply chain and infrastructure
• Lack of modern retail infrastructure
• Profitability continues to pose a challenge for mass categories.

4) Financials:

i) Revenue/EBITDA/EBITDA Margins/Net Profit:

• The Revenue of the company has grown at a CAGR rate of 13.5% between FY19-FY21 from Rs. 28,797.5 Cr. in FY19 to Rs. 37,090.4 Cr. in FY21. The revenue of the company in the first half of FY22 stands at Rs. 24,874.5 Cr.
• Meanwhile, the Earnings before Interest, Taxes, and Depreciation & Amortisation (EBITDA) of the company has grown at a CAGR rate of 6.8% between FY19 to FY21 from Rs. 1,253.5 Cr. in FY19 to Rs. 1,430.6 Cr. in FY21. The EBITDA in H1FY22 was Rs. 889.7 Cr.
• The EBITDA margin has remained at the lower single-digit level over the years. EBITDA margin in H1FY22 was 3.6%.
• The Net Profit or Profit After Tax (PAT) of the company has grown significantly at the CAGR of 39.9% between FY19 to FY21 from Rs. 375.5 Cr. in FY19 to Rs. 727.7 Cr. in FY21. Net Profit in H1FY22 was Rs. 357.1 Cr.

ii) Sales Mix:

• Adani Wilmar derives a large portion of its revenue from Domestic Sales. The company earned Rs. 23,169 Cr. from Domestic Sales in H1FY22, while Rs. 1,651 Cr. and 54.3 Cr. from Exports and Other Operating Income respectively.

iii) Ratios:

• Return on Capital Employed (ROCE) of the company as of FY21 is 11.1% while in the same period Return on Net Worth is 22.1%.
• The Debt to Equity ratio of the company has gone down over the years from 0.5 in FY19 and FY20 to 0.39 in FY21, and 0.34 in H1FY22.
• The Fixed Assets Turnover Ratio of the company has dropped significantly from 9.31 in FY21 to 5.53 in H1FY22.

iv) Sales Mix: Volume & Value-wise:

• The share of edible oil dominates the sales mix of the company in both terms- volume and value-wise, wherein FY21 the share of Edible Oil was 82.2% Value-wise and 64.8% in volume-wise.
• The packaged foods and FMCG products contribute very little to the sales mix of the company which stands at 5.1% in value terms and 10.5% in volume as of FY21.

5) Key Strengths & Risks:

i) Key Strengths:

a) Comprehensive B2C packaged consumer products portfolio catering to most daily essentials of an Indian kitchen.

b) Broad customer reach & Strong brand recall across a diverse range of price points:

• As of March 31, 2021, AWL was present in one out of three households in India with a household reach of 9.05 Cr. through the Fortune brand.

c) Leading consumer product company in India with leadership in branded edible oil and packaged food business.

d) Market leading position in industry essentials:

• AWL is among the five largest basic oleochemical manufacturers in India in terms of revenue as of March 31. 2020, and the largest manufacturer of stearic acid and glycerin in India with a market share of 32% and 23%, respectively.

e) Strong raw material sourcing capabilities.

ii) Key Risks:

a) Higher dependency on supply of large amounts of raw materials, such as unrefined palm oil, soyabean oil, sunflower oil, wheat, paddy, and oilseeds.

• Unfavorable local and global weather patterns may hurt the availability of raw materials.
• The company also does not have any long-term agreements with the RM Supplier.

b) Significant dependence on imports of raw materials/finished goods in addition to domestic supplies.

c) Certain companies within the Adani group (including certain members of Promoters, Promoter Group, and Group Companies) are involved in various legal, regulatory, and other proceedings which could harm the business and reputation.

d) Significant dependence on the Edible Oil business- 82.3% of Revenue came from the Edible Oil business segment in FY21.

e) Highly competitive space, major competition from Ruchi Soya, Cargil, etc.

f) One-Brand Company- Fortune

g) Low-Profit Margins

h) Flat export sales in the last 3 years.

6) Valuations:

• At the upper price band of Rs. 230 the PE of Adani Wilmar hovers around 36.10 which is available at discount compared to its peers like HUL, Britannia, Tata Consumer, etc.
• The expected market cap of the IPO at the time of listing is around Rs. 29,000 Cr.

What Should Investors Do?

The Retail Quota of the IPO has been almost fully subscribed on the first day itself showcasing a positive response to the IPO. As from business, financials, and industry prospects, the IPO looks good, but there could be some questions on governance. Currently, the Grey Market Premium (GMP) of this IPO is hovering at around Rs. 40 per share and hence a decent listing gain is possible. Do follow due diligence before making any investment decisions.