Adani Wilmar IPO opens on January 27: Should you subscribe? Analysts list out positives and negatives

With Adani Wilmar is all set to launch its Initial Public Offering on January 27, 2022, most of the brokerage houses and analysts give a Subscribe rating for the initial share-sale of one of the fastest-growing packaged food companies in India. 

The company aims to raise Rs 3,600 crore through fresh issues of shares during a three-day period between January 27-31, 2022, and the price band is set around Rs 218-230 per share.  

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Incorporated in 1999 as a joint venture between Adani Group and the Wilmar Group, Adani Wilmar Ltd (AWL) is an FMCG food company offering most of the essential kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses, and sugar. 

The company’s edible oil Fortune brand is its flagship product and has also been expanding to other home essentials categories, the majority of the analysts believe. 

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Positive: The company has a diversified product portfolio with leading brands catering to most daily essentials of an Indian kitchen, it has a strong brand recall and broad customer reach. Adani Wilmar has a strong manufacturing capacity with 22 manufacturing units in India and has largest distribution network among all branded edible oil companies in India with 5,590 distributors. 

Concerns: Volatility in raw material prices and an increase in competition could impact the profitability of the company. 

Outlook & Valuation: In terms of valuations, the post-issue TTM P/E works out to 37.6x (at the upper end of the issue price band), which is reasonable considering the company’s historical top-line & bottom-line CAGR of around 13 and 39 per cent respectively over FY19-21. Further, Adani Wilmar has a strong brand recall, wide distribution, a better financial track record and a healthy Return on Equity. 

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Positives: The company’s product portfolio spans three categories: edible oil, packaged food & FMCG, and industry essentials. A significant majority of the company’s sales pertain to branded products accounting for around 73 per cent of the edible oil and food and FMCG sales volume FY 2021. 

Valuations: Considering the TTM (September 2021) EPS (earnings per share) of Rs.6.12 on a post-issue basis, the company is going to list at a P/E of 37.56x with a market cap of Rs.298,986 million whereas its peers namely Nestle and Britannia Industries are trading at PE of 81.6x and 54.7x. 

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Positives: Leading consumer product company in India with leadership in branded edible oil and packaged food business; market-leading position in industry essentials; strong raw material sourcing capabilities; integrated business model with well-established operational infrastructure and strong manufacturing capabilities; extensive pan-India distribution network 

Risk & Concerns: Unfavorable government policies and regulations; difficulty in expanding the Food and FMCG business; sustained general inflationary environment; fluctuations in key commodity prices; unfavorable sales-mix and forex rates. 

Valuations: The company is demanding a P/E multiple of 37.5x at a higher price band of Rs 230 apiece, (to its TTM earning of Rs. 6.1), which is at discount to the peer average of 57.6x. Its edible oil business may have a secular growth trend, but a huge untapped market for the food & FMCG business segment.  

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Positives: The company is currently one of the top 5 fastest growing packaged food companies in India, based on the revenue growth over the last five years, and launched its FMCG segment with soaps, hand wash and sanitizers, effectively reducing dependence on a single product category. 

From FY19 to FY21, Adani Wilmar’s distribution network has grown 33 per cent and it had 5,590 distributors located in 28 states and 8 union territories, catering to over 1.6 million retail outlets As of the first half of FY22 (approximately 35 per cent of the retail outlets in India). 

Key Risks: Significant dependence on imports leaves procurement costs at the mercy of external factors like import restrictions and policy changes in the exporting country, fluctuations in exchange rate among others. Shortages of certain manufacturing inputs could adversely affect operations. 

Valuation and Outlook: The company is valued at a P/E multiple of 36x at the upper price band of Rs 230 apiece, based on its FY21 EPS share of Rs 6. The company has cemented its market leadership in the edible oil industry in India and has consistently been churning profits since FY19.