Adani Wilmar IPO: What makes this FMCG issue a 'subscribe' candidate; check analyst, brokerage views

Adani Wilmar Ltd IPO: The three-day initial public offering of Adani Wilmar Ltd (AWL), a joint venture between Adani Group, will open for subscription on Thursday, January 27 and conclude on Monday, January 31.  Incorporated in 1999, the company boasts of selling India's largest edible oil brand in India—Fortune. 

Most of the analysts are bullish on this FMCG play, belonging to growth-oriented underpenetrated FMCG segment.  

During the period FY15-20, AWL was among the top five fastest growing packaged food companies in India by revenue.  

AWL segments 

The 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.  
Company’s portfolio of products spans across 3 categories, namely: (i) edible oil, (ii) packaged food and FMCG, and (iii) industry essentials.  

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They have presence across a wide array of sub-categories within each of these 3 categories. 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.  

Should investors' subscribe? 

"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 AWL’s historical top-line & bottom-line CAGR of ~13% and ~39% respectively over FY19-21. Further, Adani Wilmar has strong brand recall, wide distribution, better financial track record and healthy ROE. Considering all the positive factors, we believe this valuation is at reasonable levels. Thus, we recommend a subscribe rating on the issue," said Amarjeet Maurya - AVP - Mid Caps, Angel One Ltd.  

Earlier, Brokerage firm Ventura has assigned subscribe rating to this IPO. It has also predicted that price of this FMCG to be listed share may double in a year.  
"We initiate with a Subscribe for long term with a 24-month price target of Rs 468.8 per share (48.6X FY24 earnings) representing an upside potential of 103.8% from the issue price upper band at INR 230/share," it had said.  

Financials & growth  
Due to rapid scale up of the FMCG and Packaged Food business and shift to value added products, the company EBITDA margin is set to expand by 0.7 bps to 4.2%. EBITDA is expected to grow at 23.4% CAGR to INR 2,491 crore, said Ventura, adding that PAT mal also see a growth at a CAGR of 19.9% to Rs 1,253 crore with 20 bps margin expansion to 2.1%.
"With strong cash flow generation and repayment of loans through IPO proceeds, we expect the company to be net debt free by FY22," it added.  

Bull vs Bear case scenarios
Based on AWL’s FY24 Sales CAGR, net profit margins and P/E valuation, ventura created a Bull vs Bear scenario. In Bull case scenario, the brokerage sees a target of Rs 616.5 per share (an upside of 168% from the upper band IPO price of Rs 230 per share in the same time frame.

In Bear case, Ventura sees a price target of INR 313.0 per share, an upside of 36% from the upper band IPO price of Rs 230 per share.
IPO other details

The bidding for anchor investors will start on January 25 for the Rs 3,600-crore initial share sale.  

Earlier, Adani Wilmar has cut the size of its initial share sale to Rs 3,600 crore from the Rs 4,500 crore planned earlier.      

The issue comprises fresh issue of new equity shares of face value of Rs 1 for an amount of up to Rs 3,600 crore, the filing said.