Singapore-parent’s market discounting makes the valuation of Indian subsidiary too costly to justify.
|
ADANI WILMAR OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 3,600 Cr |
| Fresh Issue | Rs 3,600 Cr (15,65,21,739 equity shares) |
| Offer for Sale | Nil |
| Face Value | Re 1 |
| Price Band | Rs 218 – 230 |
| Min Quantity | 65 Nos. |
| Implied M-Cap | Rs 29,887 Cr |
| Equity Cap | Rs 129 Cr |
| Free Float | 12.05% |
| Lead Manager | Kotak Mahindra Cap, J.P. Morgan India, BofA Sec, Credit Suisse Sec, ICICI Sec, HDFC Bank and BNP Paribas |
| Registrar | Link Intime |
| Listing | BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
| Opening :27-Jan-2022 | Closing :31-Jan-2022 |
| Allotment : 3-Feb-2022 | Refunding :4-Feb-2022 |
| Demat Credit :7-Feb-2022 | Trading :8-Feb-2022 |
The Offer
The Ahmedabad-based Adani Wilmar Ltd (AWL), owners of the popular FMCG brand Fortune, is entering the capital market with a fresh issue of Rs 3,600 Cr IPO (translating into 1,565.21 lakh equity shares at the upper price band). The IPO is being made through the book-building route with a price band of Rs 218-230 for Re 1 paid-up share.
Applicants for the IPO should bid for a minimum lot of 65 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on February 8, 2022. Kotak Mahindra Capital, J.P. Morgan India, BofA Securities, Credit Suisse Securities, ICICI Securities, HDFC Bank and BNP Paribas have been roped in as the lead managers to the offer. Link Intime is acting as registrar to the issue. The bidding opens on Thursday, January 27 and closes on Monday, January 31, 2022.
The company proposes to utilize the net proceeds of the fresh issue towards 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) and general corporate purposes.
Lineage
The 1999-incorporated AWL is a joint venture between the Ahmedabad-based Adani Group and the Singapore-listed Wilmar International. The Adani group has been in the public domain since 1994. From a Super Star Trading House in early 90’s, the group has now grown into a diversified business conglomerate with significant interests in transport & logistics, energy and utility sectors.
Wilmar International Ltd, founded in 1991, is Asia’s leading agribusiness group. Wilmar ranks amongst the largest listed companies by market capitalization on the Singapore Exchange. Wilmar has adapted an integrated agribusiness model that encompasses the entire value chain of the 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 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.
AWL’s first project, the oil refinery in Mundra in the state of Gujarat, commenced operation in 2000 with a designed capacity of 600 MT per day which was expanded by another 1,000 MT per day in 2002. AWL’s refinery in Mundra is claimed to be the largest single location refinery in India with a designed capacity of 5,000 MT per day. In addition, as of September 30, 2021, the company had 36 tolling units across India to cater to the excess demand and ensure their presence across different parts of the country. The company’s flagship brand “Fortune” was launched in fiscal 2001. Fortune has reportedly become the largest selling edible oil brand in India today.
AWL forayed into food products in fiscal 2013 by introducing besan packets. It started offering pulses and soya chunks in fiscal 2014, rice in fiscal 2015 and wheat flour in fiscal 2018. The company started offering personal hygiene products in the year 2020.
Key Management
Co-founder, Chairman and Chief Executive Officer of Wilmar International, Kuok Khoon Hong (72), is designated as the Non-Executive Chairman of AWL. Holding a bachelor’s degree in business administration from the University of Singapore, he has over 40 years of experience in the agribusiness industry. Angshu Mallick (60), who holds a bachelor’s degree in dairy technology from Dairy Science College, National Dairy Research Institute, Karnal and a post graduate diploma in rural management from Institute of Rural Management, Anand, is the Chief Executive Officer and Managing Director of AWL. He has over 35 years of experience in marketing and sales in the food industry. Previously, he was working with Gujarat Co-operative Milk Marketing Federation Ltd as Manager, Marketing and Distribution. He has been working with AWL since March 1999 and was inducted into AWL’s board with effect from April 1, 2021.
Stakeholders
The offer document presents Adani Enterprises Ltd (AEL), Adani Commodities LLP (ACL) and Lence Pte Ltd (LPL) as promoters of AWL. Adani group’s flagship, AEL, originally incorporated in March 1993 as Adani Exports Ltd, went public in September 1994. Starting as a Super Star Trading House, AEL has, over a period of time, diversified into several businesses namely power, transport and logistics, defence and aerospace and infrastructure. Though presented as a promoter, AEL does not directly hold any share in AWL. ACL acquired 50% of AWL’s equity from AEL on March 30, 2017.
ACL, a limited liability partnership incorporated in March 2017, is reportedly “engaged in the business of manufacturing, trading, dealing, exports of all kinds of articles, goods, commodities, merchandise for domestic, commercial, industrial, agriculture and defence purpose/use in India or elsewhere”. The partners of ACL are AEL and Adani Infrastructure Private Ltd. The remaining 50% of AWL’s equity is held by LPL which was incorporated on October 1, 2004 in Singapore. LPL is engaged in the activities of an investment holding company and trading in edible oils and palm-related products. Wilmar International Ltd holds 100% of the share capital of LPL. Post IPO, ACL and LPL will hold 43.98% each in the enlarged capital of Rs 130 Cr. Public will hold only 12.05%.
Business
AWL is one of the few large FMCG food companies in India to offer most of the primary kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses and sugar. AWL’s products are offered under a diverse range of brands across a broad price spectrum and cater to different customer groups.
AWL’s portfolio of products spans across three categories: (i) edible oil, (ii) packaged food and FMCG, and (iii) industry essentials. A significant portion of its sales pertain to branded products accounting for approximately 73% of edible oil and food and FMCG sales volume for the financial year 2021. As of March 31, 2021, the Refined Oil in Consumer Packs (ROCP) market share of AWL’s branded edible oil was of 18.3%, placing Fortune as the dominant No. 1 edible oil brand in India. The company has also leveraged its brands and distribution network to offer a wide array of packaged foods since 2013, including packaged wheat flour, rice, pulses, besan, sugar, soya chunks and ready-to-cook khichdi.
AWL is among the top 5 fastest growing packaged food companies in India, based on the growth in revenues during the last five years. It also offers a diverse range of industry essentials, including oleo chemicals, castor oil and its derivatives and de-oiled cakes. In recent years, the company has been placing an increasing focus on value-added products, with an aim to diversify its revenue streams and generate high profit margins. The value-added products launched in recent years include functional edible oil products, such as rice bran health oil, fortified foods, ready-to-cook soya chunks and khichdi, and FMCG.
The company’s strong raw material sourcing capabilities are supported by its market standing and extensive business networks. AWL was India’s largest importer of crude edible oil as of March 31, 2021 which provided the company with bargaining power to source better quality raw materials on favorable commercial terms. It also benefits from the support of the Wilmar Group for market intelligence and raw material sourcing, as well as our long-standing relationships with the international suppliers.
As of the date of the Red Herring Prospectus, AWL had 22 plants in India which are strategically located across 10 states, comprising 10 crushing units and 19 refineries. Out of the 19 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.
Most of AWL’s crushing units are fully integrated with refineries to refine crude oil it produces in-house. The company further derives de-oiled cakes from crushing and use palm stearin derived from palm oil refining to manufacture oleo chemical products, such as soap noodles, stearic acid and glycerin, and FMCG, such as soaps and hand wash. Such integrated manufacturing infrastructure has enabled the company to share supply chain, storage facilities, distribution network and experienced manpower among different products and reduce the overall costs for processing and logistics.
AWL claims to have the largest distribution network among all the branded edible oil companies in India. As of March 31, 2021, AWL was reportedly present in one out of three households in India with a household reach of 90.51 million through its Fortune brand. As of September 30, 2021, it had 5,590 distributors in India located in 28 states and eight union territories, catering to over 1.6 million retail outlets. These retail outlets represent approximately 35% of the retail outlets in India. As of September 30, 2021, it also had 88 depots, with an aggregate storage space of approximately 1.8 million square feet across the country to ensure availability of its products. In addition to traditional retail distribution channels, AWL also serves its customers offline and online through Fortune Mart and Fortune Online and provide them with ease of ordering products from home.
AWL also offers a diverse range of industry essentials, including oleo chemicals, castor oil and its derivatives and de-oiled cakes. It was among the five largest basic oleo chemical manufacturers in India in terms of revenue as of March 31, 2020, and the largest manufacturer of stearic acid and glycerine in India with a market share of 32% and 23%, respectively. AWL was the largest exporter of castor oil and among the three largest exporters of oleo chemicals in India as of March 31, 2020.
Financial Track
AWL top line has zoomed from Rs 28,797 Cr in fiscal 2019 to over Rs 37,000 Cr in fiscal 2021. In the first six months of fiscal 2022, the company has logged close to Rs 25,000 Cr. Nonetheless, the EBIDTA margin has been contracting. The margin which was at 5% in March 2020 declined to 4.8% in September 2020. It dipped to 4% in March 2021 and slid further to 3.7% in September 2021.
|
Adani Wilmar Consolidated Financials (in Cr) |
|||||
| Period Ended |
Sep-21 |
Mar-21 | Sep-20 | Mar-20 |
Mar-19 |
| Months |
6 |
12 | 6 | 12 |
12 |
| Revenue |
24875 |
37090 | 16189 | 29657 |
28797 |
| Operating Profit |
807 |
1325 | 658 | 1310 |
1131 |
| OPM% |
3.2 |
3.6 | 4.1 | 4.4 |
3.9 |
| Other Income |
83 |
105 | 85 | 110 |
122 |
| EBIDTA |
912 |
1505 | 785 | 1477 |
1274 |
| EBIDTA % |
3.7 |
4.0 | 4.8 | 5.0 |
4.4 |
| Interest |
291 |
407 | 228 | 569 |
487 |
| Depreciation |
144 |
267 | 133 | 241 |
199 |
| Net Profit |
357 |
728 | 289 | 458 |
378 |
| Equity (Implied) |
130 |
130 | 114 | 114 |
114 |
| Reserves (Implied) |
7121 |
7121 | 2744 | 2456 |
1997 |
| Borrowing |
1944 |
1629 | 2113 | 2161 |
1741 |
| Fixed Assets |
4762 |
4011 | 4128 | 3851 | 3394 |
Valuation
AWL has kept a price band of Rs 218-230 for Re 1 paid-up share. The IPO cap price of Rs 230 discounts the company’s net earnings as many as 41 times and EBIDTA about 20 times. Parent company Wilmar is currently traded on the Singapore Stock Exchange at a P/E of about 11 times and Price/EBIDTA of less than 8 times. As compared to Wilmar’s discounting, AWL’s IPO pricing thus looks very steep.
As a matter of fact, a more popular Indian FMCG stock like ITC, despite carrying a dividend of Rs 10.75 per share (yielding 4.9%), is currently valued only 20 times its earnings and less than 14 times its EBIDTA. Moreover, as against the IPO cap price of Rs 230, ACL’s cost of holding would be only Rs 12.68 per share and the cost to LPL will be less at just Rs 6.16 a share.
|
HOW ADANI WILMAR COMPARES WITH RUCHI AND ITC |
|||
|
Financials |
|||
| (Amount in Cr) |
Adani Wilmar |
Ruchi Soya |
ITC |
| Market Cap |
29888 |
25881 |
269507 |
| Borrowing |
1629 |
3490 |
4 |
| Fixed Assets |
4011 |
4981 |
25176 |
| Revenue |
37090 |
16319 |
53155 |
| Other Income |
105 |
64 |
2633 |
| EBIDTA |
1505 |
1018 |
19628 |
| Interest |
407 |
371 |
45 |
| Net Profit |
728 |
681 |
13383 |
| Equity Cap |
130 |
59 |
1232 |
| Reserves |
7121 |
4003 |
59116 |
|
Stock Features |
|||
| Current Price (Rs) |
230 |
875 |
219 |
| Face Value (Rs) |
1 |
2 |
1 |
| Book Value |
55.8 |
137.35 |
48.98 |
| Promoter Stake % |
87.95 |
98.9 |
0 |
| Debt/Equity |
0.22 |
0.86 |
0 |
|
Profitability |
|||
| OPM % |
3.6 |
5.9 |
32 |
| Net Margin % |
2 |
4.2 |
24 |
| Cash EPS |
7.66 |
27.52 |
12.02 |
| Earnings Per Share |
5.6 |
23.02 |
10.68 |
|
Return |
|||
| RONW % |
19.9 |
16.8 |
22.2 |
| ROCE % |
23.4 |
11.7 |
29.8 |
|
Discounting |
|||
| Price/Earnings |
41.1 |
38.0 |
20.5 |
| Price/Cash EPS |
30.0 |
31.8 |
18.2 |
| Price/Book Value |
4.1 |
6.4 |
4.5 |
| Price/EBIDTA |
19.9 |
25.4 |
13.7 |
| Price/Revenue |
0.8 |
1.6 |
5.1 |
| Price/Fixed Assets |
7.5 |
5.2 |
10.7 |
|
Distribution |
|||
| Dividend % |
0 |
0 |
1075 |
| Yield % |
0 |
0 |
4.9 |
| Pay-out % |
0 |
0 |
99 |
Concern
- Since more than a half of the company’s revenue is derived from imported materials, the weakening of Indian Rupee is bound to impact the profit margin which is already on the decline.
- Adani Group companies including the promoter-company Adani Enterprises Ltd have reportedly been under SEBI’s scanner and they have been asked to provide certain details and documents for scrutiny. Any adverse outcome of such scrutiny is bound to affect the stock price of AWL too.
- Indian promoters’ alleged political leanings could affect the stock prices of the group companies in the event of change in government.