Adani Wilmar

Leader in edible oil

To diversify revenue streams and generate higher profit margins through value-added products

Adani Wilmar is among a 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. The company’s products are offered under a diverse range of brands across a broad price spectrum and cater to different customer groups. Essential commodities, such as edible oils, wheat flour, rice, pulses and sugar, account for approximately 66% of the spend on essential kitchen commodities in India.

Company is a joint venture incorporated in 1999 between the Adani Group, which is a multinational diversified business group with significant interests across transport, logistics, energy and utility sectors, and the Wilmar Group, one of Asia’s leading agribusiness groups. As a joint venture between the Adani Group and the Wilmar Group, the company has a benefit of strong parentage. Company 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.

Company’s vision is to be a leading agribusiness company committed to sustainably deliver safe, nutritious, and quality agricultural commodity and food through innovation.

Company’s portfolio of products spans across three categories: (1) edible oil, (2) packaged food and FMCG, and (3) industry essentials. A significant majority 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 (excluding industry essentials which were offered on a non-branded basis).

In FY2021, branded products contributed 73% of total sales volume and institutional contributed 27%. Sales volume mix for FY21 was Edible oil 65%, food and FMCG 11% and Industry essential 24%.

As of March 31, 2021, the Refined Oil in Consumer Packs (ROCP) market share of company’s branded edible oil was of 18.3%, putting it as the dominant No. 1 edible oil brand in India. “Fortune”, its flagship brand, is the largest selling edible oil brand in India.

In recent years, company has been placing an increasing focus on value-added products, with an aim to diversify revenue streams and generate high profit margins. The value-added products it has launched in recent years include functional edible oil products, such as rice bran health oil, fortified foods, ready-to-cook soya chunks and khichdi.

Company has 22 plants are strategically located across 10 states in India, comprising 10 crushing units and 19 refineries with an aggregate designed capacity of 8,525 MT per day and 16,285 MT per day, respectively, as of September 30, 2021. 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. Company’s refinery in Mundra is the one of the largest single location refineries in India with a designed capacity of 5,000 MT per day. In addition to the 22 plants it owns, it also used 36 leased tolling units as of September 30, 2021, which provided with additional manufacturing capacities.

Company operates an integrated manufacturing infrastructure to derive cost efficiency across different business lines. Its integration includes the following means: (1) backward and forward integration: Most of the crushing units are fully integrated with refineries to refine crude oil produced in-house, (2) integration of manufacturing capabilities of edible oils and packaged foods at the same locations: Such integrated manufacturing infrastructure has enabled it to share supply chain, storage facilities, distribution network and experienced manpower among different products and reduce the overall costs for processing and logistics.

As of September 30, 2021, company had 5,590 distributors in India located in 28 states and eight union territories, catering to over 16 lakh retail outlets. These retail outlets represent approximately 35% of the retail outlets in India.

As of September 30, 2021, company also had (1) 88 depots in India, with an aggregate storage space of approximately 18 lakh square feet across the country to ensure availability of products, and (2) 685 personnel in sales and marketing team in India.

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, ranking second and third, respectively, in India.

Company intends to further expand its distribution network with an omni-channel approach. Company aims to expand its online reach in India from current 25 cities to 100 cities in the next few years. It also aims to have more than 40 Fortune Mart stores opened across India in the next few years.

Offer and its objects

The IPO comprise of fresh issue of equity shares worth up to Rs 3600 crore.

Price band for the IPO is Rs 218 to Rs 230 per equity share of face value Re1 each.

Objectives for the fresh issue are capital expenditure of Rs 1900 crore,repayment or prepayment of outstanding borrowings for Rs 1058.9 crore, Funding strategic acquisitions and investments for Rs 450 crore and remaining amount will be used for general corporate purposes.

Promoters of the Companyare AEL, ACL and LPL.Promoters and promoter group holds an aggregate of 1,142,948,860 equity Shares, aggregating to 100% of the pre-Offer issued and paid-up Equity Share capital.The post IPO shareholding for the same is expected to be around 88%.

The issue, through the book-building process, will open on 27 January 2022 and will close on 31January 2022.

Strengths

Company has differentiated and diversified product portfolio with market leading brands to capture large share of kitchen spends across India. In addition to a wide variety of edible oil products and packaged foods, company has recently launched FMCG, including soaps, handwash and sanitizers. Its diversified product portfolio has enabled it to reduce reliance on a single category of products.

“Fortune”, company’s flagship brand, is the largest selling edible oil brand in India. As of March 31, 2021, it was present in one out of three households in India with a household reach of 9.05 crore.

Company has Strong parentage. It benefits from Adani Group’s in-depth understanding of local markets, extensive experience in domestic trading and advanced logistics network and leverage on Wilmar Group’s global sourcing capabilities and technical know-how.

Company was India’s largest importer of crude edible oil as of March 31, 2021, which provided it with bargaining power to source better quality raw materials on favorable commercial terms. Company also benefits from the support of the Wilmar Group for market intelligence and raw material sourcing, as well as its long-standing relationships with international suppliers. In the financial year 2021, approximately 30% of its imported raw materials by value were sourced from Wilmar Group.

Company has a track record of delivering strong financial performance, its consolidated revenue from operations for the financial years 2021, 2020 and 2019 was Rs 37,090.42 crore, Rs 29,657.03 crore and Rs 28,797.45crore, respectively. Revenue grew at a CAGR rate of 13.5% from FY19 to FY21.

Company has market leading position in industry essentials. Company 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 glycerine in India with a market share of 32% and 23%, respectively.

Company operates onintegrated business model with well-established operational infrastructure. Such integrated manufacturing infrastructure has enabled it to share supply chain, storage facilities, distribution network and experienced manpower among different products and reduce the overall costs for processing and logistics.

Company also offers FMCGs, including soaps, handwash and sanitizers. The revenue generated from sales of soap increased by 175.60% from Rs 15.96 crore for the fiscal year 2020 to Rs 44.01 crore for the fiscal year 2021.

Company has an extensive pan-India distribution network. From the financial year 2019 to the financial year 2021, the number of its distributors in India experienced a 33% growth.

Company is focused on environmental and social sustainability. Company has installed solar power at five of its plants with an aggregate installed capacity of 3,040 kilowatts and zero liquid discharge systems at eight of its plants in India. It is also in the process of establishing zero liquid discharge system at another plant in India.

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, ranking second and third, respectively, in India.

Weaknesses

Company’s operations are dependent on the supply of large amounts of raw materials, such as unrefined palm oil, soyabean oil and sunflower oil, wheat, paddy, and oilseeds. Unfavorable local and global weather patterns may have an adverse effect on the availability of raw materials which could have an adverse effect on its business. In addition, company does not have long term agreements with suppliers for raw materials.

The industry in which company operates is intensely competitive. Due to low entry barriers, company face competition from new entrants, especially at rural and semi-rural areas, who may have more flexibility in responding to changing business and economic conditions.

The COVID-19 pandemic has caused volatility in the global economy, additionally company’sproducts are commodities, and their prices are subject to fluctuations that may affect profitability.

Company derives a significant portion of total revenue from edible oil business segment and any reduction in demand or in the production of such products could have an adverse effect on its business. For the financial years 2019, 2020 and 2021 and the six months ended September 30, 2021, revenue from edible oil business was Rs 21,539.8 crore Rs 23,476.7 crore, Rs 30,497.8 crore and Rs 20,117.4 crore, representing 74.80%, 79.16%, 82.23% and 82.70% of total revenue respectively.

Raw materials for the staple food that company produce, such as wheat, are perishable products and consequently any malfunction or break-down of machinery/ equipment can result in the slowdown or stoppage of operations, which may adversely affect the quality of such raw materials.

Company and its directors, promoters and subsidiaries are involved in certain legal proceedings. Any adverse decision in such proceedings may render them liable to liabilities/penalties and may adversely affect business.

As of September 30, 2021, company had total outstanding borrowings of Rs 9235.33 crore. Further, as of January 15, 2022, Company's outstanding borrowings (on a standalone basis) wereRs 10,837.40 crore (net of margin deposits against letters of credit, such borrowings wasRs 8635.09 crore). These financing agreements contain certain restrictive covenants which may adversely affect business.

Company is subject to a broad range of safety, health, environmental, labor, workplace and related laws and regulations. Any non-compliance with and changes in, safety, health and environmental laws and other applicable regulations, may adversely affect its business.

Company is subject to business risks inherent to the palm oil and soy oil industries. These risks include outbreaks of diseases, damage from pests, fire or other natural disasters, unscheduled interruptions in fresh fruit bunch processing, spills from product carriers or storage tanks and adverse climate conditions.

Company’s products are subject to counterfeit and cloning. The sale of counterfeit cloned, and pass-off products may lead to lower sales for its business.

Valuation

For FY 2021, consolidated sales were up by 25.06% to Rs 37090.42 crore compared to FY 2020. OPM decreased by 85 bps to 3.57% which led to 1.21% increase in operating profit to Rs 1325.32 crore. Other income decreased 4.29% to Rs 105.24 crore, while interest cost fell 28.56% to Rs 406.61 crore and depreciation increased 10.79% to Rs 267.31 crore. PBT after EO increased 24.69% to Rs 831.52 crore. Tax expenses for FY2021 was of Rs 103.87 crore compared to tax expense of Rs 205.98 crore in FY2020. Net profit rose 57.88% to Rs 727.65 crore.

For H1 FY22, consolidated sales were up by 53.65% to Rs 24874.52 crore compared to H1 FY21. OPM decreased by 82 bps to 3.24% which led to 22.64% increase in operating profit to Rs 806.89 crore. Other income decreased 2.80% to Rs 82.77 crore, while interest cost rose 27.82% to Rs 291.03 crore and depreciation increased 8.53% to Rs 144.15 crore. PBT after EO increased 12.34% to Rs 476.78 crore. Tax expenses for H1 FY22 was of Rs 119.65 crore compared to tax expense of Rs 135.61 crore in H1 FY21. Net profit rose 23.66% to Rs 357.13 crore.

The TTM EPS (excluding extraordinary items and relevant tax) on post-issue equity works out to Rs 6.10. At the upper price band of Rs 230, P/E works out to 37.70.

As of 24 January 2022, its listed peers such as Hindustan Unilever trades at TTM P/E of 60.82, Britannia Industries trades at TTM P/E of 53.26, Tata Consumer Products trades at TTM P/E of 80.72, Nestle India trades at TTM P/E of 80.51 and Marico trades at TTM P/E of 50.16. For FY21, Adani Wilmar OPM and ROE stood at 3.57% and 22.06%, respectively, compared to 24.72% and 16.77% for Hindustan Unilever, 19.10% and 52.53% for Britannia Industries, 13.31% and 5.90% for Tata Consumer Products, 23.98% and 103.12% for Nestle India, 19.77% and 36.50% for Marico respectively.