Adani Wilmar Ltd (Rs.343.20): A screaming Buy:
It is known for its wide range of offerings in edible oils comprising soya bean, sunflower, mustard and rice bran, among others under its well known “Fortune” brand. The company has 23 plants in India, which are strategically located across 10 states, comprising 10 crushing units and 19 refineries.
Adani Wilmar Ltd is a leader in the edible oil segment and commands a market share of ~18.7% through its Fortune & other brands. Apart from the oil segment, it also offers products like wheat flour, rice, pulses & sugar under its different brands across a broad price spectrum. Broadly speaking, its product portfolio spans across 3 - categories:
💢Edible oil,
💢Packaged food and,
💢FMCG & industry essentials with further subcategories in the above three categories.
Triggers:
💢Since Adani Wilmar is a joint venture between the Adani group and Wilmar group it enjoys the backing and networks of the Adani group.
💢It also has access to Wilmar group’s global sourcing capabilities and technical know-how.
💢It has successfully managed to develop its “Fortune” brand in the edible oil category with leadership position in the last 20 years.
💢With strong brand recall value under its belt, the company has also leveraged the ‘Fortune’ brand 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.
💢The company is one of the FMCG players to enjoy pan-India coverage with its huge distribution network comprising 5,500 - plus distributors across 28 states and eight union territories throughout India catering to over 1.6 million - plus retail outlets.
💢AWL has 23 manufacturing units in India, which are strategically located across 10 states, comprising 10 crushing units and 19 refineries.
Out of the 19 refineries, 10 are port-based to facilitate use of imported crude edible oil and reduce transportation costs. The remaining are typically located in the hinterlands in proximity to raw material production bases to reduce storage and transportation costs.
In addition to the 23 plants, it also uses 36 leased tolling units in India, which provide additional manufacturing capacities.
💢Additionally, AWL enjoys strong competitive advantages due to its ability to engage in price-ladder supported by multiple synergies across all three business segments along with access to Wilmar’s market intelligence, which augurs well for the scale-up of its FMCG business.
💢The company exports its products to Middle East, Africa and South East Asia.
💢In Mundra, AWL operates India’s largest single-location refinery, which has a designed capacity of 5,000 TPD. Wilmar International, a global leader in edible oils enjoys a significant leverage in price negotiations and raw material allocation. Adani group on the other hand owns India's largest private sea - port ensuring seamless supply of raw materials to AWL's facilities in India.
💢AWL is also the largest basic oleochemical manufacturer in India. In 2020, AWL forayed ready-to-cook under its flagship Fortune brand.
💢 Recently, the Brokerage Nuvama though cut its target price to Rs.515, from Rs.600, but has maintained a buy.
💢In the near future there could be Palm Oil Shortage followed by rise in price due to Biodiesel Production: There are rumours that reduced availability of Palm oil could be due to the fact that major producers like Malaysia and Indonesia are diverting it for biodiesel production, potentially leading to increased prices.
💢The share of edible oil segment which used to command 85% of Adani Wilmar's revenues, decreased to 74% by September , 2023, making it a less affected candidate by the vagaries of edible oil prices, which is somewhat linked to crude oil prices. The crude oil prices are likely to remain firm in the coming months, as Summer Driving season begins in the US.
The current market cap of Adani Wilmar Ltd (Rs.343.45) is Rs.44,637 crore = Rs.446.37 billion = $ 5.44 billion. The stock of Adani Wilmar Ltd (Rs.343.45) is currently trading near its 52 -week low price.
According to some media reports, the promoters last year wanted to sell 44% (43.97%) stake in the company at $4 billion, which means that the promoters are looking to value the company at ~$9.10 billion.
The current media report suggest that Adani group has decided to put its plans to divest its stake in Adani Wilmar on the backburner for a while as it is not satisfied with the pricing that it is looking for.
Financials: In the September, 2023 quarter, it came up with a consolidated net loss of Rs.130.73 crore as profitability was badly impacted in the cooking oil business. The company had posted a net profit of Rs.48.76 crore in the year-ago period. But the company bounced back in December quarter. The March quarter results were even better due to stabilisation of the edible oil prices.
The FMCG company Adani Wilmar on reported 67% growth in its consolidated net profit to Rs.157 crore for the quarter ended March 2024. The same stood at Rs.94 crore in the year-ago quarter.
Revenue from operations in the reporting period though fell marginally by 5% year-on-year to Rs.13,238 crore. The company had clocked revenues of Rs.13,872 crore in the corresponding period of last year.
Segment wise, the edible oil segment recorded revenue of Rs.10,195 crore in the fourth quarter while the volume grew by 11% year-on-year.
The domestic branded sales volume grew at a faster clip at 13% Y - I - Y compared to overall growth. This is the second consecutive year with faster growth in the branded portfolio, which has resulted in the market share gains.
The food and FMCG segment recorded revenue of Rs 1,341 crore in Q4, with an underlying volume growth of 9% year-on-year.
The overall food and FMCG revenue increased 23% year-on-year resulting in revenues of Rs.4,944 crore. The revenue from branded products in the domestic market has been growing consistently YoY at over 30% for the last 10 quarters.
The company has also been gaining market share in its key products. In edible oils, ROCP (Refined Oil Consumer Pack) market share of AWL has increased by 60bps to 19.0% on MAT basis. In Wheat Flour, its market share has increased by 60bps to 5.60%.
Conclusion: Despite global challenges such as the Russia-Ukraine war, fluctuations in edible oil prices, and inflation worries, it has sustained its margins. The company is projected to increase its market share due to deeper penetration in rural markets and entry into high-margin packaged products. Additionally, the demand outlook is favorable, driven by the ensuring festive season and increased rural demand from the monsoon.
The management is bullish on the future prospects of AWL, as it is witnessing a robust growth in both edible oil and food and FMCG businesses since the beginning of this financial year (2024-25), particularly in May. Comfortable prices, elections, and harvest-related migration to hometowns is set to boost rural demand for company's products.
As of 03 May, 2024, out of 4 analysts covering the company, 2 analysts have given a Sell rating, 1 analyst has given a Buy rating, and 1 analyst has given a Strong Buy rating, showcasing a mixed sentiment among analysts.
I am bullish on the future growth of the company due to continuation of government policies, since the BJP and its allies returned in Delhi in the recently concluded Lok Sabha polls.
Thus, looking at the current fundamentals and with suitable discounting the fair value comes around Rs.500 - Rs.550. Also, there was no official statement from the company, regarding its stake sale, raising the possibility of another market rumors.
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