IPO Analysis: Adani Wilmar Ltd

IPO Rating: Invest for long-term 

About the issue: 

Adani Wilmar is one of the 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 is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 1 per equity share. The maiden offer comprises an entirely fresh issue of shares worth Rs 3600 crore, according to its red herring prospectus. The price band of the issue has been fixed at Rs 218 to Rs 230 per equity share. The IPO opening date is January 27, 2022, while it will be closing on January 31, 2022. The issue will be listed on the exchange on February 8, 2022. The IPO market lot size is 65 shares. A retail-individual investor can apply up to a maximum of 13 lots (845 shares or Rs 194,350).    

The objects of the offer are:    

• Funding capital expenditure for expansion of existing manufacturing facilities and developing new manufacturing facilities (“Capital Expenditure”). 

• Repayment/prepayment of borrowings. 

• Funding strategic acquisitions and investments; and 

• General corporate purposes. 

Adani Wilmar IPO Details: 

About the company: 

Incorporated in 1999 as a joint venture between Adani Group and the Wilmar Group, Adani Wilmar 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 also offers a diverse range of industry essentials, including oleochemicals, castor oil and its derivatives, and de-oiled cakes. The company's products are offered under a diverse range of brands across a broad price spectrum and cater to different customer groups. 

The company's product portfolio is categorized into (i) edible oil, (ii) packaged food and FMCG, and (iii) industry essentials. "Fortune", the company's flagship brand, is the largest selling edible oil brand in India. Recently the company has focused on value-added products and has launched products such as edible oil products, rice bran health oil, fortified foods, ready-to-cook soya chunks, khichdi, etc in line with this. The company has strong raw material sourcing capabilities and was India's largest importer of crude edible oil as of March 31, 2021. 

The company operates 22 plants located across 10 states in India, comprising 10 crushing units and 19 refineries. The company's refinery in Mundra is one of the largest single-location refineries in India with a capacity of 5,000 MT per day. In addition to the 22 plants Adani Wilmar, also used 36 leased tolling units as of Sep 31, 2021, for additional manufacturing capacities. 

The company's distributors are in 28 states and 8 union territories throughout India, catering to over 1.6 million retail outlets. As of September 30, 2021, the company had 88 depots in India, with an aggregate storage space of approx. 1.8 million square feet across the country. 

Competitive Strengths: 

Diversified product portfolio with leading brands catering to most daily essentials of an Indian kitchen. 

Strong brand recall and broad customer reach. 

Leadership in branded edible oil and packaged food business in India. 

One of the largest basic oleochemical manufacturers of India. 

Strong raw material sourcing capabilities from top global suppliers. 

An integrated business model with well-established operational infrastructure and strong manufacturing capabilities. 

Pan-India distribution network supported by a robust distribution infrastructure. 

Focus on environmental and social sustainability. 

Professional management and experienced board. 

Company Financials: 

The following table provides a snapshot of the company’s key financial and operational performance indicators. 

Recommendation: 

The demand for packaged foods in India is experiencing a rapid growth. Certain food categories, such as wheat flour and rice, which used to be predominantly sold in loose form, are being increasingly sold in packages. However, the penetration rate of packaged foods in India remains low, which provides significant potential for growth for packaged edible oil and food products. 

The key driver in the growth of its revenue from operations has been the volume of products it produces and sells. Even thought the net profit margins are low, it has a robust business model. It endeavours to increase food products in its portfolio which have good potential to generate high profit margin in the future to further diversify its product mix. As of March 31, 2021, the market share of its branded edible oil was 18.30 per cent, putting it to the dominant No. 1 edible oil brand in India (Source: Nielsen Retail Index – MAT March 2021). “Fortune”, its flagship brand, is the largest selling edible oil brand in India according to Technopak Report. 

Source: Nielsen Retail Index – MAT March 2021, Technopak Report, Adani Wilmar DRHP 

The company is focused on continuous improvement in its market share which will enable it to have better realization and premium pricing. The location of its manufacturing facilities near manufacturing hubs helps reduce cost and achieve operational efficiency. To put it in a nutshell, the company has a strong brand recall, and has robust operations in place. Its an entirely fresh issue and hence we recommend to invest in the IPO for long-term.