Adani Wilmar IPO to Hit the Market Soon. Should you Apply?

The parent company of the edible oil brand Fortune, Adani Wilmar, is planning to raise Rs 45 bn from the market through an initial public offering (IPO).

Fortune may be a household name in the market, but it is only a small part of its parent company.

Objective of the issue

Adani Wilmar plans to raise Rs 45 bn from the market by issuing fresh shares.

It plans to use Rs 5 bn for capex and Rs 11.7 bn for repayment of debt. It also plans to use Rs 5 bn for funding strategic investments and the rest for general corporate purposes.

The IPO dates and category wise details are yet to be announced.

Link Intime India Private Ltd is the registrar of the issue. The lead managers of the IPO are BNP Paribus, BofA Securities, Credit Suisse, HDFC Bank, ICICI Securities, JP Morgan India, and Kotak Mahindra Capital.

About Adani Wilmar

Adani Wilmar is a joint venture between the Adani Group and Singapore based Wilmar International.

The company is one of the largest fast moving consumer goods (FMCG) companies in the country. Its product offerings include edible oil, wheat flour, rice, pulses, and sugar.

The company has products in three broad categories - edible oil, packaged goods and FMCG, and industrial essentials. Majority of the revenue comes from the edible oil segment, followed by industry essentials and packaged goods.

Fortune oil, its flagship brand, has the highest market share in the oil segment.

In the industrial essentials segment, the company is the largest manufacturer of basic oleochemicals, stearic acid, and glycerin. It's also one of the largest exporters of oleochemicals in India.

Well established manufacturing capacity and distribution network

Adani Wilmar has a refining capacity of over 16,285 metric ton (MT) per day across 18 refineries and seed crushing capacity of 8,525 MT per day across 10 crushing units.

Its refinery in Mundra, Gujarat is one of the largest single location refineries in India with a capacity of 5,000 MT a day.

The company also has 22 manufacturing plants across 10 states in India. To cater to increasing demand, the company has been manufacturing in 28 third party manufacturing units called tolling units across the country as of March 2021.

Additionally, the company has a strong distributor network which is located in 28 states and 8 union territories in India. It caters to more than 1.6 m retail outlets through this network.

Competitors

In the edible oil segment, the company directly competes with Patanjali's Ruchi Soya, Emami Agrotech, Cargill, and Marico.

In the FMCG sector, the company competes with Hindustan Unilever Limited (HUL), and ITC.

Key strengths

• Adani Wilmar has a diversified product portfolio that has the potential to capture a considerable market share with brands that enjoy strong brand recall.
• The company also has an integrated business model that enables it to operate in a cost-efficient manner.
• The company has a leadership in the edible oil and packaged foods sector in India. It is also the largest manufacturer of basic oleochemicals in India.
• Adani Wilmar has a strong distribution network with pan India presence. Strong international networks also help the company in sourcing raw materials from global suppliers.

Challenges

• Unfavorable weather conditions can adversely affect the business operations.
• The company doesn't have a long-term contract with its suppliers.
• An increase in the cost of raw materials and supply shortages can impact the profitability and operations of the business. Exchange rate fluctuations can also affect the company's costs and profits.
• The company heavily depends on the edible oil sector for its revenues. A drop in the demand for edible oil can lead to lower revenues for the company.
• Intense competition in the FMCG sector can lead to decline in the company's market share.
• The company's exports can be impacted by import regulations by other countries.

Financial snapshot

The company's revenue increased by 25% year on year (YoY) in the financial year 2021 as consumers resorted to panic buying of packaged goods during the lockdown.

However, in the previous year, the company's revenue increased by only 2.9% YoY.

Despite the strong revenue growth in the financial year 2021, the company's net profit margins have remained constant over the years. Net profit margins have stayed in the range of 1-2%.

For more details check the company's draft red herring prospectus.

Adani Wilmar Financial Snapshot

Rs m	2018-2019	2019-2020	2020-2021
Revenue	289,197	297,670	371,957
Revenue Growth %		2.90%	25.00%
Expenses	364,390	291,580	364,390
Expenses Growth %		-20.00%	25.00%
Net Profit	3755	4609	7276
Net Profit Margin (%)	1.30%	1.50%	1.90%

Source: Adani Wilmar draft red herring prospectus

Is history repeating itself?

The IPO boom that we see currently in the Indian market isn't new.

There was a similar boom in the mid 1990s where the financial market saw close to 1,400 issues in one financial year.

Investors flocked to the markets to participate in the IPO boom. The markets were also on a bull run.

However, shares of most of the companies that went public fell after the market fell. Investors panicked and moved away from the stock market. They didn't return to the market for almost a decade.

History has a habit of repeating itself.

The markets have seen the entry of new investors. In the financial year 2021 alone, the market saw 14.3 m new investors. These investors haven't seen a major market correction yet.

Will a market correction scare the investors away from the market?

Well one can argue that the chances are very less. As the investors are very informed now and have multiple sources of information to lean on for decision making.

Only time can tell if history will repeat itself. Until then, ensure you study the company's fundamentals and financials before investing in it.

Happy Investing!

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