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Adani Wilmar IPO: 5 Things to Know

Jan 22, 2022

Adani Wilmar IPO: 5 Things to Know

In November last year, we wrote about Adani Wilmar's IPO, which was expected to hit the primary markets soon.

It was expected then the initial public offer (IPO) would happen sometime between December 2021 and January 2022. The company has now confirmed the IPO date. Its public issue will hit the market next week, on 27 January.

Adani Wilmar has ambitious growth prospects. It aims to be the largest food company in India by 2027.

This will be the seventh firm to be listed from the port to power Adani group.

Here are some details about this IPO.

Issue period: 27 January 2022 to 31 January 2022

IPO Size: Rs 36 bn

50% is reserved for qualified institutional buyers (QIBs) and 35% for retail investors. The remaining 15% will be reserved for non-institutional buyers.

Post-IPO, the public shareholding will be 12% and the remaining 88% will be equally held by the two promoters. The promoters and existing shareholders are not offloading their stake via offer for sale (OFS) in the issue.

With the 12% stake, the company is looking at a valuation of Rs 300 bn.

Price band: Rs 218 to Rs 230 per equity share

Employee discount: Rs 21

Bid lot: 65 shares and in multiples thereof. Retail investors can apply for a maximum of 13 lots (845 shares) which will amount to Rs 194,350.

Face value: Rs 1 per equity share

Object of the issue: It plans to use Rs 19 bn for capex and Rs 11 bn for repayment of debt. It also plans to use Rs 5 bn for funding strategic investments and the rest for general corporate purposes.

Eligibility for shareholder category: Investors holding shares of Adani Enterprises as on 19 Jan 2022 in their demat account will be eligible to apply in shareholder quota as well as retail quota.

About the company

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 its 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. The company has the largest distribution network among all the branded edible oil companies in India.

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.

In recent years, Adani Wilmar has been placing an increasing focus on value-added products, with an aim to diversify its revenue streams and generate high profit margins.

Adani Wilmar has 22 plants in India which are strategically located across 10 states, comprising 10 crushing units and 19 refineries.

Firm cuts offer size ahead of IPO

Ahead of the IPO, Adani Wilmar had decided to cut its issue size to Rs 36 bn. In the original draft red herring prospectus (DRHP), the company had filed for an IPO worth Rs 45 bn.

This is considered to be a good move as optimising the issue size in this manner will help the company have better return of capital employed (ROCE) and return on equity (ROE). It indicates the operating leverage and efficiency the company is able to demonstrate through minimal investment.

Even though the company reduced the IPO size, it will be flooded with cash soon as it will repay its full long term borrowing of Rs 11 bn, saving on interest cost.

It will also fund the entire capex requirement through the equity raised.

How the company fares well against competitors

Since Adani Wilmar commands strong market leadership, this has facilitated the company to source raw materials from top global suppliers from the international market.

It also has a checkmark against the experience front. Adani Wilmar has experienced senior management team with over 40 years of experience in the agribusiness industry.

The backing from Adani Group, which is a multinational diversified business group with significant interests across transport and logistics, and energy and utility sectors, also adds a few positives.

Adani Wilmar also enjoys synergies from the Wilmar group, one of Asia's leading agribusiness groups which was ranked seventh largest listed companies by market capitalisation on the Singapore Exchange as of September 2021.

Note that Adani Wilmar will soon face competition from a prominent player - Gemini Edibles. Gemini Edibles is the world's second-largest palm oil plantation company, which is planning to launch an IPO and raise around Rs 25 bn.

What about growth strategy going forward?

The focus will be on increasing its market share in edible oils segment and grow the food business.

Edible oils contribute around 65% to the company's business in volume terms and the remaining comes from food, and industrial essentials segments.

Apart from this, Adani will focus on:

  • Becoming the leading packaged food and FMCG company in India
  • Expanding its distribution network with an omni-channel approach
  • Increasing brand awareness
  • Launching new products and expanding its customer base
  • Pursuing strategic acquisitions to expand its geographic presence and to add additional products in its portfolio

Coming to the financials...

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

Meanwhile, net profit saw a 58% jump to Rs 7.3 bn.

The company has reported increasing revenues every year since 2015. Same is the case on the profitability front.

Have a look at the table below which shows the company's financials over the past few years.

Financial Snapshot

(Rs m) FY16 FY17 FY18 FY19 FY20 FY21
Net Sales 190,350 231,984 264,719 287,975 296,570 370,904
Sales Growth (%) 10% 22% 14% 9% 3% 25%
Operating Profit 6,257 7,877 10,175 12,227 14,195 14,306
Operating Profit Margin (%) 3% 3% 4% 4% 5% 4%
Net Profit 1,485 2,331 4,082 3,869 4,609 7,276
Net Profit Margin (%) 1% 1% 2% 1% 2% 2%
Total Debt 25,679 26,217 22,440 18,295 23,003 19,040
Debt to Equity (x) 2.4 1.98 1.29 0.86 0.89 0.58
Data Source: Ace Equity

Meanwhile, the below table shows the company's performance on key ratios.

Key Ratios

  FY16 FY17 FY18 FY19 FY20 FY21
Current Ratio(x) 0.92 0.97 0.91 0.97 1 1.04
ROCE(%) 15.1 17.9 22.0 26.2 26.7 23.1
RONW(%) 15.5 19.5 24.9 18.9 17.2 22.3
Data Source: Ace Equity

Over the years, the company has made increased investments and is focusing aggressively on M&A (merger and acquisition) prospects in the foods space.

Last year, the company opened several physical stores under the name Fortune Mart which will exclusively sell Fortune and other Adani Wilmar brand products.

Last year, it also acquired Bangladesh Edible Oil, an edible oil manufacturer with market leadership in some edible oil categories in Bangladesh.

Comparison with peers

Here's how the company has performed against its listed peers in fiscal 2021.

Comparative Analysis

(Rs m) Revenues Net Profit ROE (%) ROA (%) ROCE (%) D/E Ratio (x)
Adani Wilmar 370,904 7,276 22.3 5.2 23.1 0.6
Hindustan Unilever 474,390 79,990 16.8 11.8 22.5 0.0
Britannia Industries 134,490 18,498 52.6 24.5 61.5 0.2
Tata Consumer 117,234 9,938 6.8 5.3 9.3 0.0
Dabur 98,568 16,960 22.5 15.9 27.2 0.0
Marico 81,450 12,010 37.4 23.2 48.4 0.0
Source: Equitymaster

What is the grey market signaling?

Currently, shares of Adani Wilmar are commanding a grey market premium (GMP) of Rs 75 in the unofficial market.

The company's shares are expected to list on BSE and NSE on 8 February 2022.

Having a differentiated product portfolio allows Adani Wilmar to maintain a smooth cash flow from various product segments.

The company also enjoys synergies from Wilmar group. Although the company benefits from Adani group's in-depth understanding and experience, its high dependence is a concern.

Will the IPO market in 2022 be as busy as 2021?

The IPO activity has started on a muted note this year as only two IPOs are expected to come out in the month of January 2022.

This is because there are still concerns of inflation and Fed rate hike. Adding to worries are geopolitical tensions in Europe, Middle-East, and a worsening pandemic in India.

Then there's pressure from foreign investors, who are pulling out funds from India.

Following the record number of filings in 2021, the IPO pipeline continues to remain strong. All the companies who have received nod may plan to come out with their issues post the Union Budget 2022. The much-anticipated mega IPO of LIC is also expected to be launched in this fiscal.

However, it does not take too long for the pipeline to disappear. For IPO launches to continue, the secondary market needs to remain bullish.

Even as we saw high volatility this week, retail investors continued to show faith and subscribed to the IPO of AGS Transact Tech. The IPO received a positive response and was subscribed 7.79 times on the final day. The retail individual portion was subscribed 3.08 times.

Overall, the IPO pipeline for the year 2022 looks solid.

As companies line up to raise funds from the market amid high valuations, investors need to consider fundamentals, valuations, and other factors before investing their money in an IPO.

Back in September 2021, Equitymaster's smallcaps guru, Richa Agarwal, recorded a video about what to look for in an IPO.

Richa shared some points to help you avoid the bad IPOs and pick the ones with the highest potential to create long term wealth.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Yash Vora

Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.

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