Adani Wilmar IPO — Here’s All You Need to Know

The seventh Adani Group company to hit the market is here!

Adani Wilmar, the fast moving consumer goods (FMCG) subsidiary of the Adani Group that is known for its brands like Fortune in the edible oil space, is planning to list on Indian bourses in December 2021.

While the company released its prospectus early in August this year, SEBI had “kept in abeyance” the process of the IPO owing to an ongoing investigation against Adani Enterprises.

SEBI has now resumed its approval. Here’s what you need to know before you invest.

IPO Details

• Issue Size: ₹4,500cr ($601m) (Fresh Issue entirely)
• Issue Type: Book built
• Issue Breakup: QIBs (50%), NIIs (15%), Retail investors (35%)
• Issue Price: Yet to be announced — for reference, NIFTY FMCG is presently trading at 40.3x

The IPO will be a wholly fresh issue of shares with no secondary offering. The company reportedly plans to use ₹500cr ($66.6m) for capex, ₹1,170cr ($156.2) for repayment of debts, ₹500cr for funding strategic investments and the rest for general corporate purposes.

Company Profile

Adani Wilmar is a joint venture (almost 50–50) between the Adani Group and the Singapore-based Wilmar Group, one of Asia’s leading agribusiness groups by market cap. It was incorporated in 1999 and has an extensive presence in India’s consumer goods market today.

The company’s product portfolio includes:

1. Edible oil — soybean, palm, mustard, castor etc.
2. Packaged food and FMCG — soya chunks, ready-to-cook khichdi, sugar etc.
3. Industry essentials — bulk packs of consumer essentials like lauric and bakery fats, castor oil derivatives, oleo chemicals and soya value-added products
4. Skincare goods — Alife soap, hand wash, sanitizer etc.

“Fortune”, the company’s flagship oil brand and a household name in Indian households, commands almost 20% of the edible oil market share. But that simply scratches the surface of Adani Wilmar’s ever-expanding bouquet of products. It is one of the fastest-growing FMCG companies in the country (24% revenue growth in FY21) and also aims to become the largest food company in India by 2027.

Quick Facts

In India, Adani Wilmar is -

• The largest importer of crude edible oil.
• The largest lauric fat manufacturer.
• The largest manufacturer of castor oil.
• The largest exporter of castor oil and its derivatives.
• The largest manufacturer of stearic acid.
• The largest manufacturer of glycerine.
• One of the largest basic oleochemical manufacturers.

Presently, the company has more than 40 refinery units in India with a combined refining capacity of more than 16,000 tonnes per day. With 85 stock points, 5000 distributors and close to 10% retail penetration that spans across 1.5 million outlets throughout the country, Adani Wilmar also has the largest distribution network among all the major branded edible oil players in India.

Besides its pan-India presence, the company has also begun exporting its products to 19 countries globally.

Company Financials

The company has grown to operate an integrated manufacturing infrastructure to derive cost-efficiency across different product lines. With 22 plants located strategically (generally next to Adani-operated ports) across the states (10 crushing units and 18 refineries), it has managed to share the supply chains, storage facilities, distribution networks and human resources among different products to reduce the overall costs for processing and logistics.

Operating in an import-heavy sector is usually tough keeping in mind the higher tariffs and margin considerations. But owing to the shipping infrastructure already put in place by the Adani Empire, the company has a great advantage in terms of operational efficiency over its rivals.

Adani Wilmar has managed to capitalise on the rising demand for packaged foods in India and expand its reach (to approximately 90 million Indian households, almost a third of the total). With a comprehensive portfolio of products, its share in the edible oil market remains at 18.3%.

Revenue from the edible oil business has consistently increased over the last three years (74.80%, 79.16% and 82.23% of total revenue from operations respectively). Though it forms the core business of the company, Adani Wilmar is now going aggressive in the FMCG segment by foraying into all sorts of products.

It is also important to note that the Adani Wilmar brand architecture is particularly advantageous since it uses a single brand identity for multi-categories, optimises the marketing costs and enhances brand equity.

With an operating revenue of ₹37,090cr ($4.9bn) in FY21, the company has managed to grow its top-line by an impressive 25% YoY, that too, in a year that was disruptive, to say the least. In the same year, Adani Wilmar generated ₹2,700cr ($360.5m) from overseas markets as well.

EBITDA has grown by a 20.2% CAGR between FY15 and FY20, second only to Nestle India (22.8%). But EBITDA margin has declined (3.8% in FY21 from 4.85% in FY20) and lags behind other FMCG companies.

This is driven by the fact that all said and done, Adani Wilmar is a low-margin commodity-dependent business first and an FMCG business second, considering 80%+ of its revenues come from edible oils.

Its competitors in the FMCG domain (HUL, ITC) do more value addition thus granting them the ability to price a premium, whereas Adani Wilmar is mostly a trading operation.

That being said, building upon the growth of urbanisation and growing demand for kitchen essentials in the country, companies like Adani Wilmar and Patanjali have now entered multiple categories in kitchen commodities which gives them a filip in the industry.

The Industry and the IPO Signs

Although it’s a market leader in the edible oil space, Adani Wilmar has tough competition from brands such as Nature Fresh, Gemini and Sweekar (backed by Cargill), Saffola (owned by Marico), Sundrop (by Agro Tech Foods), Dhara(by Mother Dairy) and brands owned by Emami Group and Patanjali.

In addition, it is not the only edible oil company that has had a market debut this year. Gemini Edibles, a subsidiary of Golden Agri-Resources, the world’s second-biggest palm oil plantation company, has already beaten Adani Wilmar to the punch by launching its own IPO.

Going forward, the company’s business is likely to be impacted by its pricing ability, which in turn may be affected by the rise in modern trade channels like hypermarkets, supermarkets, online retailers etc. Due to relatively low entry barriers in the food industry, the company also faces significant challenges in market penetration, especially in semi-urban and rural areas which are serviced by locally-available entities.

However, with the rise in consumption trends in India, market-penetration of large-scale organised retail is expected to increase further. This is certain to provide players like Adani Wilmar a chance to capitalise on their supply chain efficiencies and brand visibility to take over the markets.

The obstacles occasioned by the activities of its group companies, the overall debt overhang of the Group and the regulatory discipline that followed it may have delayed the impending IPO but it’s too soon to tell if it will dampen it as well. Let’s see if the Adani Wilmar listing outperforms the benchmark like so many others have done this year.

(Originally published December 3rd 2021 in transfin.in)