Adani Wilmar IPO review (May apply)

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Review By Dilip Davda on January 22, 2022

•    FMCG arm of Adani group is planning to raise Rs. 3600 cr. with its primary offer. 
•    Last IPO was from Adani Power in July 2009.  
•    Over 65% of revenue comes from its Oil business. 
•    AWL has posted steady growth in its performances despite pandemics.
•    The issue is fully priced based on its financial data.

PREFACE:
Adani group is coming with an IPO after a gap of over 12 years. The last IPO was from Adani Power in July 2009 that mobilized Rs. 3016.92 cr. at a price of Rs. 100 per share. Now the group is coming out with its FMCG arm Adani Wilmar Ltd. The company filed its DRHP in the month of August 2021 for Rs. 4500 cr. maiden float. But it is tapping the capital market this month for a fresh issue of Rs. 3600 cr. Thus it has reduced the size of its IPO by Rs. 900 cr. (20%) as per permissible limits. According to management, it has taken a hit on its general corporate needs with this reduction.  More details on this IPO is given below. 

ABOUT COMPANY:
Adani Wilmar Ltd. (AWL) is one of the few large FMCG food companies in India to offer most of the primary kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses and sugar. (Source: Technopak Report) Commodities, such as edible oils, wheat flour, rice, pulses and sugar, account for approximately 66% of the spending on primary kitchen commodities in India. (Source: Technopak Report) AWL offers a range of staples such as wheat flour, rice, pulses and sugar. Its products are offered under a diverse range of brands across a broad price spectrum and cater to different customer groups.

AWL is a joint venture incorporated in 1999 between the Adani Group, which is a multinational diversified business group with significant interests across transport and logistics, and energy and utility sectors, and the Wilmar Group, one of Asia's leading agribusiness groups which were ranked seventh largest listed companies by market capitalization on the Singapore Exchange as of September 30, 2021. As a joint venture between the Adani Group and the Wilmar Group, the company benefits from its strong parentage. AWL benefits from the Adani Group's in-depth understanding of local markets, extensive experience in domestic trading and advanced logistics network in India, and leverage on the Wilmar Group's global sourcing capabilities and technical know-how.

Its portfolio of products spans three categories: (1) edible oil, (2) packaged food and FMCG, and (3) industry essentials. A significant majority of sales pertain to branded products accounting for approximately 73% of edible oil and food and FMCG sales volume for the financial year 2021 (excluding industry essentials which were offered on a non-branded basis).

As of March 31, 2021, the Refined Oil in Consumer Packs ("ROCP") market share of its branded edible oil was 18.3%, putting AWL as 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 (Source: Technopak Report). It has also leveraged brands and distribution networks 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. AWL is among the top 5 fastest growing packaged food companies in India, based on the growth in revenues during the last five years (Source: Technopak Report). It also offers a diverse range of industry essentials, including oleochemicals, castor oil and its derivatives and de-oiled cakes.

In recent years, it has been placing an increasing focus on value-added products, with an aim to diversify revenue streams and generate high-profit margins. The value-added products AWL has launched in recent years include functional edible oil products, such as rice bran health oil, fortified foods, ready-to-cook soya chunks and khichdi, and FMCG.

As of the date of this Red Herring Prospectus, AWL has 22 plants in India which are strategically located across 10 states, comprising 10 crushing units and 19 refineries. Out of the 19 refineries, ten are port-based to facilitate the use of imported crude edible oil and reduce transportation costs, while the remaining are typically located in the hinterland in proximity to raw material production bases to reduce storage costs.

As of September 30, 2021, it had 5,590 distributors in India located in 28 states and eight union territories, catering to over 1.6 million retail outlets (Source: Technopak Report).

As of the same date, AWL also had (1) 88 depots in India, with an aggregate storage space of approximately 1.8 million square feet across the country to ensure availability of products; and (2) 685 personnel in the sales and marketing team in India. It leverages an edible oil distribution network for packaged foods, and as of September 30, 2021, the company had approximately 64% of edible oil distributors in India catering to packaged food distribution.

AWL's business is subject to risks associated with commodities such as price fluctuations in international markets, seasonality variations and foreign currency risks. The oil refining business is considered a high volume/low margin segment. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for capital expenditure (Rs. 1900.00 cr.), repayment/prepayment of borrowings (Rs. 1058.90 cr.), funding strategic acquisition and investments (Rs. 450.00 cr.) and general corporate purpose, AWL is coming out with a maiden IPO worth Rs. 3600 cr. via book building route. The company has announced a price band of Rs. 218 to Rs. 230 per share of Re. 1. At the upper cap of the issue price, the company will issue approx. 156521755 shares. Minimum application is to be made for 65 shares and in multiples thereon, thereafter. The issue opens for subscription on January 27, 2022, and will close on January 31, 2022.  Post allotment, shares will be listed on BSE and NSE. The issue constitutes 12.05% of the post issue paid-up capital of the company. 

The issue includes a quota reserved for its eligible employees for Rs. 107 cr. and the company is offering a discount of Rs. 21 per share to them. AWL has also reserved shares worth Rs. 360 cr. for the shareholders of Adani Enterprises Ltd. (AEL).  (for those who were holding shares in AEL as of the date of RHP i.e. January 2022, are eligible for application in this quota). From the residual portion, it has earmarked 50% for QIBs, 15% for HNIs and 35% for the Retail investors. 

Joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., J.P. Morgan India Pvt. Ltd., BofA Securities India Ltd., Credit Suisse Securities India Pvt. Ltd., ICICI Securities Ltd., HDFC Bank Ltd., and BNP Paribas. Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company raised further equity in the price range of Rs. 9 to Rs. 12.5 (for FV of Re. 1 per share) between June 2008 and January 2015. The average cost of acquisition of shares by the promoters is Rs. 6.156 and Rs.12.675 per share. 

Post IPO, AWL's current paid-up equity capital of Rs. 114.30 cr. will stand enhanced to Rs. 129.95 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 29887.82 cr. 
 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals on a consolidated basis AWL has posted turnover/net profits of Rs. 28919.68 cr. / Rs. 354.96 cr. (FY19), Rs. 29766.99 cr. / Rs. 403.04 cr. (FY20) and Rs. 37195.66 cr. / Rs. 652.77 cr. (FY21). For the first six months of FY22 ended on September 30, 2021, the company has earned a net profit of Rs. 334.83 cr. on a turnover of Rs. 24957.29 cr.  

For the last three fiscals, the company has posted an average EPS of Rs. 5.07 and an average RoNW of 19.97%. The issue is priced at a P/BV of 7.20 based on its NAV of Rs. 31.95 as of September 30, 2021, and at a P/BV of 4.12 based on its post-IPO NAV of Rs. 55.78 per share. (at the upper cap).

If we annualize FY22 earnings and attribute it to post IPO fully diluted equity, then the asking price is at a P/E of 44.66. Thus the issue is fully priced based on its financial data.

DIVIDEND POLICY:
The company has not declared any dividend for the reported financial period of RHP. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, AWL has shown Hindustan Unilever, Britannia Industries, Tata Consumer Products, Dabur India, Marico Ltd. and Nestle India as its listed peers. They are currently trading at a P/E of 65.32, 53.97, 91.90, 67.36, 53.69 and 81.55 (As of January 21, 2022.) However, they are not comparable on an apple-to-apple basis. In fact, Godrej Consumer and ITC can be the nearest peers which are trading at a P/E of around 71 and 18.91.

MERCHANT BANKER'S TRACK RECORDS:
The seven BRLMs associated with the offer have handled 50 public issues in the last 18 months, out of which 16 issues closed below the offer price on the listing dates respectively. 

SPECIAL NOTE:
As in our family, 5 shares of Adani Enterprise are held, we may consider a small investment in this offer under the shareholders' quota.

Adani Wilmar IPO FAQs