FMCG major Adani Wilmar, the maker of top-selling edible oil brand “Fortune” and a joint venture between the Adani Group and top Asian agri-business player Wilmar, filed a draft red herring prospectus with the Securities and Exchange Board of India (SEBI) to raise Rs 4,500 crore via an initial public offer on August 2, according to an official disclosure by Adani Enterprises.
HUL, Britannia, Tata Consumer Products, Dabur India, Marico and Nestle India are some of the firm’s listed rivals and the move for an IPO comes at a time when consumers are increasingly opting for branded & packaged food products, a trend accelerated by COVID-19
The proposed listing of the firm on the stock exchanges will comprise an IPO in the form of a fresh issue of new equity shares and there will not be any secondary offering. It is intended to further the growth of Adani Wilmar’s operations by increasing its market visibility and awareness among current and potential customers, the disclosure added.
The firm, which aims to be the largest food company in India by 2027, is trying to muscle its way in the fast-growing consumer segment and unlock value through the IPO. If the plans fructify, it will be the seventh firm to be listed from the port to power conglomerate Adani group, which has largely been infra focused.
In the edible oils segment, Adani Wilmar competes with 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 others owned by Emami Group and Patanjali.
Adani Wilmar is not the only player in the edible oil segment planning a 2021 debut on Dalal Street. Gemini Edibles, a prominent player down south and the Indian arm of Golden Agri-Resources, the world's second-largest palm oil plantation company, also plans to launch an IPO and raise Rs 1,500 crore to Rs 1,800 crore. It is backed by private equity firm Proterra Investment Partners as well.
THE REST OF THE BOUQUET OF PRODUCTS
The is present in segments such as basmati rice, atta, maida, sooji, rawa, pulses and besan. It has also forayed into ready-to-cook khichdi and sugar and has launched Soya Chunkies, a healthy snack. It also caters to institutional demand through its industry essential range which includes bulk packs of consumer essentials as well as lauric & bakery fats, castor oil derivatives, oleo chemicals and soya value-added products. That’s not all, the firm is also present in the personal and skincare categories with brands like Alife Soap. It has made a recent entry in the hand wash and hand sanitiser segment.
Here are a few takeaways from the fine print of the firm’s draft red herring prospectus –
UTILISATION OF NET PROCEEDS OF THE IPO
- Funding capital expenditure for expansion of our existing manufacturing facilities and developing new manufacturing facilities.
- Repayment/prepayment of our borrowings
- Funding strategic acquisitions and investments
- General corporate purposes
WHAT IS THE POSITIONING OF ADANI WILMAR?
The firm 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.
As of March 31, 2021, the market share of its branded edible oil was 18.30%, making the firm the dominant No. 1 edible oil brand in India armed with “Fortune”, its flagship brand and also the largest selling edible oil brand in India.
“We offer a comprehensive portfolio of edible oil products, including soyabean oil, palm oil, sunflower oil, rice bran oil, mustard oil, groundnut oil, cottonseed oil, blended oil, vanaspati, specialty fats and a range of functional edible oil products with distinctive health benefits,” the DRHP says adding that the firm’s products across segments are offered under a diverse range of brands across a broad price spectrum and cater to different customer groups.
A SNEAK PEEK AT THE FIRMS FINANCIALS
Adani Wilmar has registered a growth of 24% in its revenues in FY 2021 becoming one of the fastest growing packaged food companies in the country. Its revenues in FY21 stood at Rs 37,196 crores as compared to Rs 29,767 crores in FY20. Earnings before Ebitda grew from Rs 1,419 crores to Rs 1,431 crores during the same
ADANI WILMAR: PLANTS AND REFINERIES
It has 22 plants that are strategically located across 10 states in India, comprising 10 crushing units and 18 refineries. Out of the 18 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. The Mundra refinery is one of the largest single location refineries in India with a designed capacity of 5,000 MT per day
THE M&A STRATEGY
The firm intends to utilise Rs 500 crore of the IPO proceeds towards strategic acquisitions of manufacturing units or brands in the food staples business such as wheat flour, rice and besan, ready to cook and ready to eat segments.
“As on the date of this Draft Red Herring Prospectus, we are in active discussions and evaluating various strategic acquisitions, but we have not identified the potential acquisition targets,” the firm said.
THE RISK FACTORS IN TERMS OF COMPETITION, PRICING AND INFLATION
> Modern trade channels such as hypermarkets, supermarkets and online retailers may adversely affect the company's pricing ability, which may impact the results of operations and financial condition.
"India has recently witnessed the emergence of supermarket and hypermarket chains and online retailers and the market penetration of large-scale organized retail in India is likely to increase further. While we believe this provides us with an opportunity to improve our supply chain efficiencies and increase the visibility of our brands, it also increases the negotiating position of such stores. We cannot assure you that we will be able to negotiate new distribution agreements or renegotiate our existing distribution agreements going forward, specially our pricing or credit provisions, on terms favourable to us, or at all," Adani Wilmar said.
> The company said that even if it is able to raise adequate capital to maintain and grow its infrastructure, it may not be able to maximise returns from the capital expenditure.
> Adani Wilmar also noted that competition in the sector could possibly hurt its market share.
"Competition in the industries in which we operate could result in a reduction in our market share or require us to incur substantial expenditure on advertising and marketing, either of which could adversely affect our business, results of operations and financial conditions.
> The company also highlighted the impact of the COVID-19 pandemic on the pricing of its products.
"Although the prices for our products had risen due to them being food, industrial and essential commodities which are non-discretionary in nature, as well as due to the increase in stockpiling of such products, we cannot assure you that the prices of our products will not be adversely affected by the COVID-19 pandemic," Adani Wilmar said in the DRHP.
>Adani Wilmar also said that if inflation rises in India, then increased costs could cause its profits to decline.
"High fluctuations in inflation rates may make it more difficult for us to accurately estimate or control our costs. Any increase in inflation in India can increase our expenses, which we may not be able to adequately pass on to our clients, whether entirely or in part, and may adversely affect our business and financial condition."
INDIAN PACKAGED FOOD MARKET: POTENTIAL/TRENDS
The Indian packaged food retail market, estimated at Rs 6,00,000 crore in FY 2020 contributes only 15 per cent to the total food and grocery retail market estimated at Rs 39,45,000 crore in FY 2020. While the Indian food retail remains dominated by unbranded products such as fresh fruits and vegetables, loose staples, fresh unpackaged dairy and meat, the packaged food market is growing at almost double the pace of the overall category and is expected to gain a market share of 17 per cent by FY 2025 from a share of 14 per cent in FY 2015.
“Health concerns and limitation in movement due to COVID -19 have accelerated the growth of packaged food products which offer consistent and assured quality along with convenience. However, the penetration of packaged food is limited in the Indian households,” the DRHP says.Annual per capita spend on all categories of packaged food in India is estimated to be Rs 4,650, much lesser as compared to China at Rs 16,000 and the USA at more than Rs 1,12,500. Demand for packaged foods surged in the first quarter of FY 2021 as people stocked up in a panic during the lockdown period. The shutting down of food service options also led to a rise in eating occasions at home. While other sectors in retail are expected to contract by 30-35 per cent during Financial Year 2021 due to the impact of COVID-19, the packaged food segment is expected to grow at an accelerated growth rate of around 14 per cent.