Adani Wilmar IPO opens – Should you subscribe?

The Rs 3,600 crore IPO involves only a fresh issuance of about 15.65 crore shares and does not include offer for sale.

The shares will be offered at Rs 218-230 apiece. Investors can bid for a minimum 65 shares and in multiples of 65 thereafter. Retail investors can invest a minimum of Rs 14,950 in one lot and their maximum investment can be Rs 194,350 for 13 lots.

The promoter shareholding will come down from 100 percent to 87.92 percent after the public issue.

The allotment of shares will be decided by February 3, unsuccessful investors will get refunds by February 4 and successful bidders will get shares credited to their demat accounts by February 7.

The shares of Adani Wilmar will list on BSE and the National Stock Exchange on February 8.

The company will utilise the proceeds from the IPO for funding capital expenditure; repayment/prepayment of borrowings; funding strategic acquisitions and investments; and for general corporate purposes.

Brokerage views

The brokerages are quite optimistic about the future of the company and have unanimously given a positive rating to the issue based on the fact that the company has cemented its leadership in the edible oil industry in India and has been churning profits consistently since FY19.

According to the report from Ventura Securities, Adani Wilmar was among the top five fastest growing packaged food companies in India by revenue during the period FY20. “Over FY21-24, we expect Adani Wilmar to grow revenues at a robust CAGR (compound annual growth rate) of 16.7 percent to Rs 58,959 crore spearheaded by the FMCG vertical which is set to grow at a CAGR 31.5 percent to reach Rs 4,338 crore,” said the report.

The risks to this growth rate arise from the fact that the firm does not have long term agreements with suppliers for raw materials and “any increase in the cost of, or a shortfall in the availability of, such raw materials could have an adverse effect on our estimates of profitability”, added the report.

By FY24 the brokerage expects the FMCG revenue share to climb to 7.4 percent (over 220 basis points) leading to Ebitda growth of 23.4 percent and 19.9 percent growth in profit after tax to Rs 2,491 crore and Rs 1,253 crore respectively by FY24.

“We initiate with a ‘subscribe for long term’ with a 24-month price target of Rs 468.8 per share (48.6x FY24 earnings) representing an upside potential of 103.8 percent from the upper price band of the issue price of Rs 230/share,” the report said.

Choice Broking highlights that the key strengths of the company are its market leading position in industry essentials, strong raw material sourcing capabilities and its integrated business model with well-established operational infrastructure and strong manufacturing capabilities.

The brokerage suggests that the company faces risks from unfavourable government policies and regulations and difficulty in expanding the food and FMCG business. Probability of sustained general inflationary environment, fluctuations in key commodity prices and unfavourable forex rates can also impact the prospects of the company.

The brokerage estimates that “at the higher price band of Rs 230, the company is demanding a P/E (price to earnings) multiple of 37.5x (to its TTM or trailing twelve months earning of Rs 6.1), which is at a discount to the peer average of 57.6x”. Its edible oil business is likely to have a secular growth trend, but there is a huge untapped market for its food and FMCG business segment. “Thus considering the above observations, we assign a subscribe rating for the issue,” said the brokerage.

Angel One considers volatility in raw material prices and increase in competition as major risks the company faces.

On valuation, it said, “the post-issue TTM P/E works out to 37.6x (at the upper end of the issue price band) which is reasonable considering Adani Wilmar’s historical topline and bottomline CAGR of 13% and 39% respectively over FY19-21”.

Further, Adani Wilmar has strong brand recall, wide distribution, better financial track record and healthy ROE (return on equity). “Considering all positive factors, we believe this valuation is at reasonable levels. Thus, we recommend a subscribe rating on the issue,” advised the brokerage in its report.

Marwadi Financial Services said in its report: “Considering the TTM (September 2021) EPS of Rs 6.12 on a post-issue basis, the company is going to list at a P/E of 37.56x with a market cap of Rs 29,898.6 crore whereas its peers Nestle and Britannia Industries are trading at PE of 81.6x and 54.7x”.

It assigns a subscribe rating to this IPO as the company is available at a reasonable valuation compared to its peers.

Echoing the report, Ravi Singh, vice president and head of research, ShareIndia, suggests that “the overall FMCG sector may be one of the key growth drivers this year”.

With the backing of Adani Group, which has shown consistent growth in the recent past, Adani Wilmar can be a good company to invest in with a long term perspective, he added.