Can you make a fortune in Adani Wilmar IPO? What brokerages say

The IPO in the price band of Rs 218 to Rs 230 per share will be open for subscription from January 27 to January 31.

Adani Wilmar Ltd (AWL) was incorporated in 1999 as a joint venture between Adani Group and Wilmar Group of Singapore. This FMCG company product portfolio is spread across three different categories, (i) Edible Oil (ii) Packaged food & FMCG – such as wheat flour, rice, pulses, and sugar (iii) Industry essentials.

ADL is among the top five fastest growing packaged food companies in India, with Fortune as its popular brand. The company has 22 manufacturing facilities, comprising 10 crushing units and 18 refineries, located across 10 states in India.

The company plans to raise up to Rs 3,600 crore through its initial public offering (IPO), in the price band of Rs 218 to Rs 230 per share, during the offer period. January 27 - January 31. Investors can bid for a minimum 65 shares and in multiples thereafter.

The issue is of fresh issuance of about 15.65 crore equity shares. Post issue, the promoters shareholding will come down from 100 percent to 87.92 percent (approx. 44 per cent with Adani and Wilmar each).

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.

The allotment of shares will be decided by February 3, and successful bidders will get the shares credited to their demat accounts by February 7. The shares shall be listed on February 8. As per the GMP (Grey Market Premium) the IPO can provide a listing gain of 15-20 per cent, as of January 25.

Here’s what the brokerages have to say about Adani Wilmar’s maiden share sale:

K R Choksey
Rating: Subscribe

Positives:
-    Shift in consumer preferences towards packaged foods
-    Strong brand recall across price points
-    Capital infusion to support growth
-    Strong research and development team

Concerns:
-    Potential uncertainty on raw material procurement front
-    Volatility in forex markets
-    Slowdown in rural momentum
-    Excessive dependence on Edible Oil segment

The brokerage firm believes AWL’s focus on growth of FMCG and packaged food business and shift to value added products will result in increasing market share and expansion of margins. With the Indian economy recovering strongly from the Covid-19 impact and expected to grow faster to become a $5 trillion economy, places AWL in a sweet spot to grow multifold. Hence, the brokerage recommends ‘SUBSCRIBE’ for long-term gains.

Angel One
Rating: Subscribe

Positives:
-    Diversified portfolio with leading brands catering to most daily kitchen essentials
-    Strong manufacturing capacity with 22 manufacturing units in India
-    Largest distribution network among all branded edible oil companies in India

Concerns:
-    Volatility in raw materials
-    Increase in competition could impact profitability

As per the brokerage firm, in terms of valuations, the post-issue TTM P/E (Trailing Twelve Months PE) works out to 37.6x (at the upper end of the issue price), which is reasonable considering AWL’s historical top-line & bottom-line CAGR of around 13 per cent and 39 per cent, respectively. Thus, they recommend a ‘SUBSCRIBE’ rating on the issue.

Choice Broking
Rating: Subscribe

Positives:
-    Differentiated and diversified product portfolio with market leading brands
-    Strong raw material sourcing capabilities
-    Extensive pan-India distribution network
-    Strong parentage with professional management and experienced board

Concerns:
-    Unfavourable government policies and regulations
-    Sustained general inflationary environment
-    Fluctuations in key commodity prices and forex rates
-    Unfavourable sales mix

At the higher end of the price band of Rs 230, AWL is demanding a P/E multiple of 37.5x, which is a discount to peer average of 57.6x. Its edible oil business is likely to have a secular growth market, but there is a huge untapped market for its Food & FMCG business segment, said the brokerage update. Hence, it recommends a 'SUBSCRIBE' rating on the isuse.

HDFC Securities
Rating: Unrated

Positives:
-    Comprehensive packaged consumer products portfolio catering to most daily essentials of an Indian kitchen
-    Products available across major e-commerce platforms
-    Flagship brand ‘Fortune’ has a strong brand recall
-    Integrated business model with well-established operational infrastructure and strong manufacturing capabilities

Concerns:
-    Operations dependent on the supply of large amounts of raw materials
-    Derives significant portion of revenue from edible oil business segment
-    Import restrictions by other countries
-    Involvement of select Adani group companies in various legal, regulatory and other proceedings, could have an adverse impact on the business and reputation

Arihant Capital
Rating: Subscribe

Positives:
-    Covid has accelerated digitalization of customer interactions with hospitality and travel companies
-    Marquee global customers with long-term relationships
-    Innovative AI driven industry relevant SaaS solutions
-    Track record of successful acceleration post acquisitions

Concerns:
-    Unable to predict acquisition patterns due to demand volatility
-    Inability to drive customer delight to increase retention
-    No interoperability increases acquisition costs

Basis of the valuations, cemented market leadership in edible oil segment and consistent profitability since FY19, the brokerage firm recommends a ‘SUBSCRIBE’ rating on the IPO as it believes that the company has a promising growth trajectory enforced by its capable management and constant product innovation.

Investmentz
Rating: Subscribe

Positives:
-    Broad customer reach
-    Strong brand recall across a diverse range of price points
-    Market leading position in select kitchen and industry essentials
-    Strong parentage with professional management and experienced board

Concerns:
-    Adverse local and global weather can impact availability of raw materials
-    Lack of long-term agreements with suppliers of raw materials
-    Involvement of certain Adani group companies in legal and regulatory tangles

The Asit C. Mehta firm believes that AWL is well positioned to gain the expected growth in the industry due to its outstanding product mix, established brand name, robust distribution network, varied client base, and proven financial performance. It recommends ‘SUBSCRIBE’ to the issue for a long-term prespective.