IPO Size: Rs. 3,600 cr IPO: Entirely fresh issue (no OFS is unusually pleasing)

• Rs. 1,900 cr for capex over 3 years, across edible oil and food
• Rs. 1,060 cr debt repayment, to halve Rs. 2,200 cr gross debt
• Rs 450 cr strategic investments

Price band: Rs. 218-230 per share

Mcap: Rs. 29,888 cr, implying 12% dilution

IPO Date: Thu 27^th Jan to Mon 31^st Jan 2022, Listing: Tue 8^th Feb 2022

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

India’s #1 Branded Edible Oil Company

Adani Wilmar command’s 18% market share in India’s branded edible oil market, with edible oils accounting for 82% of company’s Rs. 37,000 cr revenue in FY21. 75% of edible oil revenue is from branded sales (through Fortune and masstige brands Kings, Bullet, Aadhar, Alpha etc.) while 25% is B2B/institutional sale.   

Strong Distribution

With 5,500+ distributors catering to 1.6 million retail outlets, company reaches 1 in 3 Indian households. It has extended flagship brand Fortune to food staples (rice, wheat flour, dal) which now account for 5% of revenue, while balance 13% revenue comes from non-branded industry essentials like oleochemicals, castor oil derivatives.

Healthy Financial Growth

Company’s revenue grew at 13% CAGR between FY19-21 to Rs. 37,000 cr, with edible oil revenue growing at 19% CAGR during this period. PAT growth was faster at 39%, to Rs. 728 cr. H1FY22 revenue rose 54% YoY to Rs. 24,900 cr, with PAT at Rs. 357 cr. H1FY22 EPS grew to Rs. 3.1 from Rs. 2.5 in H1FY21 and Rs. 6.4 in FY21.

High Growth Visibility

Current fixed assets stand at Rs. 3,800 cr, with another Rs. 700 cr being capital work-in-progress (CWIP), as of 30.9.21. Company has already capitalized Rs. 2,000 cr fixed assets in last 3.5 years and has plans to further invest as much over next 3 years. Its asset turnover ratio is quite high at 10x, providing high revenue growth visibility.

Moreover, market shift from unbranded to branded provides huge opportunity in food category (rice, wheat flour, besan have 12-18% branded penetration over +80% penetration in edible oil and salt), supporting bright margin outlook.

‘Money Left on the Table’ Pricing  

While company’s PAT margin of 1.5-2% may be low, it appears to have stabilized. With focus on volume growth and expanding branded mix, PAT is expected to grow in absolute terms, leading to FY23E PE multiple of 31x. Although not strict peers, Tata Consumer, having 10% revenue from unbranded sales, is trading at one-year forward PE of 54x, while Marico is ruling at 40x.  

In other words, on FY22E PAT of Rs. 800 cr, Adani Wilmar is priced at a m cap of Rs. 30,000 cr, whereas Marico is trading at m cap of Rs. 62,000 cr for Rs. 1,400 cr annual PAT and Tata Consumer at Rs. 67,000 cr for Rs. 1,000 cr PAT. Besides a healthy RoE of 22%, Adani Wilmar’s revenue and profit growth has been higher than both these closest peers, despite unbranded products being 30% of revenue. Thus, pricing adequately leaves room for appreciation, as company’s growth is superior, although margin is very slim.