Adani Wilmar IPO: Should you subscribe to the Rs 3,600 cr issue?

The IPO comprises a fresh issue of shares worth Rs 3,600 crore and the entire proceeds will go to the company. The firm said Rs 1,900 crore will be utilised to fund the capital expenditure, another Rs 1,058.9 crore will be used for the repayment/prepayment of the borrowings and the rest Rs 450 crore will be utilised for funding strategic acquisitions and investments. Adani Wilmar is selling shares in the Rs 218-230 range.

Most analysts are bullish on the edible oil major’s prospect after listing and advise investors to subscribe to the issue. They see diversified portfolio, strong brand value, raw material sourcing capabilities and strong parentage as key advantages for its future growth. Adani Wilmar markets its products under the Fortune brand.

“In terms of valuations, the post-issue TTM P/E works out to 37.6 times at the upper end of the issue price band, which is reasonable considering the company’s historical top-line and bottom-line CAGR of 13 per cent and 39 per cent, respectively over FY19-21,” said Jyoti Roy of Angel One.

The company’s valuations are comparatively cheaper than its Fast Moving Consumer Goods (FMCG) peers namely Nestle and Britannia Industries which are trading at PE of 81.6 times and 54.7 times. The average PE of its peers stands at 57.6 times.

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“Adani Wilmar has a strong brand recall, wide distribution, better financial track record and healthy ROE. Considering all the positive factors, we believe this valuation is at reasonable levels. Thus, we recommend a subscribe rating on the issue,” Roy said.

A joint venture between the Adani Group and the Wilmar Group, the company’s portfolio of products spans across three categories: edible oil, packaged food and FMCG, and industry essentials. A significant majority of their sales pertain to branded products accounting for approximately 73 per cent of their edible oil and food and FMCG sales volume for the financial year 2021.

“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 Rajnath Yadav of Choice Broking in a note.

Adani Wilmar has 22 plants in India, strategically located across 10 states, comprising 10 crushing units and 19 refineries. Out of the 19 refineries, 10 are port-based to facilitate use of imported crude edible oil, while the remaining was located in the hinterland in proximity to raw material production bases. The company also boasts the largest distribution network among all the branded edible oil companies in India.

Of the offered shares, 50 percent is reserved for qualified institutional buyers, 15 per cent for HNIs and the rest for retail investors. Shares can be bid in a lot of 65 shares.

Saurabh Joshi of Marwadi Financial Services also believes the stock is available at reasonable valuation as compared to its peers during the IPO. “We assign ‘subscribe’ rating to this IPO as the company is a leading consumer product company in India with leadership in branded edible oil and packaged food business,” he said.