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‘Adani Wilmar margin to improve as food becomes biggest business for next 5 yrs’

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Angshu Mallick, MD & CEO and Shrikant Kanhere, CFO, Adani Wilmar, in conversation with ET NOW post listing at a discount of 4%.


Congratulations on the IPO. Could you just talk about the demand trends? What has been the growth?

Angshu Mallick: At Adani Wilmar, we are continuously looking and studying the demand from the consumer side – both urban and rural. Now we will have to divide this into two parts; one is edible oil and this is of a very mature category and consumption is almost steadily growing at around 6-7% per annum and we have been going a little better than that. It will continue to be like that in days to come. We at Adani Wilmar, see a major opportunity in the branded staples category.

Now the branded staples category is hardly 10-12% branded unlike edible oil which is 80% branded. Going ahead, a lot of consumers are now shifting to branded staples. They need more hygienic, healthier products and ecommerce has added to ordering groceries. We have been growing at around 25-30% and we hope to continue at these levels.

Let me talk about your volume mix as well as product mix. You have been talking about increasing volumes in the food business which currently contributes 10-11% of your overall revenue. What kind of revenue mix can we look forward to going forward?

Shrikant Kanhere: As far as the food business is concerned, the whole focus of the company for next 5-10 years is going to be the food business because edible oil is a steady state mature business and at India level also, it is a fully matured business. So food is going to be the next strategy. Currently, we have been able to showcase volume growth of 13-35% year on year as far as the food is concerned with major staples like wheat flour, rice, besan, pulses, and sugar in our kitty. But as we move forward, this business will grow more than the edible oil business and therefore, the whole focus of the company is to have more and more share of food coming into the overall scheme of things, rather than edible oil.

As we move forward after Rs 1,900 crore of the capex which will go into the food business, after two, three, four years of operations, once this food capex is delivered, we are quite hopeful that food will have a reasonably good share in the overall scheme of things.

The rural sales are currently 25% of your target for the rural market. What sort of growth opportunity do you see there?

Angshu Mallick: One has to understand that when we talk of rural growth and rural consumption, we are in the essential staples basket. So everyday’s consumption is wheat flour, rice, and sugar and things like that. Consumers obviously first prefer to buy their grocery and then other value added products. So our growth has not impacted as much as other FMCG for the possible reason that these are all essential and consumers tend to first give preference to basic essentials.

Now 25% of our wheat flour packed wheat flour business comes from the rural markets and even in besan, it is around 30-35% in smaller towns. Smaller villages also have now started consuming packed grocery and this trend is very heartening and an eye opening trend for us because we see great opportunity in this.

What about your mainstay, the oil segment? You are one of the largest importers of crude edible oil . Have the supply constraints as well as the pricing pressure eased in the edible oil market?

Angshu Mallick: Adani Wilmar is the largest importer of edible oil and we have 10 factories, port-based refineries. We import possibly at every alternate port in the country. So we have a very wide network of imports. We work with global largest suppliers and Wilmar JV partner is also one of the largest players in palm oil and they are also one of the largest edible oil players in the world. We got a lot of information insights, market knowledge and also we get supply from them.

As far as supply is concerned, Adani Wilmar has always had the privilege of getting our ships booked first and getting the quantity booked first. Those are there because we are the other largest importer in the country. When it comes to the domestic market, now the mustard crop is going to come and this is going to be a very big crop and a lot of mustard seeds will be crushed in the initial days from March to June and that will bring a lot of oil in the system and possibly reduce the pressure on imports. That would also balance or stabilise the prices and consumers would benefit from it.

What levels of margins do you expect from here on?

Shrikant Kanhere: It is a good question. In our business, normally we do not look at margins as a percentage of revenue, given the fact that revenues are impacted due to inflationary pressures like FY21. We have high raw material prices and since our grant is very strong, we have been able to navigate through this inflationary pressure and therefore the revenue was up while the volumes were flattish.

What we look at basically is absolute EBITDA on absolute PAT margins. They are consistently growing in tandem with volume growth. That is what we have been able to showcase till now. We have been growing our margins more than the volume growth, revenue does not make sense because of the inflationary pressure. Margin consolidation is a continuous process which we have been able to showcase for the last more than five years. EBITDA is growing 20% plus on CAGR for the last five years.

As we go further, in the next five years, as I said earlier, food is going to be the biggest business for us. Food is a good value adder, margin puller and therefore edible oil will keep consolidating but food will keep adding more. Therefore, our expectation is that the margin structure should improve and we are able to deliver what we have been able to be for the last five years.

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