Stock Analysis: Multibagger Adani Wilmar should be part of your portfolio?

Adani Wilmar, a joint venture between Adani Enterprises Ltd and Wilmar International Ltd, is the owner of the Fortune brand of edible oils. It has the largest range of edible oils comprising soya bean, sunflower, mustard, and rice bran. Its Fortune brand of oil has around 20% market share in India.

Adani Wilmar is the seventh listed Adani group company. Other listed entities include Adani Enterprises, Adani Ports and Special Economic Zones Ltd, and Adani Transmission Ltd.

Currently, two promoter entities -- Adani Commodities Ltd (a subsidiary of Adani Enterprises) and Lence Pte Ltd. (subsidiary of Wilmar International) each own nearly 57.174 crore shares (with a face value of ₹1 each) in AWL.

The listing of Adani Wilmar comes at a time when the group’s billionaire founder Gautam Adani overtook Reliance Industry’s Mukesh Ambani to become the richest Indian, according to the Bloomberg Billionaires Index.

The company's primary strengths include a strong distribution network with 1.8 million outlets, a strong brand and market leadership, and an Integrated manufacturing facility that helps drive cost efficiencies across its different business lines, a well-entrenched promoter group, Says Edelweiss in a research report.

Industry overview

The food and grocery retail market were estimated at INR 39,450bn in FY20. while the Indian packaged food retail market was estimated at ~INR6000bn in FY20 (15% of the total food and grocery retail market). 

While Indian food retail remains dominated by unbranded products such as fresh fruits and vegetables, loose staples, fresh unpackaged dairy and meat etc., the packaged food market is growing at almost double the pace of the overall category and is expected to gain a market share of 17% by FY25 from a share of 14% in FY15.

Health concerns and limitation in movement due to COVID -19 have accelerated the growth of packaged food products that offer consistent and assured quality along with convenience.

Product Portfolio

Adani Wilmar’s business activities include oil palm cultivation, oilseed crushing, edible oil refining, sugar milling and refining, speciality fat, oleochemical, biodiesel and fertilizer manufacturing and grain processing. 

It has over 850 manufacturing plants and an extensive distribution network covering China, India, Indonesia and 30 other countries.

Edelweiss said, that the company has one of the largest output and distribution in many of its categories. The company has an output of 2.8mn MT and is the largest supplier of edible oil in the nation. which gives a strong edge over other players for scale, bargaining/pricing power with suppliers and consumers, creating barriers for entry – leading to an inherent advantage.

It has the largest distribution network among all branded edible oil players in India. As of FY21, the company’s brands are present in one out of three households in India, with a household reach of 90.5mn through the ‘Fortune’ brand alone.

Adani Wilmar’s branded edible oils market share in FY21 was 18.3% (Nielsen), putting it the dominant No. 1 edible oil brand in India. ‘Fortune’, the flagship brand, is the single largest edible oil brand in the nation with a market share of 22.8%, 8.3% and 24.9% in soybean, sunflower and rice bran oil.

As of March 31, 2021, the company exported products, including branded edible oil products, foods, FMCG and industry essentials, to over 50 countries. It has recently introduced its branded edible oil products to the Middle East.

Comparison Dynamics

According to Edelweiss, Ruchi Soya is a major competitor for Adani Wilmar, both in the edible oils and soya chunks markets. Adani Wilmar, with a share of ~18%, leads the edible oils markets. Ruchi Soya is the immediate next competitor with an 8% share.

In soya chunks, Ruchi Soya leads with a 40% market share. Adani Wilmar is a strong number two with an 18% market share.

Competitive advantage

The majority of the firms crushing plants are fully connected with refineries, allowing them to refine crude oil that they produce themselves. Their plant in Mundra, for example, is an end-to-end integrated facility that produces vanaspati, margarine, oleochemical products, and soap bars using raw materials derived from the refining process.

In the same place, the manufacturing capacity for edible oils and packaged goods are combined. Because of this integrated manufacturing infrastructure, they have been able to share their supply chain, storage facilities, distribution network, and experienced workforce across multiple goods, lowering total processing and shipping costs, the brokerage house added.

Wilmar International, is the world's largest palm oil supplier, giving them a competitive advantage because they don't have to rely on third-party palm oil suppliers. Wilmar Group supplied around 30% of the imported raw materials by value in FY21. Wilmar Group also provides market data on price fluctuations in the international market, which helps the company manage the price risk connected with raw material imports.

Adani Wilmar has the largest distribution network among all branded edible oil players in India with approximately 5,600 distributors across 28 states and 8 union territories throughout India, catering to over 1.8mn retail outlets.

Opportunity

The Indian packaged food industry is seeing rapid growth. Certain food categories, such as wheat flour and rice, predominantly sold in loose form, are now increasingly being sold in packages. However, the penetration rate of packaged foods in India remains low, providing significant potential for growth for packaged edible oil and food products.

The packaged food segment has seen a growth of roughly 10% CAGR from FY15 to FY20 and is expected to grow at around 11% CAGR till FY25E, to reach a size of INR10,130bn. These favourable industry dynamics, combined with Adani Wilmar’s strong brand and distribution reach, will enable the food segment to grow 31% CAGR over FY21-FY24E, in our view.

A number of packaged food categories have witnessed a significant increase in overall branded product usage. For instance, the share of branded wheat flour has grown from 3% in FY08 to 15% in FY20, and the share of branded salt has grown by value, from 5% in FY07 to 88% in FY20. This shift, accelerated by the covid-19 pandemic, is expected to continue in future, it added.

The branded edible oils market is estimated at around INR1,560bn. It is expected to grow faster than the overall category, gaining a lion’s share of close to 90% of the total market, in terms of value, in the coming five years. Edelweiss expect Adani Wilmar’s edible oil volumes to grow at 7.4% CAGR over FY21-24E.

Stock Performance

Adani Wilmar shares are one of the multibagger stocks in 2022.

In the past one month, the stock of Adani Wilmar has surged 59 per cent as compared to 8.9 per cent rise in the S&P BSE Sensex. It has zoomed 164 per cent from its issue price of ₹230 per share. AWL had raised ₹3,600 crore through an initial public offer (IPO) and had debuted on the bourses on February 8, 2022.

Future Plans

Adani Wilmar's future growth strategy is focusing on value-added products with the launch of edible oil products, rice bran health oil, fortified foods, ready-to-cook soya chunks, khichdi and more.

“The company has a strong raw material base and was one of the largest importers of edible oil in the year 2021.

The company is looking to acquire food brands along with using the amount it raises via its IPO to expand its capacities in the food segment.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.