Widely read:
Started as a joint venture in 1999 between Adani Group and Wilmar Group of Singapore, Adani Wilmar is one of the leading FMCG companies in India offering primary kitchen commodities. The company's portfolio can be divided into three categories: Edible oil which constitutes 65 per cent of the total sales, Packaged food makes up 11 per cent of the total sales, and industry essentials which constitute 25 per cent of the total sales, as of FY21. Soyabean oil (38 per cent), wheat flour (40 per cent) and castor oil (31 per cent) have the biggest share in each of their categories respectively.
The company has 22 manufacturing plants spread across 10 states which include a total of 10 crushing units and 19 refineries, out of which,10 refineries are port-based so that imported crude can be refined. They also have 36 leased tolling units besides the 22 manufacturing units that help them with additional capacities. Fortune, which is their flagship brand, is the largest selling edible oil brand in India. Adani Wilmar ranks first in soyabean oil and mustard oil, and is the largest manufacturer of stearic acid and glycerine as of FY21. As of FY20, it was the largest exporter of castor oil. They have also been consistently increasing their share in the food and FMCG space in the last five years.
Adani Wilmar is expected to benefit hugely from the growth of branded edible oil and the production of castor oil, which are both expected to increase by 7 per cent CAGR till 2025. The company's leadership in the edible oil segment and castor oil exports can help them retain this position. Although they have shown promising growth in packaged food recently, which is expected to grow at 11 per cent CAGR till 2025, the highly competitive nature of the segment can be a hindrance to the company, especially in the wheat flour and soap market.
Strengths:
1) Strong brand recall in edible oil segment: Adani Wilmar is a market leader in the edible oil segment - ranking first in soyabean and mustard oil, second in palmolein oil, and third in sunflower oil. Its flagship brand 'Fortune' is a market leader in soyabean oil and sunflower oil, and another brand of the company 'King's' is also a market leader in the soyabean oil segment.
2) Strong manufacturing capabilities: Many of the company's plants are end-to end integrated, i.e., both backward and forward integration. The crushing units are fully integrated with refineries. This helps them manufacture oleochemicals efficiently using de-oiled cakes from crushing and palm stearin from refining.
3) Strong management: The company is a joint venture between Adani Group and Wilmar Group who bring significant expertise to the business. Adani Group's understanding of domestic environment and supply chain capabilities combined with Wilmar Group's sourcing capabilities, help them in importing crude palm oil since the group is the largest supplier in the world. The management is highly experienced and will have a high shareholding post IPO.
Weaknesses:
1) Dependence on imported raw materials: Adani Wilmar imports around 60 per cent of its raw materials, as of FY21. Any restrictions on import may affect the business drastically since they have to plan the procurement months before production. Government's ban on importing of refined palm oil during 2020 is an example. Even though the company wasn't affected since they import crude palm oil, it is extremely important to notice that a similar ban in other products can affect them.
2) Dependence on revenue from oil segment: The company derives around 73 per cent revenue from edible oil and castor oil. Any restriction on raw materials importation or fluctuation in commodity prices may affect its revenue. The company has been hedging more than 50 per cent of its sales through futures contracts.
3) Highly competitive: Although Adani Wilmar has a large market share in the edible oil segment, the packaged food and other FMCG segments are highly competitive and filled with well established players such as Hindustan Unilever, Dabur, Britannia and many more. Even in the edible oil segment, they are in a close competition with Marico. Inability to maintain competitive prices, smooth production and supply chain may cause the company to lose market share.
Also, read about Adani Wilmar IPO: How good is it? to learn how we evaluate Adani Wilmar on various metrics.
Disclaimer: The authors may be an applicant in this Initial Public Offering.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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