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Adani Wilmar IPO: How good is it?

This leading FMCG food company has come out with its IPO. Here is a set of questions (and answers) that will help you make an informed decision about it.

Adani Wilmar IPO: How good is it?

Adani Wilmar IPO: How good is it?

In our story, Adani Wilmar IPO: Information analysis, we have shared the key details of the IPO, along with important information about the company. Here we will answer some questions about Adani Wilmar and evaluate it on parameters like management, financials, valuations, etc.

IPO questions

The company/business

1) Are the company's earnings before tax more than Rs 50 crore in the last 12 months?
Yes. The company's earnings before tax stood at Rs 829 crore for the twelve months ended September 2021.

2) Will the company be able to scale up its business?
Yes. The company has planned to utilise the proceeds from the issue to fund their capital expenditure which will help them expand seven of their existing manufacturing facilities and develop a new manufacturing facility.

3) Does the company have recognisable brands truly valued by its customers?
Yes. The company's flagship brand 'Fortune' is well recognised in the households of India with 11.5 per cent market share, and another recognised brand 'King's' holds 2.3 per cent market share.

4) Does the company have high repeat customer usage?
Yes. The company was able to create a strong brand awareness and achieve leadership due to repeat customer usage and strong penetration by its premium brand 'Fortune'.

5) Does the company have a credible moat?
No. Although the company has strong brand recall and well recognised management, it does not offer anything unique that its competitors cannot offer.

6) Is the company sufficiently robust to major regulatory or geopolitical risks?
No. The company sources around 60 per cent of its raw materials through imports. Although Wilmar Group's expertise can help them handle this, any restriction posed by the government regarding imports can severely affect the business.

7) Is the company's business immune to easy replication by new players?
Yes. Although new players can enter the business easily, they need a considerable amount of experience in sourcing of raw materials, supply chain management, good manufacturing capabilities and good market share to replicate the business. Since there are several other giants in this industry, it is tough for a new player to enter and gain market share.

8) Can the company's product withstand being easily substituted or outdated?
No. Although the company's products are essential in day to day life, there are several competitors who offer similar products which can substitute the company's products.

9) Are the customers of the company devoid of significant bargaining power?
Yes. Since the consumers are mostly individuals, they do not have significant bargaining power.

10) Are the suppliers of the company devoid of significant bargaining power?
Yes. Adani Wilmar gets its raw materials from various sources and a significant portion is also sourced through its own promoters, Wilmar Group.

11) Is the level of competition the company faces relatively low?
No. The company exists in a highly competitive environment filled with major established competitors.

Management

12) Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
Yes. Post-IPO, the promoters will hold about 88 per cent stake in the company.

13) Do the top three managers have more than 15 years of combined leadership at the company?
Yes. The CEO and Managing Director of Adani Wilmar, Angshu Mallick, has been with the company since 1999.

14) Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
Yes, we have no reason to believe otherwise.

15) Is the company free of litigation in court or with the regulator that casts doubts on the management's intention?
Yes, the company is free from any material litigation.

16) Is the company's accounting policy stable?
Yes. As per the auditors' report, the accounting policy is stable.

17) Is the company free of promoter pledging of its shares?
Yes. The company's shares are free of any pledging.

Financials

18) Did the company generate a current and three-year average return on equity of more than 15 per cent and return on capital employed of more than 18 per cent?
Yes. The company's three-year (FY19-21) average return on equity was 19.3 per cent and a return on capital employed of 25.3 per cent. For FY21, the company generated a return on equity of 22.1 per cent and a return on capital employed of 23.1 per cent.

19) Was the company's operating cash flow positive during the last three years?
Yes, Adani Wilmar reported positive operating cash flow during the last three years.

20) Did the company increase its revenue by 10 per cent CAGR in the last three years?
Yes. The company's revenue increased from Rs 28,797 crore in FY19 to Rs 37,090 crore in FY21, at the rate of 13.5 per cent CAGR.

21) Is the company's net debt-to-equity ratio less than one, or is its interest-coverage ratio more than two?
Yes. The company's net debt-to-equity ratio stood at 0.07 as of September 30, 2021. The interest coverage ratio stood at 2.76.

22) Is the company free from reliance on huge working capital for day-to-day affairs?
Yes. With working capital as a percentage of sales being less than 1 per cent, on average, over FY19-21, the company doesn't have reliance on huge working capital for day-to-day operations.

23) Can the company run without relying on external funding in the next three years?
Yes. While the business is free cash flow positive, the entire proceeds from the IPO will be used to deleverage and invest in future growth. So, the company should be able to run without relying on external funding in the next three years.

24) Have the company's short-term borrowings remained stable or declined (not increased by greater than 15 per cent)?
No. Adani Wilmar's short-term debt has increased 16 per cent from Rs 865 crore in FY19 to Rs 1,004 crore as of September 30, 2021.

25) Is the company free from meaningful contingent liabilities?
Yes. The company is free from meaningful contingent liabilities.

Stock/valuations

26) Does the stock offer an operating-earnings yield of more than 8 per cent on its enterprise value?
No, the stock will offer an operating-earnings yield of 4.3 per cent on its enterprise value.

27) Is the stock's price-to-earnings less than its peers' median level?
Yes. Post-IPO, the company's stock will trade at a P/E of around 40.4, which is less than its peers' median P/E of 53.2.

28) Is the stock's price-to-book value less than its peers' average level?
Yes. Post-IPO, the company's stock will trade at a P/B of around 4.1, which is less than its peers' average P/B of 21.

Adani Wilmar Scorecard?

Adani Wilmar Peer Analysis?

Also read Adani Wilmar IPO: Information analysis to learn about the company's key IPO details and important information.

Disclaimer: The authors may be an applicant in this Initial Public Offering.