Adani Wilmar Ltd. | IPO Analysis | CA Rachana Ranade - YouTube

Hey folks CA Rachana Ranade here and I welcome  you all to another interesting IPO review of Adani  

Wilmar and this time we did a different exercise  I had done some polls on instagram and twitter  

and these were the results of the poll and because  you all said that yes we would want to know about  

this company in detail and I thought your wish is  my command and that's why I'm coming up with this  

IPO analysis but then my wish is also your command  so you have to smash that like button wow anyways  

so what are we going to discuss in this  video we are going to talk about number  

one what does the company do followed by company  followed by the industry analysis then we will  

talk about the financials we'll talk about the  valuation we'll talk about the peer comparison,  

certain risks and litigations,  strengths and IPO details

Now let's try and understand what does the company  do and the company Adani Wilmar is a FMCG company  

offering most of the kitchen commodities for  Indian consumers as the name suggests Adani  

Wilmar it's a 50 50 jv everyone has heard about  Adani group and it's a multinational diversified  

business group based out of what obviously India  what is about Wilmar group Wilmar group is Asia's  

leading agribusiness groups but which is based out  of Singapore right now let's try and understand  

with these two groups coming together is there any  synergy benefit created or not so basically Wilmar  

group brings sourcing capabilities and technical  know-house okay so you can imagine from the  

procurement side Wilmar group has a lot of  strength but once after procurement is done  

production is done then what kind of expertise is  required for that Adani group brings and brings  

in the local market expertise advanced logistics  experience in trading and that is why I'm saying  

that these two groups coming together is getting  a lot of synergy benefits right now let's try and  

understand uh what are the three major categories  in which this company operates the very first  

category is the edible oils category and if you  see this figure you can understand that 65 percent  

of their business I'm talking about sales volume  wise is contributed by edible oils uh industry  

essentials 25% and food and FMCG is contributing  to 11% but I'm sure you might be interested  

to know that if I'm talking about edible oils  what all things are included in this segment  

if I'm talking about edible oils it's  about uh more of soya, palm, sunflower,  

mustard all these will be coming under what under  edible oils and I'm sure that you might be aware  

that company's flagship brand is Fortune and it  is the largest selling edible oil brand in India  

if I move ahead with the second category  second category is about food and FMCG  

which is contributing to almost 11 percent  again I'm repeating sales volume wise now  

what all things are included in this you can see  here again in the chart wheat flour, rice pulses,  

beans, soya nuggets all these are into this food  and FMCG category remember what happened in the  

pre bumper of the video so old olden days first  is to go to the grocer bring the wheat then uh  

whatever sorted take out all the stones right then  sieve it I guess that is the correct word right  

and then uh okay what not I don't know all the  English equivalents guys understand my emotions  

right and then we used to go get it I mean we used  to grind that and then finally the atta is to be  

ready but now with the help of all these online  portals we can just quickly order that and that's  

what happened in the pre-bumper right so wheat  flour, rice, pulses, bases all these are what  

coming under the food and FMCG category so the  company's fortune brand again ranks second and  

third in India in packaged wheat flour and basmati  rice respectively in fact company is among the top  

five fastest packaged food companies India based  on the growth in revenues during the last five  

years by the way many people also ask me ma'am  where do you get all these information of course  

I've taken all this information from the rhp of  the company which is the red herring prospectus  

right followed by the last one it is about  industry essentials and in industry essentials you  

have castor oil and if I'm talking about industry  essentials company is the largest manufacturer  

of stearic acid and glycerin in India okay  I'm going to talk about that a little bit more  

in the coming section itself so if I go ahead  with the manufacturing facilities now okay so  

all in all I hope you have understood the three  major lines of the business which are the three  

major lines edible oil, packaged food FMCG and  industry essentials right but for this you need  

good manufacturing facilities large number of  manufacturing facilities where in company is  

22 plants across 10 states and these 10 plants  comprise crushing units oh sorry plants comprise  

of 10 crushing units and 19 refineries as well  okay companies refinery in Mundra is the largest  

single location refinery in India with a design  capacity of 5000 metric ton per day that's a huge  

capacity right so currently company has a you know  a lot of integrated manufacturing infrastructure  

facilities wherein number one I'm going to talk  about backward and forward integration just to  

simplify this process you can understand that  their manufacturing plant have crushing units  

and their manufacturing plants also have refining  refinery units right so what happens from this  

crushing units uh the company is able to take out  de-oiled cakes and from refineries they take out  

palm steering and palm oil okay now with these  they manufacture what oleo chemical products  

and we with these oleo chemical products they're  able to manufacture products like stearic acid  

glycerin and if I'm talking about the FMCG  applications soap and hand wash right so I  

hope this was a little bit more to digest if you  want you can again rewind and revisit this part  

uh but I hope all in all you have understood  about backward and forward integration  

also one last point company is currently operating  at roughly 50% of their installed capacity.

Well going ahead with the industry analysis  India's domestic consumption grew at 11.1 percent  

CAGR between financial years 14 to 19 whereas  USA and china grew at 4.3 percent and 8.2 percent  

respectively so our domestic consumption has been  much higher than these two countries but if I'm  

talk about talking about annual per capita spent  on the categories of packaged foods in India on an  

average per capita uh spend was just 4650 rupees  on what packaged food spent category which is very  

less as compared to china an equivalent of 16000  INR and USA at an equivalent of 1,12,500 INR right  

in fact uh it is believed that the packaged food  is set to gear up at higher levels why because of  

the concerns and limitations in movement due  to Covid 19 and also people feel that it's  

a packaged food and it'll be more safe so maybe  the trend can grow in this favor in India as well  

now if I'm talking about package food retail  category let me just focus on the package  

staples that is edible oil right now if you see  here the market size has grown from financial  

year 2015 to financial year 2020 at a 7% CAGR and  it is expected to grow at 6.6% CAGR not bad in  

fact this category generally grows at this rate  only so nothing too good nothing too bad stable  

uh above average I can say then if I'm talking  about the presence of large FMCG food companies  

across kitchen essential commodities so if you  remember is Adani Wilmar general FMCG company no  

FMCG company with focus on what essential kitchen  commodities so here you can see what all things  

come up come up under this category it's edible  oils, wheat flour, rice, pulses, sugar and dairy  

uh fresh package so you can see amongst its peers  only Adani Wilmar you can see tick mark in five  

almost yeah five categories out of six  categories so again has a good competitive edge  

and if I'm talking about the overall financial  performance 2019 2020 and 2021 from the edible  

oil business their revenues contributed to 74.8  percent 79.16% and 82.23% respectively so I hope  

you are understanding how important is the edible  oil category for this specific business as well  

so if I move on uh the overall market uh size of  this edible oils is almost 1,79,500 crores but  

out of this the largest chunk is again by whom  uh Adani Wilmar at 17% you will be like what is  

this 60% is others all two to two to branch it  could be local brands all this put together is  

60 percent but one single largest is again Adani  and see the second largest that's at 8% so this  

is more than double now if I go to edible oil zoom  in into it further what all comes under edible oil  

under edible oil you have palm oil, soybean  oil, mustard oil a lot of things and out of  

this if you see amongst its peers Adani Wilmar  is present in all the categories so again that's  

the edge that they are having over their  competitors now if I'm talking about the  

overall India's per capita consumption in edible  oil it's estimated to be 16 to 70 kgs per annum  

again which is comparatively lower as compared to  the world average of almost 24 kgs per annum now  

if I'm comparing this with Pakistan Bangladesh  and china still it's 19, 19 and 21.5 kgs and  

believe it or not in the western world this has  an average of 40 kilograms per person per annum  

uh as per a report that i read again it mentioned  that in the refined oil in consumer packs category  

their market share of branded edible oils  was at 18.3 percent at 31st march 2021.

Now let's start with the financials if you can  see revenue from operations has gone up from 287  

000 million rupees to 370 000 million rupees  of course I'm rounding off the figures right  

uh the CAGR of revenue is coming to almost 8.8%  if you see even EBITDA is positive with a CAGR  

of almost 4.5 percent and CAGR of PBT is 10.07  percent if I go into the final figure in the P&L  

you can see the restated profit for the year has  gone up from 375 million rupees to 7276 million  

rupees with a CAGR of I mean PAT CAGR of 24.67  percent wow feels good to read PAT positive figure  

and that too with a nice CAGR right now if I move  by with the balance sheet nothing great i mean  

nothing to be discussed in the asset side but if I  go on to the liability side equity and liabilities  

you can see other equity that is nothing but  reserves and surplus that is going up continuously  

in the upward trajectory from nineteen thousand  six nine sixty seven million to thirty one  

thousand eight hundred and thirty eight millions  there are certain borrowings in the company but  

we are also going to talk about the debt to equity  ratio which is absolutely in an okay zone plus the  

ipo proceeds are also going to lower that down  further now if i move ahead with the cash flow  

statement you can see i'm mainly going to focus  only on operating activities it is positive very  

much in positive you can see that there has been  a drop but that is mainly because of changes in  

inventory nothing worrying as such going on with  the ratio analysis you can see that their debt  

to equity ratio which i was just talking about is  at a decent enough level of 0.54 current ratio is  

greater than 1 EBITDA is also decent enough PVT  numbers, PAT all in all okay ROE and ROCE both  

are in double digit ROE latest figures 22.06  percent and ROC is 0.54% good one one point which  

is about asset turnover you can see asset turnover  is good for the company at 9.31 so basically m  

higher the asset turnover it means that more  and more they are investing into PPE that is  

property plant and equipment higher revenue  will they be able to generate for the company

Let's move on with the valuation if you're  checking the PE the at the lower price band  

p is coming to 42.99 and at the higher price band  it's coming to 45.36 how is it as compared to the  

industry industry highest pe is at 89.73 average  66.31 and lowest is also 46.79 so if you see  

their pe is lower than the lowest in the industry  average so if i compare their pe with the peers  

as well here you can see very clearly lowest is  of whom is of Britannia industries at 46.79 and  

their p is lower than that so I believe as per the  pe valuation metrics is concerned this one does  

show that yes it is kind of undervalued and seems  that there is some margin left for listing gains  

if I'm talking about the next one which is  eps you can see that eps is the lowest as  

compared to their peers the second largest is  also uh somewhere around 9.08 which is Marico  

their eps is 6.37 basic eps if i'm talking about  the net worth you can see net worth is 22.06  

percent and this is i guess the fourth largest as  compared to the peers if i'm going ahead with the  

NAV is also 28.86 uh lowest from the second so  uh again not a huge one though but i hope you  

have understood all the various parameters that  we have discussed PB that is nothing but price  

to book value is again at six point eight two  at a lower band and seven point one nine at a  

higher brand uh band but if I'm comparing some  other parameters with their peers you can see if  

I'm talking about revenue from operations Adani  Wilmar is at the third slot if I'm comparing it  

with ITC which is at number one HUL at number two  if I'm talking about revenue CAGR their revenue  

CAGR is highest at 11.3 as compared to Nestle  Britannia HUL ITC as well and if I'm talking  

about EBITDA CAGR they are again at the second  position now with 20.7 percent of EBITDA CAGR

The very first risk that we should discuss is  the unfavorable local and global weather patterns  

because of which it can have an adverse impact  on the availability of raw material the second  

one is that if there is a delayed shipment  in the imported crude edible oil then of  

course their manufacturing can get hampered of  course increased in transport cost is also one  

risk which the business is involved with because  more and more uh transport costs that will have  

a higher impact on the production cost as well  and in turn their margins can squeeze in further  

last one is about the regulatory legal and other  proceedings against the promoters promoter group  

group companies we're going to check out uh check  that out one by one in detail now the very first  

one you can see on the screen is about litigations  involving their company of course i'm not going to  

read out all the litigations but you can see there  are again two subparts here litigations against  

the company and litigation by our company here  you can see a lot of outstanding cases of course  

amounts involved are also decent enough you can  see here the amounts are also in rupees million so  

if you want you can pause the screen read through  this and then go ahead if you see litigations  

involving against the directors again you have  certain litigations then you see litigations  

involving their promoters in that you have again  two points litigations against their promoters  

and litigations by their promoters so you can see  again two subparts here and the last one that we  

are going to discuss is about the indirect taxes  one again there is there is a litigation and final  

is litigations again litigations involving their  subsidiaries and these are the litigations by  

their subsidiaries where again you have direct  tax and indirect tax so i believe that whenever  

you are applying for the company of course as we  are discussing in this case they are number one  

in many facets they do have a lot of strengths but  we can't just look only at the good points right  

you also have to understand what are the risks  litigations and after understanding financials and  

all other valuation parameters then take a final  call whether you're going to invest in this or not

Well now that we have understood the risks and  litigations in detail now also let's have a  

quick recap of all their strengths their brand  Fortune as we discussed has a very strong brand  

recall value second important strength is that  they have a leadership in branded edible oil and  

packaged food business in India also they are one  of the fastest growing food FMCG they also have a  

very strong parentage if you remember we talked  about the mega business behind this jv of Adani  

and Wilmar group where Wilmar International  is the largest palm oil supplier in the world  

and because of this what happens is that  they get an additional competitive edge  

in enabling mitigation of price risk and if  I'm talking about Wilmar which is the largest  

edible crude oil importer in India it gives a  good bargaining power for better quality of raw  

materials if I'm talking about the distribution  network company is the largest distribution  

network amongst the branded edible oil companies  in India and as per the IMRB report the company  

was present in one out of three households and  they were catering to 1.6 million retail outlets

Moving ahead with IPO details the issue opens  on 27th of January closes on 31st of January  

if you see that the share is going to be listed on  BSE as well as NSE there's going to be an employee  

discount for that as well the IPO's listing date  is at 8th of February 2022 minimum investment  

is 14950 and of course RII category highest  is1,94,350 if you've read about this company  

they had originally planned their IPO size at  4500 crore rupees which they've taken down to  

3600 crore rupees so when I was wondering that why  is there a reduction in the IPO size I read that  

the company felt that there is no need to allocate  a huge chunk for the general corporate purpose and  

that is the reason why they have reduced the size  by the way SEBI also allows such a reduction of  

almost up to 20 percent in the IPO size when after  the DRHP is filed but before the RHP is filed  

so moving ahead what are the objectives of the  ipo very important it is not an OFS it's 100  

fresh issue so whatever funding are going to  get they are going to utilize it for capital  

expenditure you can check out the table wherein  you will understand how much allocation is for  

what purpose they're also going to do some  repayment and prepayment of the borrowings  

also want to use it for funding the strategic  acquisitions and investments for the company well 

I hope you have understood about the company in  detail but the big question am I going to apply  

or not for that don't forget to check out the  live session on 31st at 11 am and if you also  

want to know more about how to analyze the IPOs  you can click here and if you want to know about  

the IPO hits and misses of 2021 you can click  here till then take care Jai Hind and bye bye