Listing Of Adani Wilmar On The National Stock Exchange Of India
Adani Wilmar has finalised its IPO price range at Rs218-230 per share. We view this positively to unlock shareholder value by unleashing the true value of its subsidiary. However, we expect the impact from AWL to Wilmar to be marginal as the contribution of AWL is about 5% of Wilmar Group’s earnings as compared with YKA which contributed 60-70%. We are not expecting any special dividend post listing of AWL. Maintain BUY. Target price: S$6.00.
WHAT’S NEW
• AWL’s IPO price band is Rs218-230/share. Adani Wilmar (AWL) is selling its share at Rs218-230/share for its initial public offering (IPO) on the National Stock Exchange of India (NSE) and Commbay Srock Exchange (BSE). The public issue, comprising fresh equity shares, opened for subscription on 27 Jan 22 and will close today. This will translate into a market capitalisation of Rs283-299b (or US$3.8-4.0b).
• Anchor investors subscribed at Rs230/share. AWL has made an allocation of 40,865,217 shares to Anchor investors (AI) at the allocated price of Rs230/share. The government of Singapore and Monetary Authority of Singapore were given a higher allocation of 39.22% and 8.66% respectively from the shares allocated to AIs. There are total of 15 AIs (please refer to table next page for full list of AIs).
• List at FY21 enlarges share base PE of 38-41x vs peers of 40x. Based on the IPO price band of Rs218-230/share, this would translate to a historical PE of 38-41x PE FY2021 for AWL. We reckon that the valuation is relatively fair as compared with the 15 stocks under the NSE NIFTY FMCG Index which are trading at an average FY21 PE of 40x (PE range from 20-85x), while its closer peer Ruchi Soya Industries trades at 28x FY21 PE. We reckon that the slight premium in valuation as compared with Ruchi Soya is due to its stable profit margin, strong earnings growth and record-proven management.
• Positive move to unlock value. We view this positively to unlock shareholder value by unleashing the true value of Wilmar’s subsidiary, AWL. Based on AWL’s financial data and 50% stakes, AWL’s net profit contributions to Wilmar are estimated at 6-8% for 2020 and 9M21. It is still relatively small compared with Yihai Kerry Arawana (YKA). We are also not expecting any special dividend after the listing of AWL for Wilmar’s shareholders. However, the easing of the capital needs from the holding company may lead to higher dividend payout in the future.
STOCK IMPACT
• Background. AWL is a fast-moving consumer goods (FMCG) food company offering most of the essential kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses, and sugar. AWL’s operation consists of the following three business segments:
- Edible oil: Including soyabean oil, palm oil, sunflower oil, rice bran oil, mustard oil, groundnut oil, cottonseed oil, blended oil and Vanaspati. It also offers various specialty fats, including: a) industrial margarine, bakery shortening and vanaspati, b) lauric fats as substitutes for milk fat and cocoa butter substitutes, and c) bulk packaging of frying oil. As of 31 Mar 21, the refined oil in consumer packs (ROCP) market share of AWL branded edible oil was 18.30%, putting AWL as the no. 1 edible oil brand in India (source: Nielsen Retail Index – MAT March 2021). “Fortune”, its flagship brand, is the largest selling edible oil brand in India (source: Technopak Report).
- Packaged food and FMCG: Including packaged wheat flour, rice, pulses, besan, sugar, soya chunks and ready-to-cook khichdi. In 2021, the market share of its packaged wheat flour and basmati rice under the Fortune brand were approximately 3.4% and 6.6% by volume, respectively, ranking second and third in India (source: Nielsen Retail Index – MAT Mar 21). AWL also offers FMCGs, including soaps, handwash and sanitisers.
- Industry essentials: Including oleo chemicals, castor oil and its derivatives and de-oiled cakes. AWL is one of the largest basic oleochemical manufacturers in India in terms of revenue, and the largest manufacturer of stearic acid and glycerine in India with a market share of 32% and 23%, respectively (source: Technopak Report). It is also the largest exporter of castor oil and one of the largest exporters of oleochemicals in India as of 31 Mar 20 (source: Technopak Report)
EARNINGS REVISION/RISK
• Maintain earnings estimates. We maintain our 2021/22/23 earnings forecast of US$1.71b, US$1.79b and US$1.96b respectively.
VALUATION/RECOMMENDATION
• Reiterate BUY with target price of S$6.00. Fair value is derived from SOTP by pegging a 2022 PE of 19x for China operations and a blended 11x PE for non-China operations. Despite the short-term concerns that China’s economy is still weak and concerns about COVID-19 restrictions weighing on domestic consumption, we reiterate BUY on Wilmar for its diversified and integrated business model which has delivered good results performance despite the global uncertainty in 2020 and 2021 amid the COVID-19 pandemic.