Excerpts from RHB report

Maintain BUY and SGD5.75 TP. Adani Wilmar (AWL) has filed for listing on India’s BSE and NSE.


Share price: 


We believe this listing could boost Wilmar International’s share price by SGD0.20/share, assuming it trades on par with its Indian fast-moving consumer goods (FMCG) peers of an average 40x P/E.

Wilmar continues to be an inexpensive trade, currently at 11.7x FY22F P/E.

Adani Wilmar files for listing. Wilmar says its 50%-owned subsidiary AWL (a JV with Adani Group) has filed a draft red herring prospectus with the Securities & Exchange Board of India in relation to its proposed IPO for listing on the BSE and NSE. The proposed listing will comprise an issuance of new shares by AWL for an amount of up to INR45,000m (USD600m). There will not be any secondary offering.

Adani Wilmar products

Large FMCG group in India. AWL is one of the few large FMCG food companies in India that produces edible oils, wheat flour, rice, pulses, and sugar under a diverse range of brands. The proceeds from the IPO will be used for:

i) Capex for expansion of AWL’s existing manufacturing facilities and developing new manufacturing plants,

ii) repayment/prepayment of borrowings,

iii) strategic acquisitions and investments, and

iv) general corporate purposes.

We are positive on this development. As this does not involve selling of shares by the existing shareholders, Wilmar will not be receiving any proceeds directly from this IPO. Meanwhile, its stake in AWL will be diluted depending on how many shares are issued.

However, Wilmar will benefit from the enlarged value of AWL post listing, as well as higher earnings potential from the expansion plans using the IPO proceeds. In Wilmar’s annual report, its 50% stake in AWL currently stands at USD226.7m, while the IPO is expected to raise USD600m.

FMCG companies in India trade at high P/Es. We note that Indian FMCG firms trade in a 20-65x P/E range (Figure 1) with a simple average of 42x. Based on AWL’s latest 2020 net profit of USD93m and applying 40x P/E, this could add an additional SGD0.19 to Wilmar’s share price (Figure 2) based on its 50% stake and excluding the new share issuance.

SOP can be boosted by SGD0.20/share. Our SOP for Wilmar only includes a 0.5x P/BV for its JV & associates, which includes AWL. Assuming 40x P/E upon listing, this IPO could therefore boost our SOP by SGD0.20/share.

Maintain BUY. As Wilmar’s China operations account for a hefty >90% of earnings, its valuation is very inexpensive at present.

The company is trading at 11.7x 2022F P/E vs China-listed peers’ 32-37x.

Full report here. 

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