ADANI WILMAR

Ripe pick for wise investors

‘Bad’ news for the stock market can actually be good news for discerning investors. Along with the selling avalanche in Adani group stocks in the wake of the Hindenburg Research report, the stock price of Adani Wilmar also plunged from Rs 879, the 52-week high reached on April 28, 2022, to Rs 327 (February 28, 2023) — quite an attractive level to accumulate these stocks. Knowledgeable investors rushed to buy and the price moved up to Rs 450. Viewed in the context of the pressure on the Adani group, the share price may remain subdued for some time, providing good opportunities to buy this stock.

After all, Adani Wilmar is not quite the same as other Adani group stocks which are predominantly owned by the promoter group. It is a 50:50 joint venture between the Ahmedabadbased Adani group and the Singaporeheadquartered Wilmar group – one of the largest agri business companies in Asia. Today, Adani Wilmar has emerged as a leading FMCG company in India, offering essential kitchen commodities like edible oils, wheat flour, rice, pulses and sugar. These products are being offered under various brands like Fortune, Bullet, Jubilee and Alpha. The company also markets packaged foods and personal products like soaps, handwash and sanitisers. It is also a leading manufacturer of industrial essentials like Oleo chemicals, castor oil, de-oiled cakes, stearic acid and glycerin. Besides marketing all these products throughout the country, the company also exports them to around 50 countries.

Adani Wilmar is going from strength to strength on the financial front, with sales during the last five years growing at a CAGR of 18 per cent and profit growing at a CAGR of 29 per cent. What is more, prospects ahead are all the more encouraging, once the brouhaha over the Adani group’s alleged frauds calms down. Consider:

• Within a period of just two decades, the company has emerged as the second largest FMCG company in the country after Hindustan Unilever. It is an undisputed leader in the manufacture of edible oils, commanding the highest marketshare of 18.3 per cent. Again it manufactures various oils, including soyabean oil, sunflower oil, mustard oil, groundnut oil, palm oil, cottonseed oil and vanaspati. The company has 22 plants in India which are strategically located across 10 states. It has successfully managed to develop its ‘Fortune’ brand in the edible oil category into a leadership position in the last 20 years.

HUGE REACH

• The company is one of the few major FMCG players to enjoy a pan-India coverage with its huge distribution network, which comprises 5,566 distributors spread over 28 states and 9 union territories. In fact, its 16 lakh retail outlets work out to around 35 per cent of all retail outlets in India!
• The company, being a joint venture, benefits significantly from its parentage on one side and, on the other, from the backing and network of the Adani group, which is primarily a trader in kitchen essentials and other food products. Its emergence as a well-diversified conglomerate is of recent origin but it started out trading in pulses and foodgrains. Thanks to the Adani group, it is leveraging their in-depth understanding of local markets, extensive experience in domestic trading and advanced logistics network.
• Adani Wilmar’s expanding business is well reflected in its financial performance. During the last seven years, its sales turnover has expanded almost four times – from Rs 14,780 crore in fiscal 2014 to Rs 52,361 crore in fiscal 2022, with operating profit spurting almost eight times, from Rs 228 crore to Rs 1,726 crore, and the profit at net level spurting around 202 times, from just Rs 4 crore to Rs 80 crore. The company’s financial position is very strong, with reserves at the end of March 2022 standing at Rs 7,479 crore — over 57 times its equity capital of Rs 130 crore.
• Unlike most of its competitors, Adani Wilmar’s roots are deeply embedded in two of the largest businesses in their respective fields of expertise — Singapore-headquartered Wilmar International and the Adani group. Wilmar controls nearly 30 per cent of the world’s edible oils business, with its tentacles spread across continents — giving it a unique leverage when it comes to price negotiations and allocation of raw materials. For its part, the Gautam Adani-led Adani group owns India’s largest private sea port operator — Adani Ports and Special Economic Zone (APSEZ). That plays an important role in ensuring a seamless supply of raw materials at the company’s facilities across the country.
• At the pace with which Adani Wilmar is growing, it may surpass even Hindustan Unilever to become the numero uno FMCG company in India going ahead.

According to K.R. Choksey, a leading brokerage alternative channels such as E-commerce, modern trade, and eB2B have continued to grow at a much faster rate, owing to a shift in customer behavior. The company recognises a large opportunity in the HoReCa (Hotel, Restaurants, and Caterers) segment and is planning to develop an operating model to drive sales in this segment.

On valuations, the brokerage says, “Adani Wilmar has shown strong volume growth in Food and FMCG and Industry Essentials with market share gains in Edible oil, Atta and Rice. The share price has been declining due to various news and reports about the Adani Group; however, we believe that this is temporary and the company will perform well because of the company’s strong and sustainable volume growth. The company’s focus on penetration-led growth and increasing its reach is yielding results for the company.”

On suggestion to positional investors looking for discounted shopping, KRChoksey said, “We like the company’s strategy of penetration led growth, focus on the international market, increasing distribution reach, timely capacity addition to supporting the growth, new product launches, and acquisition of the Kohinoor brand. We expect Adani Wilmar to benefit from the recent uptick in demand.

TOP RATED

Once the brouhaha over the Adani group created over the Hindenburg Research report calms down, the Adani Wilmar stock will move on the strength of the company’s performance. Going ahead, the pressure on Adani group stocks will be less felt on Adani Wilmar. In fact, that is why the low price of Rs 327 (February 28, 2023) attracted widespread buying and the price moved up to Rs 450. This is an excellent buy between the price range of Rs 350 and Rs 400. KR Choksey, a leading brokerage house, has set the target for the Adani Wilmar stock at Rs 569 going ahead. As the company’s focus on penetration-led growth and increasing its reach is yielding results, Bank of America’s research wing has in fact put the target price at Rs 900.

PERFORMANCE INDICATORS (Rs. in crore)

KHAITAN CHEMICALS & FERTILISERS

Penny stock with bright future

Madhya Pradesh-based Khaitan Chemicals & Fertilisers is engaged in the manufacture of single super phosphate (SSP), a popular fertiliser, sulphuric acid and soya edible oil. The company has the largest SSP production capacity in the country of 11,13,500 mt and strives to maintain its numero uno position. Its sulphuric acid production capacity is 2,27,600 mt, and it also has a 4,20,000 tpa soyabean crushing capacity along with a 30,000 tpa edible oil refinery located in Ratlam (MP), for which it uses technology from world leader NV Extraction Desmet SA of Belgium. Despite head winds, the company has recorded an 18 per cent CAGR growth in sales during the last five years and a 116 per cent CAGR spurt in profit. Though short-term prospects for the company are uncertain, its long-term outlook is highly promising. Consider:

• No doubt, the company was facing turbulent times for its SSP of late but that period has now been left behind. Today, the company is the largest manufacturer of SSP in the country and despite the trying times experienced by SSP in recent years, its performance has not been too adversely affected. This is because the company’s SSP, being sold under the brand names Khaitan SSP and Utsav SSP, is of top quality and is the undisputed brand leader in western Madhya Pradesh and the surrounding areas. Being a straight fertiliser with easy application, low cost per bag and a unique 12 per cent sulphur content, it is very popular with farmers. It is extensively used in crops like oilseeds, groundnut and potato.
• Khaitan’s other major product, sulphuric acid, which is used for captive consumption as well as for sale in the market, is also of very high quality. Hence, there is huge demand for SA in MP and the adjoining areas. Four derivatives of sulphuric acid — oleum 65%, oleum 23%, liquid SO3 and Labsa – are widely used as intermediate products for manufacturing of dyes and chemicals. These are also used as a dehydrating agent in nitrations, petroleum refining, as a laboratory reagent, etc. As these products are of very high quality, they are in very good demand by consuming industries.

STEAM POWER

• The company generates steam as a by-product of the manufacturing process and has installed a turbo generator (TG) to generate up to 4,325 kW of power by utilising this steam. It has further installed and commissioned in Nandurbar in Maharashtra a wind turbine generator with a capacity of 1,250 kW for generation of electricity by harnessing wind power.
• Needless to say, Khaitan Chemicals has put up a heartening show on the financial front. During the last 12 years, its sales turnover has expanded from Rs 458 crore in fiscal 2011 to Rs 824 crore in fiscal 2022, with operating profit shooting up from Rs 71 crore to Rs 123 crore and the profit at net level spurting two and a half times – from Rs. 31 crore to Rs 80 crore. The company’s financial position is getting stronger, with reserves at the end of March 2022 standing at Rs 243 crore – over 24 times its equity capital of Rs 10 crore. The company’s balance sheet is also getting healthier. It has reduced its debt from Rs 239 crore (2017) to Rs 142 crore (2022) during the last six years, bringing down the interest burden from Rs 31 crore to Rs 13 crore during this period. The management wants to make the company totally debtfree during the next 3 to 5 years.

SHARE SURGE

Just 3 years ago, Khaitain was a penny stock quoted around Rs 8.92 (March 6, 2019). Realising the bright future prospects for the company, knowledgeable investors rushed to buy this stock and the price shot up to Rs 100 in 2022, before reacting to Rs. 65 by now. Ace investor Dolly Khanna, who is known for finding promising penny stocks, accumulated around a million (to be exact 9,89,591) shares, translating into 1.02 per cent stake in the company’s equity capital, and sold them at a huge profit. One FPI (foreign portfolio investor) picked up 72,499 stocks in Q3 FY2022 and two mutual funds also brought these shares in Q4 FY2022. If one has patience, these are stocks with very good growth potential in the next 3 to 5 years.

PERFORMANCE INDICATORS (Rs. in crore)