Shares of a large-cap company plunged 4.5 percent on Wednesday’s trades to reach an intraday low of ₹ 375.25 apiece amid news that its promoters are mulling over selling a stake in the company. Its shares settled at ₹ 377.70 apiece on the National Stock Exchange (NSE).
According to a Bloomberg report, the Adani Group is looking to sell a 44 percent stake in Adani Wilmar, which sells edible oils under the brand ‘Fortune’, to free up capital for its core businesses. Reportedly, the Singapore headquartered food conglomerate co-founded by billionaire Kuok Khoon Hong in 1991, could decide to retain its stake in the business.
Adani Wilmar is a Joint venture between the Adani Group and the Wilmar Group of Singapore, an agribusiness group. Its businesses include edible oil, food & other FMCG segments. Its renowned brands under the food & FMCG segment include Fortune, King’s, Raag, Bullet, Fryola, Jubilee, Aadhaar, Kohinoor, Charminar and Trophy. It is not only the largest edible oil maker in the country but also one of the largest fast-moving consumer goods (FMCG) companies in India by turnover, behind ITC and Hindustan Unilever.
Experts say that the Adani Group has changed its strategy after the Hindenburg Report and the company’s poor show on the profitability front.
“Over the next 20 years, Adani portfolio companies and promoters want to raise $50 billion of equity… We want to invest close to $500 billion in core infra as a base case. We will run this programme of equity for the next two decades,” said Group CFO Jugeshinder Singh.
He added that in order to secure such a large investment, the group will have to make hard choices. For example, it recently took an exit in its financial services business. Experts suggest that a potential stake sale in Adani Wilmar could possibly be a step in that direction.
However, Adani Wilmar in an Exchange Filing said, “We would like to clarify that we are unable to comment on media speculation and rumours and it would be inappropriate on our part to do so.”
Adani Wilmar’s margins are significantly lower than its rivals ITC and HUL. Its operating margin stood at 37.66 percent in FY23 and its net profit margin stood at 26.69 percent. High volatility in edible oil prices could be a major reason for the decline in its profitability in the recent quarters.
With a market capitalization of ₹ 51,071crores, Adani Wilmar is a large-cap company. It has a low return on equity of 7.38 percent and an ideal debt-to-equity ratio of 0.29. Its shares were trading at a price-to-earnings ratio (P/E) of 165.14, which is higher than the industry P/E of 0.29, indicating that the stock might be overvalued as compared to its peers.
Written by Simran Bafna
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