Adani Wilmar Shares Slide 7% as 25-Year JV Ends in $2 Billion Deal

The Bombay Stock Exchange witnessed an intraday low in the share price of Adani Wilmar Limited. The shares nosedived 7% in the early market hours after Adani Enterprises Limited announced its exit from the 25-year-old joint venture with Wilmar International, which seeks strategic investors to replace Adani. Did the divesting affect just the WiImar shares? Let’s understand how the news affected both companies.

Adani Enterprises Limited’s Exit Plan

Adani Enterprises Limited (AEL) is set to exit its 25-year-old joint venture with Wilmar International in a $2 billion deal. AEL will divest its 44% stake in Adani Wilmar Ltd (AWL) in two phases. To comply with public shareholding norms, AEL will first sell 13% of its stake in the market at an estimated price of Rs.305 per share. The remaining 31% stake will be sold to Wilmar, raising Wilmar’s ownership in AWL from 44% to 75%.

The proceeds from this divestment will be directed toward strengthening AEL’s core infrastructure platforms, including energy, utilities, transport, and logistics. This strategic shift is part of AEL’s broader focus on its infrastructure portfolio.

Effect Of The Exit On Adani Wilmar Limited Shares:

The AWL share price trend in the past year has given a negative return of 13.83%, with its price ranging between Rs.279 and Rs.408.95. After the divesting news, the shares dipped nearly 7% to the intraday low of Rs.303.10.  

The downward trend can be attributed to the financials of AWL for FY2024. 

Overview of Adani Wilmar Limited:

Adani Wilmar Ltd (AWL) is a leading FMCG company in India, specializing in essential kitchen commodities such as edible oils, wheat flour, rice, pulses, and sugar. The company caters to diverse customer groups with products offered under popular brands like Fortune, King’s, Raag, and Bullet, spanning a broad price spectrum.

Established in 1999, AWL is a joint venture between the Adani Group, a diversified business conglomerate with interests in transport, logistics, energy, and utilities, and Wilmar International, a prominent agribusiness group based in Singapore. AWL is a market leader in edible oils and a significant player in castor exports, oleochemicals, soya nuggets, and wheat flour production.

The company operates 23 manufacturing facilities and 38 leased units, ensuring robust production capabilities. Its overseas subsidiary in Bangladesh focuses on refining and trading crude edible oil. For FY2024, AWL’s financials were as follows: 

1. Revenue:

In FY2024, Adani Wilmar reported a turnover of Rs.51,262 crore, with a sales volume of 60 lakh MT and a gross profit of Rs.5,632 crore. However, these figures show a decline compared to FY2023, when the company recorded a revenue of Rs.58,185 crore and a gross profit of Rs.6,002 crore. The decline was primarily driven by a 16% drop in sales in its edible oil segment, which could not be offset by the 23% year-on-year growth in its FMCG business.

Net Profit

The company reported a net profit of Rs.148 crore in FY2024, 75% lower than the FY2023 profit of Rs.582 crore. 

One of the reasons for the fall in net profit could be attributed to Adani Wilmar’s efforts over the last three years to diversify its portfolio away from its core edible oil sector as a hedge against the volatility of edible oil prices. As a result of these diversification efforts, the contribution of the edible oil segment to its top line has decreased to 61%, down from more than 85% in early 2022. This shift has impacted overall profitability despite growth in other segments.

1. Debt and Liabilities:

AWL is debt-free, reinforcing its financial stability and leadership in the FMCG sector. It had a debt-to-equity ratio of 0.9 in FY2015, which reached zero in FY2022 and maintained the same until FY2024. 

What Happens In AWL After the Exit?

Following AEL’s exit, AWL will become a subsidiary of Wilmar International through its fully owned entity, Lence Pte. Ltd. Wilmar plans to fund the acquisition through internal resources and bank borrowings. It also aims to attract strategic investors to further drive AWL’s growth.

Additionally, the company will undergo a rebranding process, adopting a new name approved by the Ministry of Corporate Affairs. AEL’s nominee directors have already resigned, signaling a complete transition of control to Wilmar.

Bottomline:

The exit of Adani Enterprises from its joint venture with Wilmar International marks a significant shift for both companies. For Adani Wilmar, the exit could impact its share price in the short term, given the uncertainty around the transition. Despite recent diversification efforts, AWL’s financial performance showed a decline in revenue and profit for FY2024. Additionally, the upcoming rebranding and changes in control might affect investor sentiment. On the other hand, Wilmar’s increased stake and its focus on bringing in strategic investors could drive growth in the long term.

As with any investment, investors must assess the situation thoroughly, considering the potential risks and rewards. The reorganization might present opportunities, but a detailed evaluation of the company’s plans and market trends is essential—thoroughly research before making investment decisions.

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