This brokerage says Adani Wilmar’s positives priced in; target suggests 14% fall in stock price

The stock on Wednesday had settled at Rs 636 apiece. It rose 15 per cent last week against a decline of up to 2 per cent in benchmark indices.

Edelweiss Research said that while the company has strong growth visibility, the gains in the stock following listing suggest that it is already priced in. Since early February, the stock has offered 176 per cent returns to investors. Last month, global brokerage JP Morgan in its coverage initiation report had also said that the stock is perfectly priced now. This brokerage has a ‘neutral’ rating with a base case March 2023 target price of Rs 367 on the stock.

Adani Wilmar, an equal joint venture between Adani Enterprises and Wilmar International, is among the largest FMCG companies in India. It is known for its wide range of offerings in edible oils comprising soya bean, sunflower, mustard and rice bran, among others under its well established “Fortune” brand.

“Strong distribution network, brand and market leadership, integrated manufacturing facility that helps drive cost efficiencies, and well-entrenched promoter group will help Adani Wilmar clock volume and earnings CAGR of 9.3% and 19.9%, respectively, over FY21-24E,” the brokerage said.

Edelweiss Research said the edible oil and packaged food industry are expected to maintain its strong growth trajectory, and Adani Wilmar is well placed to capture this opportunity. Given Adani Wilmar’s strong brand and distribution reach, it expects the food segment to grow 31% CAGR over FY21-FY24E. It sees edible oil volumes growth at 7.4% CAGR over FY21-24E.

“We are enthused by the strong growth visibility, however, in our SoTP based valuation, higher-margin volatility ushers us to value the company at a discount to the consumer staples companies in our coverage. The return ratio profile is decent, albeit lower than the sector average. Overall, following a spectacular gain post listing (stock trading at 66.5x and 56.2x FY23E and FY24E P/E), the market is already factoring-in robust growth. Hence, we initiate coverage with HOLD,” it said.

An anticipated sunflower oil shortage, arising out of the Russia-Ukraine conflict, is a near-term risk for the company, it added.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)