Adani Wilmar Share Price: Why Gautam Adani May Exit From His 24-Year Old FMCG Firm?

A buzz has taken headlines involving Gautam Adani and his FMCG business aka Adani Wilmar. Reports are saying that the billionaire is planning to exit his entire stake in Adani Wilmar. Even though Gautam Adani has yet to make an official statement or confirm the speculations, investors have started to dump Adani Wilmar shares, making it halt its two consecutive days gaining spree.

Adani Wilmar shares have dropped nearly a per cent and touched an intraday low of Rs 315.00 apiece on BSE. The stock continues to trade near its day's low at Rs 315.50 apiece, down by 0.61% on BSE at the time of writing. The market cap of the company is a little over Rs 41,000 crore.

It would be the Economic Times that first reported the development citing executives familiar with the matter. As per these sources, Adani Group is in talks with multiple multinational consumer goods companies to sell its entire in Adani Wilmar. The Group is expecting to bag up to $2.5-3 billion from the sale.

Adani Wilmar was founded in 1999 by Gautam Adani. The company which offers most of the essential kitchen commodities for Indian consumers, is a joint venture between Adani Group's flagship Adani Enterprises and Wilmar International and India's largest processor of palm oil. Although the 24-year-old FMCG firm has been in business for over two decades, it only stepped into stock exchanges in 2022. Adani Wilmar went from becoming the best IPO listing last year to witnessing steep selling pressure and recording hefty losses.

It needs to be noted that both Adani Group and Adani Wilmar have not confirmed the matter. Stock exchanges have also not yet sought any clarification at the time when this article was being written.

However, the buzz around the Group's stake sale has been circulating since August. One of the reasons that have been reported is that Adani plans to sell its non-core assets and create a liquidity buffer for its core assets which includes ports-infrastructure-energy-to-power businesses.

Also, the sources pointed out that the proceeds are likely to be utilised for investments in other group businesses and not to pare debt.

But it is worth noting that Adani's liquidity position and debt obligations have taken a hit after the Hindenburg report which dropped like a shockwave to the financial markets in late January. Accusations of brazen stock manipulation and many other frauds by the US short seller, led to a spell-bounding market rout of $150 billion, taking a huge bite of not just Adani entities' valuations, Gautam Adani's net worth but also investors' wealth as well. The Group has been considering offloading shares in non-core assets.

It's not just Adani Wilmar, a few months back, there were also reports of Adani looking to monetise parts of its real estate holdings including the sale of commercial real estate project Inspire BKC, which have been categorised as non-core to their business.

Coming to Adani Wilmar, in Q2FY24, the company's net loss doubled to Rs 130.23 crore compared to a loss of Rs 59.71 crore in Q1FY24. This FMCG company has been recording losses since June 2023, but the bottom line came under pressure since the March 2023 quarter, when it recorded a steep fall of 62% in PAT to Rs 94 crore from Rs 246 crore of the December 2022 quarter. Consolidated revenue from operations has also taken a hit in Adani Wilmar to Rs 12,267.15 crore in Q2FY24, down from Rs 14,150.03 crore in Q2FY23 and Rs 12,928.08 crore.

Adani Wilmar has blamed the losses in the edible oil segment that has adversely impacted profitability. Edible Oil losses are primarily driven by divergent trends in the spot (physical) and future prices, resulting in hedging losses. The company's Edible Oil segment grew by 4% YoY on volumes in Q2'24, dragged by lower volumes in B2B sales.

Apart from this, Adani Wilmar shares have given heavy losses to its shareholders as well since the Hindenburg report.

Adani Wilmar's promoters' shareholding looks like this --- Gautam Shantilal Adani, Rajesh Shantilal Adani and Vinod Shantilal Adani are the trustees of S.B. Adani Family Trust which holds more than 10% in Adani Enterprises Limited (AEL). Further, AEL holds 99.99% in Adani Commodities LLP, which in turn holds a 43.97% stake in Adani Wilmar. Promoters Gautam Adani, Rajesh Adani and Vinod Adani are identified as significant beneficial owners and indirectly collectively hold 43.97% stake in the Company.

It would be this 43.97% stake sale in Adani Wilmar that is being reported by media channels.

As per the shareholding pattern, Adani Commodities LLP has 57,14,74,430 equity shares or 43.97% stake in Adani Wilmar. On the day of Hindenburg's bombshell report (January 24), Adani Wilmar shares stood at Rs 573.15 per share and at this price level, Adani Commodities' shareholding was valued at Rs 32,754.06 crore.

But from the current price level, the shareholding is valued at Rs 18,030.02 crore, a drop of Rs 14,724.04 crore since the Hindenburg report. When Adani Wilmar touched its highest level of Rs 878.35 apiece on April 27, 2020, Adani Commodities' shareholding value stood at Rs 50,195.5 crore.

Even from the 52-week high of Rs 703 apiece which was posted on November 9th, 2022, Adani Commodities' shareholding value stood at Rs 40,174.65 crore. But dropped by Rs 22,833.26 crore till October 26th, 2023, when it hit a new 52-week low of Rs 303.45 apiece taking their shareholding value to Rs 17,341.39 crore.

Hence, since the Hindenburg report, Adani Group has witnessed huge losses in the shareholding value of its non-core assets, Adani Wilmar. Year-to-date, Adani Wilmar's stock has dropped by nearly 48% on BSE, while in a year, the stock is down by nearly 54%.

After heavy losses in Q2FY24, ICICI Securities has trimmed its earning estimates for Adani Wilmar.

In its note dated November 2nd, ICICI Securities research note said, "We cut our earnings estimates steeply for FY24E due to significant impact on profitability as discussed above and by ~16% in FY25E; modelling revenue / EBITDA / PAT CAGR of 1% / 10% / 24% over FY23-25E. Maintain REDUCE with a SoTP-based revised target price of Rs 295 (was Rs 350). Key risks: 1) Higher volatility in RM prices, and 2) failure in scaling up foods business. On the upside: Sharper-than expected scale-up in operating margins."

If Adani Wilmar hits ICICI Securities' target price in the coming months, it only means more losses for shareholders. Also, the Rs 295 TP is closer to Adani Wilmar's listing day closing price of Rs 265 on February 8, 2023.

On November 1st, Adani Wilmar said, going forward, given that the gap between spot & future prices has narrowed, the Company expects the profitability of Edible Oils to come back to normal levels in terms of Gross Margin and EBITDA per ton. Food & FMCG and Industry Essentials are expected to continue their profitability momentum.

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