Why the Adani Group may consider selling its stake in Adani Wilmar

The Adani Group’s flagship entity Adani Enterprises (AEL) is considering selling its stake in edible oils major Adani Wilmar (AWL), a joint venture between AEL and Singapore-based Wilmar International that is not only the largest edible oil maker in the country but also one of the largest fast moving consumer goods (FMCG) company in India by turnover.

With Rs 55,262 crore revenue in FY23, AWL is currently the third largest FMCG company after ITC and Hindustan Unilever. It, in fact, pipped HUL the previous year to become the second largest FMCG player in the Indian market.

So why is Adani considering selling its 43.97 per cent stake in the company that has a market capitalisation of over Rs 49,000 crore? Experts say the answer lies in the change in the Adani Group’s strategy after the Hindenburg Research’s report and the business’ poor show on the profitability front for years.

According to Group CFO Jugeshinder “Robbie” Singh, Adani Group is now focusing on its core infrastructure business model and adjacencies. “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,” Singh told Business Today in a recent interaction. To secure such large investment the group would have to make hard choices now. For instance, it recently exited the financial services business. Experts say the potential stake sale in AWL could be a step in that direction.

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In a stock exchange filing, Adani Wilmar said it won't be able to "comment on media speculation and rumours".

"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," said the Adani firm.

Additionally, in spite of being one of the largest FMCG players in the country, AWL’s profitability remains a concern. India’s overall edible oil market, worth Rs 3 lakh crore, is dotted with unorganised players. The organised segment, worth Rs 1.8 lakh crore, is in turn dominated by AWL, with about 19 per cent share. Other big players include Ruchi Soya, Emami, and Cargill but none enjoys a market share more than 10 per cent.

However, unlike its rivals in the top league (like HUL or ITC), AWL’s margins are significantly lower. ITC’s operating profit margin (OPM) and net profit margin (NPM) in FY23 stood at 37.66 per cent and 26.69 per cent, respectively. For HUL, they were at 24.03 per cent and 16.84 per cent. In AWL’s case, the OPM was a meagre 3.39 per cent and NPM 1.1 per cent. Moreover, high volatility in edible oil prices has also resulted in steep decline in its top line in recent quarters. As a result, after beating HUL in FY22 AWL slipped in FY23 as its revenue remained flat. In fact, as edible oil prices fell sharply from its peak AWL’s revenue faltered by 11 per cent in Q1, FY24.

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