A challenging macro-economic environment could not put the brakes on Adani Wilmar's (AWL) rapid growth. Its net profit for FY 2021-22 rose to Rs 803.73 crore, up from Rs 728.51 crore in the previous fiscal.
While the company is in a celebratory mood, some quarters of the stock market seemed to echo its triumphant stance. Its investors have enjoyed high returns after AWL's stock price witnessed a 4X rise. Its post-IPO launch price in January 2022 was Rs 258, and this touched Rs 800 in April 2022, indicating that investors are betting big on expected edible oil prices in future.
Could AWL's bull run, however, be nearing a halt? For the eighth straight day, AWL's stock traded down 5 per cent on the BSE. Some brokerages have found its risk-reward unattractive and have downgraded the stock rating to 'underweight.'
Analysts believe that mixed bag financial results are reflected on the stock performance. While its fourth-quarter FY22 net profit fell 26 per cent year-on-year to Rs 219.2 crore due to higher tax expenses, its revenue from operations was up 40.2 per cent on a year-on-year basis to Rs 14,960.4 crore.
However, the company's CEO and MD, Angshu Mallick, believes that the company's win has been in taming its costs. "Last year, there was a 10 per cent volume increase in edible oil. This is a big advantage to us because it helps reduce our other costs, including fixed costs, by this band," he told Outlook Business in an interview.
Here are edited excerpts from an exclusive interaction:
The company's results on an annual basis indicate that it has been able to successfully put off the pressure from increasing input costs so far. While inflation has been rising for over a year, how have you managed to battle it yearly?
Our revenue has gone up by 40 per cent. Overall, we could grow our market share from 18.3 per cent to 18.9 per cent.
Unlike other products with inflationary pressure, we can pass this faster in edible oil than other FMCG products. This is because consumers are used to buying the commodity at different prices during days of the month. They know that the prices are likely to go up if prices in the international market spike.
We have also been able to sustain our costs. Last year, there was a 10 per cent volume increase in oil, which is a significant advantage since it helps reduce our other costs, including fixed costs.
Bigger brands can pass on the price and grow the volume as their supply chain is robust. Smaller brands have problems with their supply chain and are wary about pricing at a higher cost. They fear that the market may go down, and they would lose the volume.
How big a concern is inflation in the upcoming months?
Honestly, the peak of edible oil (inflation) is almost gone. We were surprised by what happened with Indonesia – a country that exports 65 per cent of its crude palm oil decided to ban exports! I think within a week, they will release (the ban) and then prices are likely to come down.
Since we have factored all the adverse factors in the price, now only the good things will come in. The first is Indonesia lifting the export ban; the second is the improving weather conditions; India is likely to see a good monsoon, as are China and the US. Thirdly, some results of the Russia-Ukraine war are likely to come in because Russia has started exporting sunflower oil. Turkey and Argentina, too, are exporting some amount of sunflower oil. Overall, things are beginning to look better.
What revenue and segment-wise growth is the company targeting for the medium to short term?
We generally don't look at the revenue target. Tomorrow if the prices come down by 20 per cent, our revenue will also reduce by that much.
We have a volume target; we did 4.8 million metric tonnes this year. We want to continue at 6 to 8 per cent volume growth in edible oil, while it is 30 per cent for food and staples and 5 to 6 per cent for industry essentials.
You recently acquired the Kohinoor rice brand; what was the acquisition cost?
We have not yet declared its price and will announce it at a suitable time.
How will the Kohinoor brand augment AWL's product line-up?
While Fortune is a good brand, Kohinoor was a leader in its category at one time. It was the first basmati rice brand in the country since 1994 and had a good recall. McCormick & Co couldn't leverage the brand.
We are looking for an opportunity to expand our volumes, grow into more retail outlets across the nation, and extend the brand from basmati to other products, including non-basmati rice and ready-to-eat ready-to-cook food
products. We can put all these things under the aegis of Kohinoor.
Does the company have an acquisition pipeline or any short to medium-term acquisition targets?
We are continuously looking at acquisition opportunities, whether it is a stressed asset, brand or company. We recently acquired a rice factory in Burdwan (West Bengal). That was a stressed asset, and after procuring it, we upgraded it and are now running it completely. That helps us in boosting our top line.
Similarly, while looking at brands to be acquired, we see whether that suits us, whether it can be extended, whether it can be expanded, and any company where we can straightaway grow in big volumes. We are open to any kind of such acquisitions.
What are your domestic production targets for vegetable oils, and how do they match against government targets, especially those set through the National Mission on Edible Oils–Oil Palm?
Nationally, India grows mustard oil, and we are the number one brand. We have invested already in 1000 tonne seed crushing per day. We will extend it by another 1000 tonne seed crushing per day.
We are serious about the mustard oil brand and the Fortune rice bran because we are the number one brand there. Cottonseed and groundnut oil are other domestic oil categories with potential.
We are also into local soybean oil because we have large crushing of soybean seeds capacity with us—ditto for sesame oil. By and large, we are involved in all oil except coconut.
The government has a very elaborate plan to make India self-sufficient in palm oil. What are your plans for this sector specifically? Will you increase the company's domestic production or will you position yourself as the numero uno importer of palm oil going ahead?
Domestically we grow very little quantity of palm oil; hardly 3-5 lakh tonnes. We import on an average around 90 lakh tonnes. Our imports are very high compared to domestic production.
Moreover, you can't produce palm oil next year – you need three to four years for the tree to grow. You will hit the fruits only after four years whatever you plant today. So, it is far-fetched to presume that we will not import palm oil and manage to grow it domestically.
Sunflower, mustard, and groundnut oil can be done more easily. All three oilseeds have 40 per cent oil content and can be easily grown in three-six months. That will bring a lot of oil in the system with only mustard oil and sunflower oil. These are easier options than palm oil for faster quantum growth.
Do you see the Russia-Ukraine war putting pressure on the margins of most FMCG companies?
Any war is detrimental to the world, including for India. Ukraine and Russia together supply 90 per cent of sunflower oil. Consumers are running for an alternative, which is soybean. Then soybean oil comes under pressure. If the sunflower oil supply becomes smooth, soybean prices will also reduce.
The Russia-Ukraine war has surely disturbed (global supply chains), but in India we are seeing 50 per cent cut in consumption. People are consuming less. Our demand for sunflower oil has come down to 100,000 tonnes per month. I think we get it from Russia and Argentina, and a little bit of oil also is also coming out of Ukraine through the land borders.
What are the challenges for AWL, considering the recent larger socio-economic and geopolitical impediments?
Firstly, we hope that the fourth Covid wave does not come through and even if it does, it is like the third wave with minimum fatalities and minimum hospitalization. Otherwise, the country will suffer.
Secondly, monsoons are very important for India and bring a lot of prosperity to the rural market. If the monsoon is bad, we all have had it. Although it is predicted that the monsoon will be good, this is something we need to watch.
Thirdly, India, China and the US enjoy the monsoon season simultaneously. The US produces a lot of corn, wheat, grains and soybean, and if they have a good monsoon, they will have huge production with a surplus. They will provide that to the world.
China is a big importing country. If their monsoon is good, their local rapeseed and soybean will be good, and they will import less.
Fourthly, there are several geopolitical issues like the Ukraine-Russia war and the Indonesia export ban. We also hear about the Taiwan-China issue. These situations can create supply chain bottlenecks.
Fortunately, India's economy is robust with a strong consumption story. The population is growing, and people have higher incomes, are more educated and are more health-conscious. I am particularly bullish on the Indian economy and expect the growth in FY23 to be higher than in FY22.
Many domestic players are trying to challenge your leadership position in the vegetable oil market in India. How will you hold on to your position?
Our market share has gone up; our volume has gone up despite the industry not growing at this speed or at these levels. At turbulent times, it is the strong supply chain, strong products, and risk management policy that helps an organization like us.
We have benefited because of all that, which can be seen in our volume growth. Volume growth in a market where there is hardly 2 per cent growth, we have grown at 10 per cent, which is an indication that we have taken market share from somebody.
Our supply chain is very robust. We have Wilmar as our JV (joint venture) partner. It has operations in Ukraine, Russia, Thailand and Indonesia, and Malaysia. For us, Wilmar will definitely give us a priority in the supply chain. They will give priority to putting the vessel. All these things benefit. It's a significant advantage over others.