RHB Bank Singapore says that the exit of Adani Group from the Adani Wilmar (AWL) joint venture could have a “slight” negative initial impact on Wilmar International ’s earnings, however, longer-term growth prospects related to the demand for edible oil, and FMCG are positive.
The RHB Singapore research team keeps its “neutral” call on Wilmar with an unchanged target price of $3.10, as WIlmar absorbs Adani Wilmar JV as its subsidiary.
The team’s Jan 20th note says that AWL has to ensure it has a 25% public shareholding spread within three years of its listing as part of its listing requirements specified to the Bombay Stock Exchange. This spread is currently at 12% and AWL has until February to meet the rule.
To comply with the listing requirements, Adani Group is divesting its entire 44% stake in the JV in two parts — by selling up to 20% of its stake in AWL through a so-called “offer for sale” mechanism for US$833 million ($1.13 billion) or a floor price of INR275 ($4.31) per share; and a partial stake sale to Wilmar.
Adani has sold 13.5% to institutional and wealthy investors on Jan 10, and remaining 6.5% to retail buyers on Jan 13. It will sell its remaining 24% to Wilmar at a maximum price of INR305, and the stake will be purchased at about US$1.1 billion, giving Wilmar a stake of 68% and making AWL its subsidiary.
RHB says that Wilmar intends to continue leveraging AWL's large edible oils and food FMCG presence in India, to grow contributions to group numbers from its business in India. AWL has a robust distribution network of over 10,000 distributors and a retail footprint spanning 720,000 outlets nationwide.
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“Our back-of-the-envelope calculation implies that the immediate impact of Wilmar’s imminent new ownership on group earnings could be -2% to -4% per annum (p.a.) for FY2025- FY2026,” says RHB. “This is calculated after imputing the additional earnings contribution from a larger 68% stake in AWL (based on consensus forecasts) and deducting the interest income foregone from the maximum outlay of US$1.1 billion.”
The team makes no changes to its earnings and target price, as they believe the longer-term prospects of AWL are positive and earning contributions will likely improve over time.
As at 10.40am, shares in Wilmar are trading flat at $3.08.
