Adani Wilmar shares: Nuvama cuts stock price target, still sees 57% potential upside

Following a weak set of quarterly results by Adani Wilmar, Nuvama Institutional Equities has cut its target price on the Adani group stock to Rs 625 from Rs 680 earlier. This target, after a 4 per cent drop in Adani Wilmar shares on Wednesday, suggests a 57 per cent potential upside.

Adani Wilmar reported a 59 per cent plunge in the net profit at Rs 93.61 crore for the March quarter compared with Rs 219.23 crore profit in the corresponding quarter last year. The Adani firm said its revenue from operations declined 7 per cent on a year-on-year (YoY) basis to Rs 13,872.64 crore from Rs 14,917.26 crore.

"Adani Wilmar posted a weak set of Q4FY23 numbers with revenue/Ebitda/profit coming in below our estimates. Q4FY23 volumes grew 15 per cent YoY, driven by Food and FMCG/industry essentials, thereby continuing to diversify its revenue base. Further, during the quarter, profitability was dragged lower by: decline in edible oil prices; inflation; TRQ disparity on soya bean oil; base effect; and loss of Bangladesh subsidiary," it said adding that edible oils, a major contributor, witnessed 13 per cent value dip while volumes stayed flat.

Nuvama said it expects margins to improve hereon, but added that the volatile oil prices remain a concern.

What it liked

The brokerage said value and volume share of Food and FMCG segment for Q4 rose 53 per cent and 38 per cent YoY, respectively. Large growth headroom in kitchen essential products (especially wheat flour and rice) followed by leveraging the brand equity of Kohinoor drove the value/volume share for food and FMCG, it said.

"Focus remains on increasing rural footprints, retail penetration and improvement in sales productivity. Industry essentials value/volume grew 8 per cent/55 per cent YoY for Q4FY23 led by growth in oleo-chemicals and castor business. E-com/MT/e-B2B serving GT registered volume growth of 23 per cent YoY for FY23 and continues to grow at a faster pace," it said.

What it did not like

Overall, profitability for Q4FY23 was hurt due to fall in edible oil prices leading to high-cost inventory led to flat volumes and 13 per cent YoY decline for edible oils, Nuvama said.

Gross margin and Ebitda margins contracted by 78bps and 133 bps YoY, respectively, due to high packaging, logistic, chemicals, power and fuel cost. Interest expense grew 97 per cent YoY due to increase in the benchmark rates on the back of hike in the Fed rates, Nuvama noted.

"Although Adani Wilmar competes in an extremely competitive business (edible oil and foods/FMCG), the company has sustained market share along with improved brand equity. However, due to a weak set of results and margin miss, we cut our FY24E/25E EPS by 7.8 per cent/7.7 per cent and arrive at a revised SoTP-based target of Rs 625," Nuvama said.

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