Adani Wilmar - IPO - A Fortune of Edible Oil

Adani Wilmar - IPO - A Fortune of Edible Oil

 About the Company   

Adani Wilmar (AWL) is a JV between Adani Enterprises and Wilmar International, which offers most of the essential kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses, and sugar. The company’s business is categorized into 1) Edible Oil (82% of revenue): AWL is the largest player in branded edible oil, with 25% of India’s refining capacity, and has 2x market share of the next competitor. 2) Packaged Food and FMCG (5%): It ranks among the top 3 players in foods in India. 3) Industry Essentials (13%): It ranks first and is the world’s largest castor oil player, most of which is exported to Europe, the US and China. AWL produces 32% of the country’s stearic acid requirement, 23% of glycerine requirement and 9% of soap noodles requirement. It operates in 28 states and 8 UTs with 10 crushing units and 19 refineries, and the business spans to 1.6mn retail outlets. The company’s “Fortune” flagship brand is the largest-selling edible oil brand in India. Rural population contributes to 30%-35% of the edible oil share. Recently, AWL has focused on value-added products and has launched edible oil products, rice bran health oil, fortified foods, khichdi etc. The company has strong raw material sourcing capabilities and was India’s largest importer of crude edible oil as of FY21. AWL’s edible oil refinery in Mundra is one of the largest single-location refineries in India with a capacity of 5,000MT per day. In addition to the 22 plants, the company also used 36 leased tolling units as of Sept’21 for additional manufacturing capacities. The IPO’s price band is fixed at Rs218-230 per share, raising Rs36bn (at a higher band) with the fresh issue. The objective of the issue is to fund the capex of existing manufacturing facilities and develop new manufacturing facilities. The company also plans to repay its borrowings and fund strategic acquisitions.   

Financials in Brief  

AWL has been mostly resilient to the fallouts from the Covid pandemic. Despite a dip in the EBITDA margin from 4.4% in FY20 to 3.6% in FY21, the company reported a 62% YoY jump in PAT at Rs6.6bn, led by the saving in interest cost, which also helped to improve the net margin to 1.8% in FY21, from 1.4% in FY20. Debt-to-equity improved from 0.9x in FY20 to 0.6x in FY21. For 1HFY22, its revenue jumped by 54% YoY to Rs248bn, with an EBITDA of Rs8bn (up 23% YoY) and PAT of Rs3.3bn (up 36% YoY). 

Our View: SUBSCRIBE  

On FY22 annualized financials, the IPO is valued at 19x EV/EBITDA, 0.6x EV/sales and 44.6x P/E. On FY22 annualized financials, the IPO is valued at 19x EV/EBITDA, 0.6x EV/sales and 44.6x P/E. The IPO is available at ~53x TTM PE vs. the industry average of 67x TTM PE, which is a discount of ~21%. AWL is the largest player in branded edible oil, with 25% of India’s refining capacity, and has 2x market share of the next competitor. The company’s market share increased from 17% in FY20 to 18.3% in FY21, and it believes that there is great opportunity to increase it further on the back of a strong brand equity and fragmented nature of the branded market. AWL ranks #1 in large categories of soya oil & mustard oil. The company believes that a player has to be present in all types of oils that the country consumes and offer multiple SKUs across the price spectrum. Currently, its export business comprises of 3 portfolios namely food (~Rs4bn revenue), oleochemicals (~Rs15bn) and castor oil (~Rs25bn), and it looks to add more products to exports, going ahead. India would consume more value-added functional products as people are becoming aware of health issues. AWL continues to focus on sustainability and with a professional and experienced board, it looks to grow over the years. In view of the differentiated product portfolio, leading market position and extensive distribution network, decent financials, likely margin improvement from current level and valuation comfort compared to peers, we recommend SUBSCRIBE to the issue. 

APL Apollo Tubes - 3QFY22 Result Update - Healthy Volume and Better Product Mix to Aid Margins

 

APL Apollo Tubes - 3QFY22 Result Update - Healthy Volume and Better Product Mix to Aid Margins

APL Apollo Tubes (APAT) has delivered a strong operating performance, despite volume decline, beating our estimate on all fronts. Revenue grew by 24% YoY (up 5% QoQ) to Rs32.3bn vs our expectation of Rs25.3bn on the back of better realisation of Rs77,569/ton (up 51% YoY and up 19% QoQ) despite volume de-growth of 17% YoY and 6% QoQ. The company recorded EBITDA/tonne of Rs5,023 vs. our estimate of Rs4,157bn. Its EBITDA margin contracted by 266bps YoY and 94bps QoQ to 6.3% vs. our estimate of 6.6%, due to the lag effect of commodity cost inflation pass-on to consumers and higher RM prices. PAT stood at Rs1.2bn (down 12% YoY and down 12% QoQ), 29% above our estimate. The management’s current plan of capacity expansion by 1.5mnT at Raipur by FY22-end and a full ramp-up in FY23, and the focus to increase the share of value-added products would aid the company’s margins, going forward. 

In view of the strong products basket, improving volume traction from value added products, healthy order book, likely margin expansion from current level, introduction of new high margin products from Raipur plant and improving return ratios, it  BUY rating on the stock, with an unrevised Target Price of Rs1,100. 

Healthy Demand Outlook; Margins to Expand 

We expect the demand for structural steel pipes and newer framed structures in various projects would keep rising over the next decade. Moreover, the company’s new product launches in various applications with strength would provide comfort to the end user to increase its usage in various projects like hospitals, new plant & projects and office structures. APAT’s ongoing projects of a 2mn sqft hospital and a 0.1mn sqft oxygen plant in Delhi have proved its efficiency in terms of 20% less steel consumption and 10% project cost saving. This would establish it to gain market share and win new orders from various industries, going forward. The company aims for a sizable volume traction in its high-margin tricoat segment and stable volume in the low-margin general structure, resulting into superior mix and leading to an expansion in overall margins. Moreover, its Raipur facility would launch all the value added products i.e. Apollo Column, Coated tubes and Coated products in FY23, which would help volume growth and margin expansion going ahead. Thus, we expect its EBITDA margin to expand to 9.2% in FY24E, from the current 6.3%.  

Outlook & Valuation 

IAPAT’s estimated volume to witness 9% CAGR over FY21-FY24E. Considering the lower volume and subdued financial performance in 3QFY22, we lower our revenue/EBITDA/PAT estimates by 2%/12%/15%, for FY22E. Factoring the company’s capacity expansion plan at Raipur, we raise our revenue/PAT estimates by 3%/4% for FY23E and broadly maintain it for FY24E. In view of the expected healthy volume growth ahead, better product mix, improved earnings visibility, new margin territory and return ratios of 20%, hence , The  BUY rating on APAT and maintain the Target Price to Rs1,100, valuing the stock at 30x FY24E EPS. 

As on 28th-Jan2022,  Apl Apollo Tubes Ltd has provided 78%return in last 1 year .

Next Read : Devyani International Ltd. - IPO

Devyani International Ltd. - IPO

 Devyani International Ltd. - IPO - Strong Franchise with Wide Reach

About the Company   

Devyani International Ltd. (DIL), incorporated in 1991, is the largest franchisee of Yum Brands Inc. (Yum). It is one of the largest quick-service restaurant (QSR) chain operators in India with 655 stores across 155 cities as of Mar 31, 2021. Yum operates several fast food brands i.e. Pizza Hut, KFC and Taco Bell. It operates three business verticals namely: (1) core brands (KFC, Pizza Hut and Costa Coffee in India); (2) international business (stores in Nepal and Nigeria); and (3) other businesses (own branded stores namely: Vaango, Food Street, Masala Twist, Ile Bar, Amreli, and Ckrussh Juice Bar). DIL began its relationship with Yum in 1997, when it commenced operations of its first Pizza Hut store in Jaipur. Subsequently, the company continued to expand its operations with both KFC and Pizza Hut franchises. As of June 30, 2021, it was operating 284 KFC stores and 317 Pizza Hut stores in India. Notably, the company collaborates with Yum across various aspects of operations for KFC and Pizza Hut for protection and management of franchisor’s brand apart from product innovation and development, brand strategy and technology initiatives. It also works closely with Yum on advertising, promotion and marketing activities. For Costa Coffee, it enjoys operational flexibility with respect to similar parameters as well as determining menu, ingredients, suppliers and distributors.  

Financials in Brief  

DIL’s financial performance was significantly impacted in FY21 due to business disruptions caused by COVID-19, for which its revenue, EBITDA and PAT recorded negative CAGR of 7%, 16% and 18%, respectively over FY19-FY21. However, the company increased the number of stores from 469 in FY19 to 605 in FY21 under its core brand business i.e. KFC, Pizza Hut and Costa Coffee. Further, its EBITDA margin as on FY21 stood at 15.8%, which is superior compared to key peers like Burger King and Westlife Development. Additionally, its cash flow generation has been impressive with cumulative OCF and FCF of Rs8.2bn and Rs1.8bn, respectively over FY19-FY21.  

Review: May SUBSCRIBE  

The IPO is valued at 62.8x of FY21 EV/EBITDA and 9.9x of FY21 EV/Sales, which look to be reasonable compared to its listed QSR peers and Westlife Development (McDonald’s) and Burger King. Fast food culture under QSR is expected to flourish in India due to increase in working class population and continued urbanization. We note that business model of QSR is quite impressive, as each restaurant franchise starts generating significant RoE at restaurant level once it reaches utilization level of 90%, which bodes well for the long-term investors. Additionally, superior cash flow generation ability of the business offers comfort.

   ''In terms of valuations, the post-issue FY2021 EV/Sales works out -9.9x to (at the upper end of the issue price band), which is low compared to peers (Jubilant Foodworks-15.4x, Burger King India -14.8x, Westlife Development – 10x). Further, Devyani International has a better operating margin compared to Westlife Development & Burger king. We believe this valuation is at reasonable levels. Thus, we recommend a subscribe rating on the issue,'' Angel Broking said in a note.

The quick service restaurant (QSR) company's IPO consists of a fresh issue of ₹440 crore and an offer for sale (OFS) of upto 155.33 million shares by shareholders and promoters.

''Devyani is well placed to benefit from growing industry trends as it has a strong portfolio of highly recognized global brands which cater to a range of customer preferences. The financial performance has been tepid for the company which has further got impacted in FY21 due to the pandemic. However, the company intends to improve its unit performance which would aid better margins. Considering the current market sentiments, investors may subscribe for listing gains,'' Religare Broking said.

Hence, Investors may SUBSCRIBE to the issue.

Investors who wish to subscribe to the Devyani International IPO can bid in a lot of 165 equity shares and multiples thereafter. At the upper price band, they will be shelling out Rs 14,850 to get a single lot of Devyani International. The shares will be listed on both BSE as well as the National Stock Exchange (NSE).

The applicants also must note that the cut-off time for UPI mandate confirmation is Monday, August 9, 2021, upto 12:00 pm. If they fail to do so then their application may not be considered.

   Kotak Mahindra Capital Company Ltd, CLSA India Pvt Ltd, Edelweiss Financial Services Ltd, Motilal Oswal Investment Advisors Ltd are the investment bankers to the issue. The proceeds from the issue will be used for repayment of certain or full borrowings of its firm.

Devyani International (DIL) is the largest franchisee of Yum Brands in India and is among the largest chain operators of quick service restaurants (QSR) in India on a non-exclusive basis, and operates 696 stores across 166 cities in India, as of June 30, 2021. Yum! Brands Inc. operates brands such as KFC, Pizza Hut and Taco Bell and has a presence globally with more than 50,000 restaurants in over 150 countries, as of December 31, 2020.

As on 28th Jan 2022 - Devyani International  has provided 35% returns .