Adani Wilmar shares’ rating upgraded by Edelweiss. Check target price

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The Q3FY23 business update of Adani Wilmar (AWL) augurs a sequential improvement in performance, highlighted domestic brokerage and research firm Edelweiss, adding that although Adani Wilmar competes in an extremely competitive business (edible oil and foods/FMCG), it has consistently delivered strong volume growth across segments. Moreover, its commitment to expand the foods basket would help moderate its excessive dependence on the edible oils basket. AWL is committed to grow both organically and inorganically in the foods segment.

“FY23 was an abnormal year for oil players due to high volatility in oil prices, which affected AWL’s margins. That said, following a significant correction in palm oil from its peak, AWL’s margin profile would be better in FY24. Even so, keeping in mind rural slowdown and likely higher competition (entry of Reliance), we are cutting FY23/FY24E EPS by 23.1%/7.3%,” the note stated.

All in all, the brokerage house is upgrading the Adani Group stock’s rating from ‘HOLD’ to ‘BUY/SN’ with a revised SoTP-based target price of 708 apiece. Adani Wilmar shares have given multibagger return of more than 113% in a year’s period.

“We forecast Q3FY23 revenue would grow 7% YoY and EBITDA would dip 11% (Q2 revenue rose 4.4% YoY, but EBITDA fell 40% YoY) versus our initial expectation of 10% growth and a 7% dip, respectively. We expect edible oils to grow by 3%, Food/FMCG by 47% and industry essentials by 19% YoY,” Edelweiss said.

AWL has been able to capture demand in popular and premium brands. In Q3, packaged oil sales grew strongly while institutional demand was weak. Volatility in edible oils is managed by efficient hedging. AWL’s edible oil grew 8–9% YoY on a base of 1% YoY dip in volume growth while Marico’s Saffola Oils in Q3FY23 is likely to post 12–13% YoY volume growth, estimates the brokerage.

“On balance, margins are expected to improve sequentially since AWL had borne inventory losses in Q2FY23. Further softening of prices would further aid margins. The market share in all categories is expected to grow as AWL has been strengthening its rural reach, retail outlets and distribution channels,” it added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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