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Adani Wilmar Rating: Performance in Q4FY22 was a mixed bag

Market share gains likely to continue; FY24e EPS up by 6.2%; target price raised to `735; ‘Hold’ maintained

AWL gained market share across edible oil, wheat and rice businesses.

Adani Wilmar’s (AWL’S) Q4FY22 revenue (up 40.2% y-o-y) and PAT (down 25.6% y-o-y) were ahead of estimates while Ebitda (up 20.5% y-o-y) was below. The firm has grown its market share in edible oil, wheat, and rice businesses. Gross/Ebitda margins saw 113bps/46bps y-o-y fall, due to significant inflation.

AWL is poised to gain market share from smaller players as they tackle inflation and supply shortages. The company is also looking at more downstream industry essential (IE) products that fetch higher margins. AWL is also stepping up its food offerings to B2B customers. With this, we revise the target multiples in our SOTP valuation, increase FY24e EPS by 6.2%, revise our TP to Rs735 (from Rs 559) and maintain hold.

Strong market share gains

What we like: Revenue and PAT grew ahead of our estimates. Volume grew 16% y-o-y. Edible oil/foods saw volume growth of 23%/33% y-o-y, while ecommerce/ modern-trade-channel saw 34%/19% y- o-y growth. AWL gained market share across edible oil, wheat, and rice businesses.

It launched ‘FortunePoha’, two new variants of ready-to-cook ‘Fortune Khichdi’ and ‘Fortune Total Balance Oil’ (3-in-1 blended oil) in FY22. Fortune online has reached 25 cities. Edible oil Ebit grew 41.7% y-o-y.

What we do not like: Ebitda came in below estimates. Gross/Ebitda margins fell 113bps/46bps y-o-y. Industry essentials saw11%y-o-y decline in volumes.IEEbit fell 94% y-o-y. The foods business reported a Rs 19-mn Ebit loss.

Q4FY22 conference call takeaways

IE hedging MTM loss is about `800 mn, which will reverse in the next quarter. 11% of volumes come from foods and AWL aims to take this to 20-25% in the next 2-3 years. Until then, the foods business will be Ebitda neutral. Indonesia’s edible oil ban should be temporary as the country is accruing a surplus of the oil.

Outlook: Poised for growth

Considering the revenue momentum and aforementioned factors, we increase our SoTP EV/Ebitda multiple of edible oil business to 32x(from28x),IE business to20x (from 15x), and foods EV/Sales multiple to 5x (from 3x). Maintain ‘HOLD/SN’.

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