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Nuvama Institutional Equities has cut its target price on Adani Wilmar Ltd to Rs 515 from Rs 600 but retained its ‘Buy’ recommendation on the stock following a weak set of quarterly results. Adani Wilmar had on Wednesday clocked a consolidated net loss of Rs 131 crore for the September quarter, led by losses in the edible oil segment amid divergent trends in the spot and future prices, resulting in hedging losses. Revenue for the Adani group firm was down 13 per cent year-on-year (YoY) for the quarter at Rs 12,267 crore compared with Rs 14,150 crore in the same quarter last year.
Nuvama said the numbers came in below its estimates. Edible oil volumes, it noted, grew 4 per cent YoY with a value decline of 19 per cent vis-a-vis Saffola edible oil volume growth in low single digit and value decline of 12 per cent for the same quarter.
“Given operating deleverage, higher fixed cost, misalignment of hedges (in H1FY24) and nature of the business, the decline in profits looks higher given low margins. Factoring in these, we are cutting FY24/25/26E revenue by 8.3 per cent/6 per cent/6 per cent, translating to an EPS cut of 50 per cent/10 per cent/9 per cent. We are also cutting the target Edible Oil valuation from 24 times to 20 times,” Nuvama said.
Nuvama said restrictions on exports of basmati and non-basmati rice continued during the quarter and that the Ebitda margin came in at mere 1.2 per cent, down 62 basis points YoY.
What it liked in the results was the strong growth trajectory in the Food and FMCG segment. The segment logged volume growth for 19 per cent and value growth of 26 per cent YoY in Q2FY24.
“This was driven by 50 per cent-plus YoY growth in the domestic foods business, partially offset by export curbs in rice. Adani Wilmar’s focus remains on increasing the saliency of the foods business to 30 per cent of sales volume (presently 18 per cent) in coming years. Strong brands such as Fortune and Kohinoor supported the robust growth in this segment. Industry essentials grew 25 per cent/2 per cent YoY by volume/value led by robust growth in the castor and oleochemical business,” it said.
Nuvama said a steady-state run rate is likely in H2, like in the past, while margins would improve.
Adani Wilmar, it said, does not expect hedging losses in H2. “Also revenue and per tonne growth will thereby improve. 30 per cent of edible oil business and 30–31 per cent of foods and FMCG business comes from rural. Presently NPDs are small volumes and niche products, but are good value and margin-accretive.
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