• Keep NEUTRAL and SGD3.10 TP, 1% upside with 6% FY25F yield. Adani Group's exit from the Adani Wilmar (AWL) JV between Adani and Wilmar International - each hold a 44% stake - will result in AWL becoming a subsidiary of the latter group. Although initial impact could be a slight negative to Wilmar's earnings, longer-term growth prospects related to the demand for edible oil and fast-moving consumer goods (FMCG) are positive.
• AWL public spread issue resolved. As part of listing requirements specified by the Bombay Stock Exchange, within three years of its listing, AWL has to ensure it has a 25% public shareholding spread. Currently, this spread is at 12%. AWL was listed in 2022, and has until February to meet the rule.
• To exit AWL - first, an offer-for-sale (OFS)... To comply with the listing requirements, Adani Group is divesting its entire 44% stake in the JV via a 2-pronged strategy. First, it will sell up to 20% of its stake in AWL through an OFS mechanism for USD833m (MYR3.7bn) or a floor price of INR275 per share. Adani Group sold up to 13.5% to the public on 10 Jan to institutional investors and wealthy individuals, while the remaining 6.5% was sold to retail buyers on 13 Jan. So far, 13.5% has already been transacted through the OFS mechanism, with no further details on the retail buyers.
• ...then, a partial stake sale to Wilmar. After that, Adani Group will sell its remaining 24% stake to Wilmar at a maximum price of INR305. At the maximum price, the stake will be purchased at USD1.1bn, and make AWL a subsidiary of Wilmar. Post acquisition, Wilmar will own 68% of AWL. Note that Wilmar has a 1-year window to acquire AWL's 24% stake.
• Rationale for the transaction. Wilmar intends to continue leveraging on AWL's large edible oils and food FMCG presence in India, to grow contributions to group numbers from its business in India. AWL has a robust distribution network of over 10,000 distributors and a retail footprint spanning 720,000 outlets nationwide.
• Initial impact could be a slight negative for Wilmar's earnings. Our back-of- the-envelope calculation implies that the immediate impact of Wilmar's imminent new ownership on group earnings could be -2 to -4% pa for FY25-26F. This is calculated after imputing the additional earnings contribution from a larger 68% stake in AWL (based on consensus forecasts) and deducting the interest income foregone from the maximum outlay of USD1.1bn.
• Maintain NEUTRAL and TP SGD3.10. We make no changes to our earnings and TP. While the initial impact of this transaction could be a slight negative, the longer-term prospects of AWL are positive and earnings contributions will likely improve over time as India's edible oils and FMCG demand rises.

Source: RHB Research - 20 Jan 2025