RHB Bank Singapore says that the exit of Adani Group from the Adani Wilmar (AWL) joint venture could have a &ldquo slight&rdquo negative initial impact on Wilmar International &rsquo s earnings, however, longer-term growth prospects related to the demand for edible oil, and FMCG are positive. 

 

The RHB Singapore research team keeps its &ldquo neutral&rdquo call on Wilmar with an unchanged target price of $3.10, as WIlmar absorbs Adani Wilmar JV as its subsidiary. 

 

The team&rsquo s Jan 20th note says that AWL has to ensure it has a 25% public shareholding spread within three years of its listing as part of its listing requirements specified to the Bombay Stock Exchange. This spread is currently at 12% and AWL has until February to meet the rule. 

 

To comply with the listing requirements, Adani Group is divesting its entire 44% stake in the JV in two parts &mdash by selling up to 20% of its stake in AWL through a so-called &ldquo offer for sale&rdquo mechanism for US$833 million ($1.13 billion) or a floor price of INR275 ($4.31) per share and a partial stake sale to Wilmar. 

 

Adani has sold 13.5% to institutional and wealthy investors on Jan 10, and remaining 6.5% to retail buyers on Jan 13. It will sell its remaining 24% to Wilmar at a maximum price of INR305, and the stake will be purchased at about US$1.1 billion, giving Wilmar a stake of 68% and making AWL its subsidiary.

 

RHB says that   Wilmar intends to continue leveraging 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.

 

&ldquo Our back-of-the-envelope calculation implies that the immediate impact of Wilmar&rsquo s imminent new ownership on group earnings could be -2% to -4% per annum (p.a.) for FY2025- FY2026,&rdquo says RHB. &ldquo 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 US$1.1 billion.&rdquo

 

The team makes no changes to its earnings and target price, as they believe the longer-term prospects of AWL are positive and earning contributions will likely improve over time.