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Aditya Goela, CFA

Aditya Goela, CFA

Co-Founder and Trainer at Goela School of Finance LLP | Chartered Financial Analyst® | Proprietary Trader | JoshTalk Speaker
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Adani Wilmar stock is down by 25% from its all-time high

Aditya Goela, CFA

Aditya Goela, CFA

Co-Founder and Trainer at Goela School of Finance LLP | Chartered Financial Analyst® | Proprietary Trader | JoshTalk Speaker
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One of the most popular groups in Indian markets has launched an IPO some time ago. Adani Wilmar was listed on 08th February 2022. Since then, it soared to a record high of Rs. 878.35 on April 28, 2022. It dropped by almost 25% from the record highs and closed at Rs. 644.95 approximately as of 9th June 2022, Friday. Will the stock slip below Rs. 600?

ABOUT THE COMPANY

Sector

Adani Wilmar is a leading Fast Moving Consumer Goods (FMCG) food company in India that offers most of the essential kitchen commodities for Indian consumers, including edible oil, wheat flour, rice, pulses, and sugar.

Adani Wilmar Products

Product portfolio

Did you know Fortune that is used in almost all households is one of the flagship brands of Adani Wilmar? Its products include edible oil, packaged food, and FMCG (like wheat flour, rice, besan, pulses, soap, sanitizers, and hand wash) and industry essentials (like oleo chemicals, castor oil, and its derivatives and deoiled cakes). It also includes many other masstige brands such as Alpha, Jubilee, Avsar, Golden Chef, etc.

What do you think? Is this stock worth buying for the near term or long-term future? To know the answer, let’s look into its technicals and fundamentals.

TECHNICAL ANALYSIS

technical analysis for adani wilmar
  1. 50-day moving average (MA)– The price has cut the 50-day MA from the top. This indicates that the stock will continue to fall further.
  2. Support and Resistance– The support and resistance are made based on the candles formed after the listing of Wilmar’s IPO. It can be clearly seen that the stock broke its support at about Rs. 639. It can further fall below Rs.600 to Rs.550 approximately.
  3. Low Volumes– The volumes of the stock is very low since the past few days, which means people are not actively participating. This indicates a sign of downside for the stock.
  4. Candle patterns– The candles are showing bearish sentiments. They are rejecting the upside move and continuing to fall further.

Currently, the stock is showing bearish sentiments and can continue to fall down further.

FUNDAMENTAL ANALYSIS

fundamental analysis for adani wilmar

Adani Wilmar is a market leader in the edible oil segment and has a very well-diversified product portfolio. It ranks on the top with soyabean oil, mustard oil, and rice bran oil and ranks among the top three players in palm oil and sunflower oil. It has a very good distribution channel with a well-established network of distributors and stock points apart from more than 18 lakh retail outlets which provide cost competency for selling other agro products under the same distribution channel.

Now let’s dive deeper into understanding the fundamentals of the company. The revenue of the company has consistently increased over the years.22,973 cr. in March 2017 to Rs.52,361 cr. in March 2022. The net profit has also grown over time to Rs.808cr. in March 2022 from Rs.230 cr. in March 2017. However, the operating profit margins have decreased a little. This may be owing to the steady increase in crude oil prices, which is an important raw material for the company.

If 10% Profit before tax of a company is more than the sum of its interest and other income then it is considered to be a good company. But Adani Wilmar does not fulfill this criterion. Its proportion of revenue from other income and interest is very much high.

revenue adani wilmar

The Return on Capital Employed(ROCE) and Return on Equity(ROE) of Adani Wilmar are very good. The average ROCE 5Yr. stands at 24% and the average ROE 5Yr. is 19.2%.

Source:- Screener

The operating cash flow of the company has increased at a good pace. It decreased during March 2020 due to the effect of Covid 19 on businesses and industry but has managed to bounce back to even greater levels during March 2022.

The debt of the company is also low. Its debt to equity ratio is 0.36 and its interest coverage ratio is 3.06. However, the cash flow from financing activities is positive, which means it is taking loans. This may not be a negative thing because the company has sufficient cash reserves and company is borrowing for expansion purposes. The company is also repaying its borrowings at a good pace.

CONCLUSION – WHAT SHOULD YOU DO?

Overall, the fundamentals of the company look very good with excellent management and a very good brand presence. The company needs to increase its operating and net profit margins as they are very low. Also, it needs to decrease the proportion of revenue it is earning from interest and other income.

The technicals of the company do not look so satisfactory. Keeping in mind the current market scenario, it is possible that the stock may continue to fall further and can even slip below Rs.600. We must wait until the stock takes good support at a certain level and buy only when the prices become stable.

P.S. –   Never catch a falling knife.

knife

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