Adani's shopping plans: Three food companies, a billion-dollar wallet

The Adani group has built a $1 billion war chest for acquisitions aimed to boost the group's food and FMCG business in the country's growing market for packaged consumer goods, two people aware of the matter said.

As part of the plan, the group's fast-moving consumer goods (FMCG) business housed under Adani Wilmar Ltd is in talks to buy at least three spices, ready-to-cook foods and packaged edibles brands in the south and east of the country, the people cited above said on the condition of anonymity.

Also read |  Adani Ports to set up cement units in Madhya Pradesh for ₹3,500 crore

This is Adani group's most aggressive capex plan for the maker of Fortune oils and Kohinoor rice, which is a joint venture with Singapore's Wilmar group. It also marks a change in plans for the Adani group that had considered selling its Adani Wilmar stake as recently as last year.

'Surge in demand'

"While the group is seeing renewed interest from large global and domestic investors, the FMCG business sees a surge in demand, creating an expansion opportunity. There will be a consolidation within the group, and through Adani Wilmar, the group intends to expand its presence in the FMCG space primarily via acquisitions in this and next fiscal, especially in the south and east," one of the two people cited above said.

"25-30% of the group's topline is targeted to come from direct consumer-facing businesses such as food, FMCG, commodity and the airport business. This is a long-term target and currently, the group's cash position is just right to consider any capex," the person added.

Also read |  Vedanta, Adani Energy lead QIP charge as fundraising reaches ₹58,425 crore

Adani Wilmar will make multiple acquisitions in the next two to three years, the two people said. A 50:50 JV between Adani and Wilmar, it offers a range of food and FMCG products including kitchen staples such as edible oil, wheat flour, rice, pulses and sugar. Its flagship brand Fortune reaches 113 million households. In 2022, Adani Wilmar acquired packaged rice brand Kohinoor.

An email sent to an Adani group spokesperson seeking comments remained unanswered till press time.

Focus on south, east

In a recent call with Mint, a top Adani group executive had said, "As we already indicated, it's (the JV with Wilmar) an investment we are perfectly happy with. They (Wilmar) are our long-term partners, and this can be a big business. And, whatever we do is as per our plans discussed with Wilmar. We'll facilitate the plans they are also happy with, but otherwise, we are perfectly happy with the investment. As far as planned acquisitions are concerned I'm aware of the investments that Adani Wilmar wants to do."

“The group may invest $800 million to $1 billion towards capex in the FMCG business, mainly via acquisitions. The value of each of these acquisitions, the proposals for which are being contemplated, could be in the range of $200-500 million," said the first person.

Also read |  Hurun India Rich List 2024: Gautam Adani #1, billionaire count crosses 300, more

Adani Wilmar, which clocked revenue of ₹51,261.63 crore in FY24, primarily caters to food and FMCG customers in the western, central and northern India.

"The group is planning to acquire a company from southern India engaged in the spices and ready-to-cook food business. Another company the group plans to take over is from eastern India. Both are quite established names, and the planned acquisitions may get the group an immediate foothold in the two regions," said the first person.

Packaged foods opportunity

In its FY24 annual report, Adani Wilmar said the company perceives a "substantial opportunity within the packaged foods business, recognizing its significant potential for growth."

"Leveraging robust distribution and retail networks, formidable brand equity, strong sourcing capabilities, and a widespread manufacturing presence across India, Adani Wilmar is optimistic about becoming the country’s largest food FMCG company," it said. Adani primarily competes with Hindustan Unilever Ltd and Godrej Consumer Products Ltd in the FMCG space.

Also read |  Wilmar, GQG, Qatar fund vie for Adani Wilmar stake

India's organized packaged foods retail market, valued at around ₹6 trillion, represents just 15% of the total food and grocery retail market, estimated at around ₹39.45 trillion, an Adani Wilmar presentation showed. The rising demand for packaged foods on the back of a shift in consumer preferences towards convenience and processed foods is compelling FMCG players to expand faster and diversify.

Rising shares

Adani's presentation said that currently, the total addressable market for packaged staple food products stands at nearly 300 million tonnes, including edible oil consumption of 23 million tonnes.

"The demand environment for branded products and food is steady and improving. The company is now staying focused on gaining market share, particularly in the food and oil business," said the second person.

Adani Wilmar's shares have gone up by 27% from a low of ₹285.85 in November last year to ₹363 apiece now. After the 4 June general election results and then after announcing better-than-expected financials for the June quarter, shares of Adani Wilmar have been mostly gaining on the bourses.

Also read |  Adani Wilmar may acquire regional companies in kitchen essentials space

Adani Wilmar clocked revenue of ₹14,169 crore in the June quarter against ₹12,928 crore a year earlier. It had a consolidated net profit of ₹313.2 crore, against a net loss of ₹78.92 crore a year earlier. Revenue from food and FMCG business, which primarily includes oil under Fortune brand, wheat flour and rice, grew by 40%.

The two persons said as the group's cash position improved, shares of the group firms gained and the FMCG business began generating better-than-expected revenues in the first quarter of this fiscal, the group has drawn a fresh plan to ramp up the food and FMCG business inorganically.

Ramping up

In the June quarter, the FMCG business generated more revenues than expected, the people cited above said, prompting it to ramp up the food and FMCG business inorganically. Adani Wilmar is currently building a plant at Gohana in Haryana to expand the food business.

"Adani will be targeting much more volume. Once the Gohana plant is ready, Adani Wilmar will get its own in-house supply chain," said the second person.

"With all the growth plans in place within the food business, Adani Wilmar is looking at 30-40% growth year-on-year in volumes for the next three years," the second person said.

Also read | Adani Enterprises to transfer Adani Wilmar stake to its shareholders

Over the past year, Adani has increased its food distribution reach by 18% to sell at 740,000 direct outlets, covering 30,000 rural towns.

The latest plans are part of Adani group's long-term strategy to grow its so-called super-app Adani One, which was launched last year as a part of Adani's digital business strategy to complement the group’s consumer-facing businesses. The app offers access to the conglomerate's food, FMCG and other business-to-consumer products and services on a single platform.

Adani, through the app, aims to create a large monetizable digital ecosystem by connecting with 400 million users by 2030 through various Adani portfolios and partner services. If the acquisition plans go through, Adani group may not only be able to enhance its market share but also move closer to realizing its super-app aspirations.