Why Adani Exited the FMCG Joint Venture: The Adani Group’s decision to exit its joint venture with Singapore’s Wilmar International has surprised many. This move goes beyond concerns about raising funds or reducing debt. Experts believe the FMCG business doesn’t align well with the group’s core focus on infrastructure.
Key Highlights:
- Adani Group sold its 44% stake in Adani Wilmar for $2 billion.
- Proceeds will likely be invested in infrastructure, where planned capital expenditure exceeds $75 billion.
- FMCG stocks have delivered strong returns in the past few years, but the sector doesn’t match Adani’s long-term goals.
- Adani’s primary business interests include energy, utilities, logistics, and cement.
The Exit Decision: A Closer Look
It’s unusual for a company to exit a consumer-facing business, especially one with significant revenue potential. FMCG stocks have performed well in recent years, driven by rising disposable incomes and untapped product categories. However, Adani Wilmar’s case is different.
Adani Wilmar, best known for its Fortune brand of edible oils, earned over ₹51,500 crore in revenue in FY24. Despite high sales volumes, its profitability was modest, with a net profit margin of just 0.33% (₹171 crore). This low margin made the business less attractive for a conglomerate focused on high-return sectors.
The joint venture with Wilmar International began in 1999 and had a strong market presence, holding a 20% share in the edible oil sector. The company went public in February 2022, appearing well-positioned with a diverse portfolio in oils and food products. Yet, by late 2024, the Adani Group sold its entire 44% stake, transferring most of it (31%) to Wilmar and the rest to the open market, fetching approximately $2 billion.
Strategic Shift: Debt and Capital Allocation
One major factor behind the exit is Adani’s financial restructuring. The group has a significant consolidated debt of over ₹2.4 lakh crore as of FY24. Analysts suggest the stake sale is part of a strategy to reduce debt and allocate resources more effectively.
The FMCG business, despite its potential, delivered lower returns on equity (about 1%) compared to infrastructure ventures, which typically yield 14-15%. Experts like Deven R. Choksey, Chairman of DRChoksey Finserv, believe the group saw limited long-term growth in the FMCG space, especially in comparison to giants like HUL or ITC.
The Bigger Picture: Infrastructure Growth
Adani’s infrastructure ambitions require substantial funding. The group has planned investments exceeding ₹7 lakh crore ($75 billion) in areas like energy, logistics, and utilities. These sectors are expected to drive higher returns and align more closely with the conglomerate’s expertise.
Vinit Bolinjkar, Head of Research at Ventura Securities, views the exit as a strategic move. The $2 billion from the sale can be leveraged to raise additional funds, potentially up to $6 billion. This money will likely support Adani’s aggressive infrastructure expansion plans, with international investors, particularly from Japan and Europe, showing interest.
Conclusion
The Adani Group’s exit from Adani Wilmar highlights a clear focus on infrastructure and high-growth sectors. While FMCG remains a lucrative market, it doesn’t align with the group’s long-term vision. By reallocating resources, Adani aims to strengthen its position in core areas, ensuring sustainable growth for the future.
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