ICICI Securities said that it does not like Adani Wilmar Limited’s (AWL) stock valuation despite the company reporting a strong 16% year-on-year volume growth in Q3FY23 and a positive demand outlook with continued stability in edible oil prices.

The Adani Wilmar Limited Analyst: ICICI Securities’ Manoj Menon maintained the ‘reduce’ rating for the stock with a revised target price of ₹395 from ₹585, cutting earnings estimates by 18% and 20% in FY23-24E.

The Adani Wilmar Limited Thesis: The brokerage firm noted that AWL’s food revenue saw a 45% YoY rise in revenue in the quarter ended December 2022 while edible oils revenue grew by 4% YoY in the same period, improving volume growth trajectory.

The firm also pointed out that the company’s recently acquired ‘Kohinoor’ is scaling up well with revenue of ₹1 billion on an annualised run rate basis post its relaunch.

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Speaking about AWL’s edible oil business, ICICI Securities also noted how gross profit per ton improved by 7% YoY largely due to stability in market edible oil prices. “Strong continued volume-led growth potential and stability in input prices should drive further improvement in margins,” says the brokerage in its recent update.

The analysts, however, cut their earnings estimates by 18%/20% in FY23-24E, while also highlighting a couple of key risk factors that could affect the company’s finances. These include higher volatility in raw material prices and a failure to scale up its food business.

It is worth adding that Gautam Adani's conglomerate has halved its revenue growth target and plans to hold off fresh capital expenditure – a move that could affect the likes of Adani Wilmar Limited too.

Price Action: Adani Wilmar Ltd shares were down 5% at ₹414.30 on Monday afternoon.