Why is the stock of Adani Wilmar falling so sharply?

At Rs.709.50 per share closing price on 27th May, Adani Wilmar has still given phenomenal returns above the IPO price. However, the stock has seen a sharp correction in recent days, especially after the government announced some changes to the import duties on palm oil to ease the domestic supply situation. The stock of Adani Wilmar, which had peaked at Rs.878 on 28th April, has since corrected nearly 19.2% from the peak in last 1 month.

The announcement may have appeared rather innocuous. The government realized that attacking inflation cannot  be just about rate hikes and CRR hikes. That would address the consumer inflation but would do little to attack producer inflation or WPI inflation.

After all, WPI inflation had touched 15.08% in April 2022. The only way to address the supply chain issues is to give fiscal tweaks to import duties, export duties and export quotas.

In that light, the government reduced the effective duty on crude palm oil, crude soybean, and sunflower oil from the extant rate of 5.5% to 0%. However, this would be subject to a cap of imports up to 2 million tonnes.

The duty exemption will not apply to the imported edible oils beyond that point. This was intended for two reasons. India had been facing a real shortage of edible oil domestically and Indonesia had banned the export of palm oil.

Of course, since then, Indonesia has lifted its ban on palm oil exports. However, Indian exporters have been having a field day in the last few months exporting commodities ranging from iron ore to steel pellets to sugar to wheat at lucrative prices in the global market. The import duties gave them too much protection.

Now, this waiver of import duties means companies like Adani Wilmar have to directly fight global competition.
 

To an extent, the waiver of import duties on select edible oils was the trigger but there was also a more fundamental reason. For instance, since its debut on the bourses, Adani Wilmar is up 80% and is already trading at more than 3 times the IPO price. That is a lot of returns in a very short span of time and some correction was in the offing.

Analysts are of the view that amidst robust demand, the waiver of import duties will hardly impact the core edible oil markets of Adani Wilmar. Hence net impact could, at best, be neutral.

However, it must be remembered that Adani Wilmar has fairly strong credentials. It is a joint venture between Adani group and Wilmar of Singapore. During the anchor placement of shares ahead of the IPO, GIC Singapore and the Monetary Authority of Singapore were the marquee investors.

Analysts are also of the view that the impact would be limited as Adani Wilmar not just owns the edible oil franchise but also the entire food chain experience of its customer base. That would be a stranglehold, much harder to break.