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CGS-CIMB maintains 'add' on Wilmar after regulator puts Adani Wilmar IPO on hold

Atiqah Mokhtar
Atiqah Mokhtar8/26/2021 08:17 AM GMT+08  • 3 min read
CGS-CIMB maintains 'add' on Wilmar after regulator puts Adani Wilmar IPO on hold
Wilmar has a 50% stake in Adani Wilmar, with the remaining 50% owned by India's Adani Group.
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CGS-CIMB Research analysts Ivy Ng Lee Fang and Nagulan Ravi have kept their “add” call for Wilmar International and target price of $6.15 unchanged in a research note dated August 23.

The rating and target price reiteration comes after the company announced that market regulator Securities and Exchange Board of India (SEBI) listed the status of the draft offer document relating to the proposed IPO of Adani Wilmar as “issuance of observation kept in abeyance”. The abeyance could last for a period of 30 days or 45 days or 90 days or more.

See: Wilmar JV's IPO place on hold by Securities and Exchange Board of India

Wilmar has a 50% stake in Adani Wilmar, with the remaining 50% indirectly owned by Adani Enterprises (AEL), a subsidiary of India's Adani Group.

Reasoning for the abeyance was not disclosed. According to Ng and Ravi, certain media outlets speculated it may be due to investigations against Adani Enterprises (AEL). AEL subsequently issued a response, saying that it has not received any formal communication from SEBI with respect to the IPO observations kept in abeyance. It added that the Adani group has no connection to foreign portfolio investors (FPI) either directly or indirectly. and will continue to cooperate with the regulators.

According to media reports, SEBI policy requires that if one department of the regulator is investigating a company, a related entity that has filed for an IPO may not obtain approval for 90 days. This delay can be extended by another 45 days.

The way Ng and Ravi see it, the abeyance could delay the listing of Adani Wilmar, which had been targeted for 4Q2021, which they had viewed as a catalyst for the stock.

“To recap, the Adani Wilmar IPO is likely to comprise new equity shares of up to 10% of the group’s total shares. The listing could value Adani Wilmar at a market cap of between US$4 billion ($5.41 billion) and US$6 billion,” the analysts say.

The implied value of Wilmar’s 45% stake in Adani Wilmar post-IPO is placed at US$1.8-2.7 billion against its share of value of investment in Adani Wilmar in its books of US$226 million as at Dec 31,2020. This suggests potential gain of US$1.6-2.5 billion, which translates to between 33 cents to 52 cents per Wilmar share.

Nonetheless, Ng and Ravi have kept their rating and target price unchanged for now, as they believe the stock is undervalued and offers a cheaper and more liquid entry into its 90%-owned Chinese subsidiary Yihai Kerry Arawana (YKA).

Shares in Wilmar closed up 1 cent or 0.24% higher at $4.20 on August 25.

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