Short-seller Hindenburg‘s damning report on the Adani Group earlier this year led to the sudden pullout of a proposed share sale in the flagship Adani Enterprises and triggered a $150-billion wealth erosion for investors. Chairman Gautam Adani had said that the report was aimed at damaging the conglomerate’s reputation and generating a profit by driving down its stock prices.
The group companies have since recovered most of the losses in their share prices and the conglomerate is back to business as usual, but reverberations of the Hindenburg attack could be felt deeper and longer in different ways.
One fallout of the attack by the short-seller seems to be Adani’s reported plan to exit the fast-moving consumer goods (FMCG) business. The ports-to-renewable energy conglomerate is in talks with multiple multinational consumer goods companies to sell its entire 43.97% stake in Adani Wilmar Ltd, which owns the Fortune brand of edible oils and packaged grocery, executives familiar with the matter have told ET. Adani is expecting $2.5-3 billion for the stake in the joint venture with Singapore-based Wilmar International, which too owns 43.97% of the company, they said. A deal is likely to be finalised within a month, though neither of the companies has confirmed it.
The product portfolio of Adani Wilmar includes brands such as Fortune, King’s, Bullet, Raag, Avsar, Pilaf, Jubilee, Fryola, Alpha, Alife and Aadhar.
Why is Adani exiting FMCG?
After the Hindenburg report shook investor confidence, the group has brought down debt by prepaying and reduced pledged shares to regain investor confidence. But the Hindenburg attack did disrupt its investment and acquisition plans to some extent. The group promoters have been considering stake sales in non-core assets to create a liquidity buffer and derisk balance sheets.
“Adani Group will exit a few businesses to invest more deeply in core focus areas such as infrastructure,” one executive has told ET. “Plans to disinvest its stake in Adani Wilmar are on these lines,” he said, adding that proceeds from the proposed sale are likely to be used for investments in other group businesses, and not to pare debt.
When the group faced questions over its ability to service debt or raise more of it after the Hindenburg attack, it made strong efforts to prove that it can pare down debt and even attract big-ticket investment such as by GQG Partners, yet liquidity challenges meant that it ill-afforded to continue in a sector where big guns are raising their bets even as competition has grown fierce. Adani’s exit from the messy arena of the FMCG sector will help it focus its energies and deploy its capital in core businesses of infrastructure and energy. The group is into the entire gamut of infrastructure — ports, airports, roads, expressways, power generation & distribution, among others. In ports and airports, the group is the largest player in the private sector.
The proposed sale of Adani’s stake in Adani Wilmar follows similar actions taken by the group in other companies in recent months, as it reshaped its strategy to focus on the core areas of infrastructure and cement and looked to shore up its liquidity in the wake of the Hindenburg report.
Recent stake sales by Adani Group include a 2.8% share sale in Adani Green Energy Ltd for Rs 4,131 crore, which was largely picked up by Qatar Investment Authority. Previously, the Adani family had in June raised $1.38 billion (Rs 11,330 crore) through stake sale in three portfolio companies – AEL, Adani Green Energy Ltd and Adani Transmission Ltd. In March, GQG Partners had picked up promoter shares worth $1.87 billion in four group firms – Adani Ports and Special Economic Zone, Adani Green Energy, Adani Transmission and AEL.
Adani Group also dropped several acquisition plans as a fallout of the Hindenburg report such as the acquisition of a roads portfolio worth Rs 3,110 crore from Macquarie.
The FMCG wars
Three new players with deep pockets recently started making dents in India’s FMCG market dominated by global biggies such as Unilever and Nestle and home-grown giants such as ITC, Britannia and Marico. Reliance, Tata and Adani have been making inroads into the segment as India’s middle class grows as well as rising incomes increase purchasing power among all consumer classes.
A BCG-TRAI study showed last year that India’s retail industry will continue to grow at 9–10% to reach approximately $2 trillion by 2032. A consumer market as big as India’s can surely afford a few more big players but the presence of so many giants means competition that’s akin to a messy, fierce war with pitched battles for different business segments.
Last year in December, Reliance Consumer Products Ltd (RCPL), the newly set up FMCG arm of Reliance Retail Ventures Ltd (RRVL), made a foray into staples with the launch of brand ‘Independence’. Independence will be “competing with Adani Wilmar in edible oil, grains and pulses; Patanjali Foods in biscuits, edible oil, packaged atta; Parle and Britannia in biscuits; Tata Consumer in pulses, packaged water; and ITC in packaged atta, biscuits,” brokerage Nomura had said.
Reliance pushing its way into the edible oils segment where Adani WIlmar rules would mean battles over prices and market share between the two giants. Adani-Wilmar has been slowly expanding beyond its edible oil business. The market leader in the edible oil category, it started selling branded rice, wheat flour and sugar too and also planned to push its way into value-added products. It acquired the domestic rights for ‘Kohinoor’- catering to premium Basmati rice, ‘Charminar’ for the affordable segment, and ‘Trophy’ for the hotel-restaurant-cafe segment from McCormick Switzerland GMBH. Reliance has acquired in the past two years more than a dozen of key brands, both big and small, to bulk up its FMCG business. As the two giants face off, a third, Tata Consumer Products, the FMCG company of the Tata group incorporated three years ago, too has been on an acquisition spree.
When Reliance sets its store by a huge amount of consumer data its retail and telecom business generates and its access to a large network of small traders and Tatas are trying to boost their FMCG business with Tata Neu super app, new ways of doing FMCG business will surely reconfigure the FMCG landscape in India.
Liquidity pressures on Adani group in the wake of the Hindenburg report seem to be forcing it out of a highly competitive business which requires a large amount of capital to compete with Ambani who has been buying FMCG brands at a frenzied pace to build its portfolio and be forever on one’s toes to face new challenges that technology and shifting consumer trends bring.