How Adani Wealth Emerged Following the Palm Oil Crisis

How Adani Wealth Emerged Following the Palm Oil Crisis

According to the 2022 M3M Hurun Global Rich, Gautam Adani, India’s and Asia’s second-richest person, added $49 billion to his wealth last year, more than the top three global billionaires, Elon Musk, Jeff Bezos, and Bernard Arnault. Since 2019, Pramod Kumar has been in charge of operations at Adani Wilmar’s (AWL) newly constructed production facility in Hazira, Gujarat.

The 45-year-old engineer has spent more than a decade working on the company’s edible oil derivatives business. Still, the fully-automated edible oil manufacturing facility on the outskirts of Surat brings him immense joy. With a refining capacity of 2,500 tonnes per day, the facility is already one of the largest edible oil companies.

Indonesia, the world’s largest producer, exporter, and consumer of palm oil, prohibited all exports of the product and its raw materials on April 28 to minimize local cooking oil shortages and lower rising costs. On Monday, India’s shares of edible oil makers rose, while those of fast-moving consumer goods (FMCG) businesses fell.

Shares of edible oil makers rose on Monday following Indonesia’s restriction on palm oil exports, which stunned global edible oil markets and hit record highs this year. In addition, they alarmed big importers of the cooking medium. The nation is the world’s largest producer of palm oil.

READ MORE:

What Made Adani the Most Richest Man In India?

The Backstory Of The PayPal Mafia

Why Did Harley Davidson Fail In India?

Second Biggest FMCG Corporation: Adani Wilmar

After listing in February, Adani Wilmar astonished everyone by becoming India’s second-largest FMCG firm. But, with edible oil accounting for the majority of its sales, can its planned expansion into foods help it de-risk its business while also propelling it to the top of its industry.

Unlike most of its rivals, Adani Wilmar Ltd. has strong roots in two of the world’s top firms in their respective fields of expertise: Singapore-based Wilmar International and Adani Group (post listing, both groups hold equal stakes of nearly 44 percent each in AWL).

Wilmar controls roughly 30% of the world’s edible oil sector, with tentacles stretching across continents, providing significant bargaining power in pricing negotiations and raw material distribution. Adani Group, managed by Gautam Adani, also controls India’s largest private sea port operator, Adani Ports and Special Economic Zone (APSEZ). This is critical in guaranteeing a continuous supply of raw materials to AWL’s plants around the country.

The edible oil business’s contribution to AWL’s overall revenues is 84 percent, which should raise red flags. The industry also has low margins and is vulnerable to various external variables due to its high reliance on imports. This would include, among other things, the government’s stance on import duties, India’s poor yield of oilseed crops, and price volatility in foreign markets. For example, because 90% of crude sunflower oil is supplied from Ukraine, the conflict there poses a danger to provide.

Adani Profits From The Government’s Palm-Oil Push

In August, the Indian government unveiled a plan to drastically expand the area of India producing palm oil, a substance used in the production of hundreds of consumer items. It’s part of a $1.5 billion campaign toward edible oil self-sufficiency. Despite wildlife experts’ warnings about the consequences of large-scale conversion of forests and farmland to crops, it occurs.

Meanwhile, an Adani joint venture in palm oil has found a stumbling block in its development plans. The Modi administration of India announced a US $1.5 billion effort in August 2021 to make India self-sufficient in edible oils, emphasizing developing oil-palm plantations in the north-eastern provinces and the Andaman and Nicobar Islands.

PM Modi stated that palm oil accounts for 55% of India’s edible oil imports and that this condition must be changed. He announced a ‘national edible oil mission-oil palm’ (NEOM-OP) to offer raw materials and oil extraction technologies. Adani Wilmar had planned to utilize the IPO revenues to expand its production plants. It also sought to repay its debts and strategic fund acquisitions.

Adani Wilmar Ltd Is Dominating Overseas

AWL is also seeking development outside of the United States. For example, its straight entry into Bangladesh’s edible oil sector is noteworthy. Last June, the company acquired Bangladesh Edible Oil Ltd (BEOL), which is currently marketing AWL’s key brands such as Fortune (rice bran oil) and King’s (sunflower oil) in Bangladesh. BEOL refutes crude, degummed soybean oil, and palm olein in the local market. It also buys mustard, rice bran oil, and rice and sells them.

AWL also owns Shun Shing Edible Oil, a Dhaka-based company that provides crude oil transportation and processing services. According to industry estimates, Bangladesh’s edible oil market is worth Rs 16,000 crore and rising at a 9.5 percent CAGR.

By the end of FY22, AWL’s international operations will be worth Rs 7,000 crore, thanks to the BEOL agreement. Apart from Bangladesh, it also exports basmati rice, oleo-chemicals such as soap noodles and castor oil (used in personal-care products), soya derivatives, and packaged edible oil to nations such as China, Japan, and Australia.

Made Profit Despite A Difficult Environment

For March 2022, the company’s consolidated net profit fell 26% to Rs 234.29, owing to increasing tax charges. It made Rs 315 crore in net profit at the same time last year. The company’s net profit for the whole fiscal year 2021-22 increased to Rs 803.73 crore from Rs 728.51 crore the previous year. In January-March, the company’s overall revenue climbed to Rs 15,022.94 crore from Rs 10,698.51 crore in the last fiscal year.

Conclusion

Adani Wilmar, a joint venture between Adani Enterprises and Wilmar International, is one of India’s leading FMCG firms. Its product distribution is divided into three categories: edible oil, packaged food and FMCG, and industry basics, with subcategories within each. It is a world leader in the edible oil area, with a market share of around 18.3 percent through Fortune and other brands.