Branded Staples Expansion And Quick Commerce Channels Are Expected To Drive Long Term Upside

Catalysts

About AWL Agri Business

AWL Agri Business operates a diversified edible oils, foods and industry essentials platform focused on branded staples, value added products and institutional solutions across India and select international markets.

What are the underlying business or industry changes driving this perspective?

• Scaling alternate channels such as quick commerce and broader e commerce, where AWL already holds over 40% to 50% category shares in key oils, is expected to structurally lift branded mix and support faster revenue compounding and higher blended net margins as these platforms grow from a small base.
• Continued expansion of direct distribution to nearly 1 million outlets and deeper rural town coverage is likely to convert more loose and unorganized staples into branded sales, underpinning steady volume growth and better operating leverage that supports earnings.
• Normalizing edible oil prices, improving H2 demand from festive and wedding seasons and rising out of home consumption following GST cuts for snack and bakery players are expected to aid higher throughput in the core edible oil franchise, stabilizing per tonne EBITDA and supporting overall profit growth.
• Acceleration in the foods and FMCG portfolio, supported by new capacities in wheat flour and rice and the integration of GD Foods into AWL’s distribution, can support double digit growth and a shift from EBITDA neutral to structurally profitable operations, which would improve consolidated margins over time.
• Strengthening Industry Essentials led by higher margin oleo chemicals, including glycerin and stearic acid, positions the company to participate in growing specialty and industrial demand, supporting more resilient segment EBITDA and helping to smooth volatility in consolidated earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming AWL Agri Business's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 1.8% in 3 years time.
• Analysts expect earnings to reach ₹14.8 billion (and earnings per share of ₹10.76) by about December 2028, up from ₹10.8 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as ₹18.6 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 39.5x on those 2028 earnings, up from 29.8x today. This future PE is greater than the current PE for the IN Food industry at 19.6x.
• Analysts expect the number of shares outstanding to decline by 0.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.76%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent sluggishness in India’s packaged staples and FMCG demand, already reflected in recent contractions in nondurable FMCG volumes, could mean that even with wider distribution and more SKUs, AWL Agri Business struggles to grow branded volumes fast enough to offset past commodity cycle gains, weighing on long term revenue growth and EBITDA.
• Structural competitive pressure from duty advantaged Nepal imports and aggressive regional wheat flour players in key northern and eastern markets may keep pricing under strain in core edible oils and foods, limiting the company’s ability to pass on costs and compressing net margins.
• Reliance on commodity cycles in oleo chemicals and oil cakes to deliver “one of the best margins” in Industry Essentials exposes earnings to downswings in glycerin, stearic acid and meal realizations, which could normalize from current highs and drag on segment EBITDA and consolidated profit growth.
• The strategy of prioritizing top line scale in foods and FMCG, with management signaling continued heavy investments in distribution, schemes and promotions through at least FY 2028, increases the risk that this segment remains only modestly profitable for longer than planned, delaying the expected uplift in consolidated net margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₹317.5 for AWL Agri Business based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹386.0, and the most bearish reporting a price target of just ₹265.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be ₹836.8 billion, earnings will come to ₹14.8 billion, and it would be trading on a PE ratio of 39.5x, assuming you use a discount rate of 12.8%.
  
• Given the current share price of ₹249.1, the analyst price target of ₹317.5 is 21.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.