Why is the stock of Adani Wilmar falling so sharply in last few weeks?

The stock of Adani Wilmar, which was in the midst of a frenetic rally since the IPO, has corrected in the last few days after the government announced changes to the import duties on palm oil. The measures are temporary and intended to ease the domestic supply situation. The stock of Adani Wilmar, which had scaled a high level of Rs878 on 28th April, has corrected close to 20% from these levels in the last one month.

What is the reason for this fall? The exemption from customs for edible oil would address the inflation problem, which is why the government went ahead with it. Government attacking inflation cannot be just about rate hikes and CRR. To address supply chain constraints alone would bring down the WPI inflation from the 15.08% levels. By exempting select palm oil and sunflower oil imports from duties, that is achieved.

Government has reduced effective duty on crude palm oil, crude soybean, and sunflower oil from the current rate of 5.5% to 0%. However, this would only apply to imports to the tune of 2 million tonnes. This has 2 purposes. India had been facing a shortage of edible oil domestically and Indonesia had banned the export of palm oil. Despite Indonesia lifting the ban, the situation would take time to normalize and hence the duty exemption.

However, there is also a valuation angle to it. For instance, since its listing, Adani Wilmar is up 80% and is currently trades at over 3 times IPO price. That is a lot of returns in a very short span of time and some correction was always on the cards. However, the long term net impact could, at best, be neutral. For Adani, it is not just about the edible oil franchise but the entire food chain experience that it dominates.