Wilmar International Limited: Asia’s Top Agribusiness Group

Overview of Wilmar International Limited

The company was incorporated in 1991. It is recognized as Asia’s top aqribusiness group. The company has very huge capitalization value on Singapore stock exchange; in 2010 it was at number two in capitalization value on Singapore stock exchange. It is basically holding company of 400 and more subsidiaries company

The company is dealing in various industry like Edible oil, Grain processing and many more. Company has large amount of plants all over the world. The company is also recognized as one of least environment friendly company.

In 2012, Wilmar was named the world’s least environmentally friendly company by US news magazine Newsweek. Due to their poor environmental performance they were excluded in 2013 from The Government Pension Fund of Norway, the largest stock owner in Europe.

Particulars	2013(US$’000)	2012(US$’000)	% IMPROVEMENT
REVENUE	44,085,001.00	45,463,414.00	-3.03
OPERATING PROFIT/LOSS	1,763,169.00	1,768,027.00	-0.27
TOTAL CAPITAL EMPLOYED	23,440,378.00	20,506,851.00	14.31
TOTAL ASSETS	46,631,795.00	41,920,134.00	11.24
NET CASH GENERATED USED IN OPERATING ACTIVITIES	1,613,608.00	1,067,725.00	51.13
EARNINGS PER SHARE	US$ 20.6	US$ 19.6	5.10
TOTAL DIVIDEND PAID PER ORDINARY SHARE	US$ 8	US$ 5	60.00
YEAR END SHARE PRICE	US$ 3.42	US$ 3.34	2.40
YEAR END MARKET CAPITALIZATION RATE	67,514,466.02	67,368,724.49	0.22

    

YEAR END SHARE PRICE I GOT FROM A WEBSITE WHICH HAS BEEN MENTIONED IN THE WORD FILE

DIVIDE THE PROFIT AFTER TAX BY EPS TO FIND OUT NUMBER OF SHARES & MULTIPLY THE SAME WITH MPS
ALL OTHER DATA HAS BEEN DIRECTLY INSERTED FROM THE ANNUAL REPORT

 

We have compared ratios of WILMAR INTERNATIONAL LIMITED with OLAM INTERNATIONAL LIMITED. We have analyzed the same for 2012 and 2013 which are as follow:

Indicator/	Comparison	2013	2012	UNIT
GROSS PROFIT RATIO	GP OF WILMAR	8.44	8.55	%
GP OF OLAM	18.02	11.19
NET PROFIT RATIO	NP OF WILMAR	3.15	2.90	%
NP OF OLAM	1.88	2.36
CURRENT RATIO	CR OF WILMAR	1.20	1.11	TIMES
CR OF OLAM	1.82	1.63
OPERATING PROFIT RATIO	OPR OF WILMAR	3.78	3.62	%
OPR OF OLAM	0.04	0.04
GEARING RATIO	GR OF WILMAR	1.93	1.81	TIMES
GR OF OLAM	0.83	0.85
EPS OF WILMAR P/E RATIO OF OLAM MPS	US$ 19.6 9.5 TIMES US$ 2.06	CALCULATION OF MPS OF WILMAR BASED ON OLAM’S P/E RATIO

 

Basically P/E ratio states market Price per share to Earnings per share. Here we compare market price of a share with the earnings that a business generates per share. This ratio is helpful when we compare two firms. On standalone basis this ratio has very restricted use. Further the comparison should be done of those companies which exist in the same industry. It is many a time referred as multiple, the reason being it shows how much investors are willing to pay per dollar. This ratio is highly dependent on capital structure. Because debt in capital employed affects both earnings and share prices in many ways. Higher the debt, lower the earnings per share.

Wilmar’s P/E ratio is 14.3 times which means that the purchaser of the stock of Wilmar is paying $14.3 for every dollar of earnings. Whereas P/E ratio of Olam is 9.50. Both the above companies are from the same industry. Willmar has a higher forecast earning growth as compared to Olam. When we use the P/E ratio of Olam for Wilmar the Market Price of Wilmar reduces to us$ 2.06.

As on 4 August 2014 EPS of WILMAR INTERNATIONAL WAS 0.2258, So if we apply OLAM’s P?E ratio which is 9.5 than share price would be 2.1451 (9.5*.2258)

The company posted weak earnings and further the Singapore earnings were flat in the absence of any major market catalyst. Wilmar’s first quarter net profit fell by 49% due to losses in sugar business, lower palm refining margins and negative soybean margins in China. The shares are trading low since Feb 6.

1.Gross Profit Ratio

It is a tool that measures a company’s financial health by deducting the cost of goods sold from the revenue. It is a source from which additional expenses are made. It reflects the extent of efficiently a business is utilizing of its material and labors in business. It also gives an indication of the pricing policy, costing structure and all other production efficiency of a business. The more the percentage the more the business retains money for operating expenses. Gross profit ratio of Wilmar International Ltd is approximately 8.45% for the year 2013 as compared to the year 2012 which was 8.56 %. The basic reason behind fall in revenue was that the palm prices were significantly low which has been the cause of fall in revenue by 3% approx. By mid 2014 the company will be supplying palm oil to neighboring countries. While we compare the results of Wilmar with Olam Ltd which an agro based company we find that the gross profit has increased for Olam from 11.19% for the year 2012 to 18% for the year 2013. Olam has shown 21% rise in its revenue which could because it has powerful supply CHAIN

Particulars

2. Net Profit Ratio

It is basically a ratio that measures how much part or portion of every dollar a company actually keeps in earnings. It is very useful while we compare two companies in similar industries. Higher percentage of this ratio indicates that company has a better control over its cost as compared to competitors. Shareholders have a close watch over this ratio. Changes in this ratio is endlessly scrutinized. Wilmar International Limited’s Net profit has shown an increase of 70.371 million US$ which is 25% approx more than for the financial year 2012. During 2012 company’s ratio was2.9% which has risen to 3.15%. Though there was a fall in gross profit ratio but the company was able to increase its net profit. In April it extended the collaboration with Tereos Group to include corn and potatoes. It expanded its value chain to Sri Lanka and by November formed a 50:50 JV with Kemira and expanded the value chain in China. The company strengthened its control over it cost. As seen from the financial statements that there is a fall in Selling & Distribution expense, finance cost and COGS which led a higher % of Net profit ratio for the year 2013. When we look over to Olam, there is a fall in its Net Profit Ratio from 2.4% for the financial year 2012 to 1.8% for the financial year 2013even though the sales has risen by 21%. 

3. Current ratio

Basically it is a ratio that measures a company’s liquidity i.e. its ability to pay short term o bligation when they arise. It is the most widely used test of liquidity of a business. It is the ratio of Current Assets of a business to its Current Liabilities. Current Assets are those which are converted into cash within 12months or within the normal operating cycle where as Current liabilities are the obligations of a business that have to be paid within 12months. An idle Current Ratio is 2:1 which means Current Liabilities are half of Current Assets. Creditors prefer granting credit to those companies which have a higher Current Ratio. Wilmar’s Current Ratio has shown an increase from 1.11times to 1.2times. More the Current ratio less the number of liquidity crisis. When we look to Olam, its Current Ratio has fallen from 1.63times to 1.82times

4.  Operating Profit Ratio

The profit generated through from its core business activity or functions, can be called operating profit. It does not include any profits earned from the investments and effects of interest & taxes it is known by two names, first is EBIT(Earnings Before Interest & Tax)  and Operating income. It is  calculated by deducting operating expense, COGS & Depreciation from Operating income. This ratio is helpful in measuring company’s pricing decision & operating efficiency.  Wilmar’s  Operating Profit Ratio has increased from 3.62% for the financial year 2012 to 3.78% for the year 2013. Every month new expansion have taken place like JV with a company in China, sale of potatoes, etc which has shown an increase in this ratio slowly and gradually. When we look over to Olam, its Operating Profit Ratio has almost remained constant to 4% both the financial years

Comparison of Ratios between Wilmar and Olam Ltd

5.Gearing Ratio

Basically the capital compromises of two things. One is the owner’s fund and the other is the borrowed fund or debt fund. This ratio helps us to identify the level up to which a company’s transaction are financed by own fund and borrowed funds. It is the proportion of a company’s debt to its equity. Higher the ratio more risky the firm is because in such firm there would be a higher portion of debt. It might lead to bankruptcy in future. Lenders such as financial institutions basically focus on this ratio before granting ant financial assistance. Those industries with large & ongoing Fixed assets requirements generally have a high gearing ratio. In order to determine an optimal ratio generally comparison is done within the same industry. Wilmar’s Gearing ratio is 0.83times for the year 2013 as compared to 0.85times for the year The proportion of debt is less as compared to equity and further it has reduced during the year 2013. When we look to Olam, its gearing ratio as increased from 1.81times to 1.93time from the year 2012 to 2013. It has higher debt portion. It is a highly levered firm which has a bit It is to be noted that the P/E ratio of Wilmar is higher than Olam. Also if we look up at page 4 ,” Percentage movement “ company had outperformed in all area except revenue almost remained same. I t is to be noted that company had also purchased assets , indicating expansions. So looking at t the good margin on Operating Profit, In addition to above following percentage movement is analyzed for consider investment decision

a. Movement in EBITDA

For 2013 , EBIT of WILMAR was   US$2432 in Million And in 2012 it was 2406 It show the company’s EBITDA had grown not much , but yes thought turnover get reduced in 2013 , it had shown increasing trend , It shows company had good control on Operating Expenses .

b. Movement in Debt to equity ratio

For 2013 Debt to Equity ratio was 0.83 , however in 2012 it was 0.85, It shows company has reduced the Debt und diverted it focused towards Equity fund. It reduce the risk factor by reducing fixed interest cot bearing security.

c. Movement in Liquid Working Capital

For 2013 was Liquid Working Capital US$   million 7108.9 , however in 2012 it was US$ million 7011.2, It shows company managed liquidity very positively. Though turnover get reduced and the net Liquid Working Capital had increased.

d. Fall in revenue

The basic reason behind fall in revenue was that the palm prices were significantly low during the year which has been the cause of fall in revenue by 3% approx as compared to 2012

e. Fall in operating profit

The company has started expanding in different countries and has entered in Associate & Joint Ventures so there instead of rising the operating profit fell down as when we open up a new business we earn less in the beginning. Same is with Wilmar.

f. Rise in capital employed

In the year Wilmar invested approx 285.155 million US$ in Fixed Assets , the Retained earnings rose by 102.05 million US$. So overall there was a 14% rise in capital employed. As I mentioned in point no.2 that company expanded through Associates & Joint Ventures which led to such increase in capital employed

g. Increase in cash generated by operating activities

The net profit of Wilmar has risen by 70.371 million US$ as compared to 2012 i.e. 25% more than 2012. This has led to a rise in cash generated by operating activities

Conclusion

After comparing relevant ratios and percentage movement of specified factor of WILMAR INTERNATIONAL LIMITED 2013 with previous year’s annual report and OLAM INTERNATIONAL LIMITED annual report 2012,2012 . It seems Wilamar has good potential if it increase it sales activity, It has good control in all other area. After considering all factors I advise my friend to invest in 5000 shares of Wilmar.In addition to that following.