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Sector Outlook: Neutral
Improved quarter with mixed result across segments
Godrej Agrovet Ltd. recently reported a slight revenue increase of 1.9% compared to last year, reaching Rs. 21,343 million, which was slightly above what experts predicted. However, this revenue dipped by 9% compared to the last quarter. The company saw good growth in its Vegetable Oil and Crop Protection segments, with increases of 28% and 5%, respectively. On the other hand, their Animal Feed, Dairy Business, Poultry and Processed Food, and other segments experienced declines in revenue. The company’s EBITDA, a measure of operating profit, rose dramatically by 98.4% compared to last year but fell by 7% from the previous quarter. The net profit also increased significantly by 179% year-over-year but dropped by 21.1% quarter-over-quarter, missing the expected figures. Despite some challenges in sectors like Dairy and Vegetable Oil, the company has been actively improving its management and focusing on more profitable products.
Key Concall Highlights
Animal Feed Business Outlook:
In the last quarter of the fiscal year 2024, the revenue from one of the segments dropped by 2% from the previous year but saw a slight growth of 1% over the entire year. This growth was mainly due to increases in cattle feed and fish feed sales, which grew by 11% and 19% respectively. However, this was partially offset by a decrease in poultry feed sales. To boost sales further, the company introduced new cattle feed products in the last quarter. The profit margin for this segment improved significantly in fiscal year 2024 compared to 2023, helped by lower costs for raw materials and better pricing in cattle and fish feeds. Looking ahead, the company expects even better profit margins in 2025, driven by strong sales in cattle feed and contributions from a new fish feed plant.
Oil Palm Business Outlook:
In a typically slow quarter, the segment’s revenues surged by 28% year-over-year because the company started trading oil to utilise its new refining capacity. However, sales volumes dipped in the fourth quarter of fiscal year 2024 due to a smaller carry-over of palm kernel oil (PKO) inventory from the previous quarter compared to the same period last year. During this quarter, the price of crude palm oil (CPO) dropped by 4% year-over-year, while PKO prices stayed the same. Over the whole year, prices for CPO and PKO fell by 20% and 28% respectively. Despite this, the oil extraction ratio (OER), which measures efficiency in oil production, improved both over the quarter and the year. The management strategically used the company’s enhanced solvent extraction and refinery capacity for trading, which is currently beyond its internal crushing needs. Nevertheless, they are confident that within the next 1-2 years, the refining operations will fully meet the company’s own oil crushing demands.
Standalone Crop Protection:
Standalone crop protection business revenue declined 7% YoY for the quarter. For the full year, revenues increased by 37% YoY and EBIT more than tripled. The stellar performance throughout the year was driven by higher sales of in-house and in-licensed portfolio and lower sales returns.
Astec LifeSciences:
In the fourth quarter of fiscal year 2024, the company’s revenue increased by 21% compared to the same period last year, mainly due to strong sales from its CMO (Contract Manufacturing Organization) products and the introduction of new products. Over the full year, the CMO business did well, showing robust growth in both sales volumes and profits. However, this positive performance was overshadowed by weaker results from the company’s enterprise products, which suffered from lower sales and profit margins due to a significant imbalance between demand and supply. The company is planning to introduce some new CMO products, which are expected to be launched and start generating revenue by July or August 2025.
Dairy Business Outlook:
In fiscal year 2024, the dairy business of the company significantly improved its profitability due to better operational efficiencies and increased margins from milk products. The share of Value-Added Products (VAP) like flavoured milks and yoghourts in total sales rose to 36% from 32% the previous year. This growth in VAP was equally driven by higher sales volumes and better pricing. The management aims to boost the VAP share by an additional 4-5% in fiscal year 2025. Additionally, the company plans to fully utilise its production capacities within the next two years across the five South Indian states where its Creamline brand operates, aiming to achieve 75-80% plant utilisation. This strategy indicates a focus on expanding and optimising production to meet growing demand.
Godrej Tyson:
Revenues fell 12% YoY for the quarter due to lower volumes in the live bird business, as the company continues to focus on the branded business to reduce exposure to live bird. For the full year, revenues declined by 2%. EBITDA for FY24 more than doubled, driven by higher live bird prices, consistent improvement in volumes and margins of branded products and operational efficiencies.
Capex Plan:
The company’s capex for FY25 is expected to remain between Rs. 2.5-3 bn. This capex will be utilised for capacity increment in the Dairy business and expansion of the oil refinery.
Valuation and Outlook
Godrej Agrovet had a strong quarter with generally positive results across different business areas. While all segments except Vegetable Oil showed growth in earnings over the year, the company is optimistic about further improvements in the coming quarters due to increased operations, better product variety, and cost reductions. Specifically, the company expects the Animal Feed business to see better profit margins in FY25. The dairy segment is also expected to keep improving, thanks to cost cuts and growth in value-added products like flavoured milks and yoghourts. Despite challenges in the industry, the domestic crop protection business did well in FY24. Although palm oil prices have dropped, the outlook for sales volume in this area looks promising. Astec’s CDMO (Contract Development and Manufacturing Organization) business did exceptionally well, surpassing its revenue target for FY24 and is anticipated to grow by over 50% in FY25. Overall, the company’s efforts to improve are on track, and its future prospects look bright.
