Godrej Agrovet Ltd Quarterly Result Update

Godrej Agrovet is a diversified, Research & Development focused agri-business company that is dedicated to improving the productivity of Indian farmers by innovating products and services that sustainably increase crop and livestock yields. The company holds leading market positions in various businesses including Animal Feed, Crop Protection, Oil Palm, Dairy and Poultry, and Processed Foods.

The Animal Feed business of Godrej Agrovet is recognized as one of the largest organized players in the Compound Feed market in India. It typically achieves annual sales of more than a million tonnes across cattle, poultry, aqua feed, and specialty feed.

Quarterly Result Highlights

Godrej Agrovet Ltd. experienced a slight increase in revenue compared to the previous year, but a decrease of 10.6% compared to the previous quarter, reaching Rs. 20,950 million. This performance fell below market expectations.

The company saw annual revenue growth in some of its segment businesses ie. Animal Feed business, Dairy business and Poultry and processed food business. However, the revenue growth of its businesses that operate in the vegetable oil sector, crop protection industry, etc declined.

The positive performance in Animal Feed and Dairy businesses was driven by healthy volume growth, gaining market share, and price hikes. On the other hand, the Vegetable oil business was negatively affected by lower crude palm oil prices, and the Crop protection business declined due to lower sales in the Plant Growth Regulators category and pricing pressure.

The company’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) decreased by 55.9% compared to the previous year. The EBITDA margin stood at 457 basis points compared to the previous year, primarily due to a contraction in gross margins by 451 basis points to 19.7%.

The Profit after Tax (PAT) for the company was Rs. 235 million, showing a decline of 37.8% compared to the previous year and a decline of 20.6% compared to the previous quarter. This result was below market expectations of Rs. 300 million. The PAT margin decreased to 1.1% this quarter.

Valuation and outlook

Godrej Agrovet faced earnings pressure across segments due to weak demand and intense competition. In the future, the Animal Feed business is expected to perform better with volume growth and market share gains in the cattle feed category.

The Crop Protection business experienced lower sales in the Plant Growth Regulators category and pricing pressure. The Dairy business sustained volume growth in value-added products, while the Oil Palm business was impacted by lower crude palm oil prices. The management expects improvement in FY24 compared to FY23.

Key Concall Highlights

Animal Feed Business Outlook: The segment experienced 10% YoY revenue growth, driven by increased market share in cattle feed and 11% YoY volume growth. Animal feed margins are expected to improve in FY24 due to growth in cattle feed and the newly commissioned fish feed plant.

Oil Palm Business Outlook: Revenue declined by 23% YoY due to lower crude palm oil prices. However, significant fruit production growth is expected in the coming years due to increased plantations in Telangana and the Northeast.

Standalone Crop Protection: Standalone crop business revenue increased due to lower prices and an unfavorable product mix. In FY24, products like Maxcot are expected to perform well, and Gracia sales are projected to double in FY24.

Astec LifeSciences: The fourth quarter was impacted by weak demand and lower prices in the agrochemical industry, caused by erratic rainfall and inventory pile-up after the Covid situation.

Dairy Business Outlook: Revenues increased by 18% YoY, driven by strong demand for value-added products. Rising milk procurement costs affected profit margins.

Godrej Tyson: This segment saw a 22% YoY revenue increase, primarily due to higher volumes.

Capex Plan: The first phase of the MPP project, with a capital expenditure of Rs. 5 billion, will begin by 2023 and be commissioned by December 2024. Other businesses are planning to debottleneck production capacity and improve efficiency