Sector Outlook: Neutral
Improved quarter with mixed result across segments
Godrej Agrovet Ltd. reported a revenue decrease of 6.4% YoY / up 10.1% QoQ to Rs. 23,508 mn and was marginally above market expectations of Rs. 23,050 mn. The company reported annual revenue growth in business segments such as Vegetable Oil (+12%) and Dairy Business (+1%). At the same time, Animal Feed (-10%), Crop Protection (-5%), Poultry and Processed Food (-25%) and Other Businesses (-41%) saw a degrowth in revenue. EBITDA increased 17.2% YoY / up 52.8% QoQ to Rs. 2,261 mn, while EBITDA margin stood at 9.6% (up 193 bps YoY) in Q1FY25, led by an expansion in gross margins by 258 bps YoY to 26.8%. The net profit stood at Rs. 1,316 mn (up 22.9% YoY / up 101.0% QoQ) in Q1FY25, above market expectations of Rs. 1,035 mn. The PAT margin was 5.6% versus 3.1% in the previous quarter. The company continued to demonstrate strong growth in profitability and margin expansion in Q1FY25. The increase in profitability was mainly driven by robust volumes & improved realisations in the domestic Crop Protection business and margin expansion in Animal Feed and Dairy businesses.
Key Concall Highlights
Animal Feed Business Outlook:
The segment reported a 10% YoY revenue fall for Q1FY25, led by subdued milk prices and lower placements. However, the EBIT margin improved significantly due to favourable commodity positions. EBIT per ton expanded sharply to Rs. 2,258 in Q1FY25 from Rs. 1,443 in Q1FY24. Management guided to EBIT per ton of at least Rs. 2,000 for the remainder of FY25. On the volume front, broiler feed volumes declined, while cattle feed volumes also fell as farmers reduced feed purchases amid lower milk prices.
Oil Palm Business Outlook:
Segment revenues grew 12% YoY, while EBIT declined 14% YoY. Excluding trading revenues, segment revenues fell by 4.5% due to lower Fresh Fruit Bunch (FFB) arrivals by 9% and lower opening stock in Q1FY25. Excess heat in May-June adversely impacted the business, while the abundant rains of July increased the water content in fruits, increasing the company’s cost of procurement. Management expects this year’s season to get delayed by a month, yet it is guided to at least match last year’s volumes and expects the OER to pick up gradually.
Domestic Crop Protection:
In the domestic Crop Protection business segment, margins improved significantly from 32% in Q1FY24 to 45% in Q1FY25 due to robust volume growth and higher realisations across most categories. Management ascribed the good performance to a higher salience of in-house products, which tend to represent a higher proportion of sales in the first two quarters of the financial year – in contrast, the past two quarters witnessed more in-licensed products. The company expects to maintain FY24 margin levels in FY25 as well but cautioned that climatic conditions may pose a risk to growth.
Astec LifeSciences:
The company’s 52% revenue decline in Q1FY25 was adversely impacted by continued pricing and demand headwinds in the enterprise products, necessitating a write-down of inventories. The company has said it may modify Astec’s older plants to fit new molecules, which may help defer additional investment by 18 months. Finalising a plan will take 3-6 months. The only investments Astec is currently making are in debottlenecking, quality improvement, and environmental projects.
Dairy Business Outlook:
Dairy Business revenues increased 1% annually, with a drop in overall volumes YoY in tandem with pricing pressure. Salience of Value-Added Products (VAP) has improved to 42% of total sales from 36% a year ago, implying a substantial 18% YoY growth in VAP revenues, even as liquid milk volumes declined. The company plans to operate at full capacity within the next two years in the five South Indian states where Creamline is present. This will increase the plant utilisation to 75-80%.
Godrej Tyson:
Revenues fell 25% YoY for the quarter due to lower volumes in the live bird business, as GTFL continued to focus on branded business and reduced exposure to the live bird business.
Capex Plan:
The Capex of Rs. 1.1 bn for cattle feed in Maharashtra has been taken in anticipation of requirements over the next few years. Other areas of capex in FY25 will be one more refinery for oil palm, with an investment of Rs. 700-800 mn, in addition to the capitalization of Astec’s second herbicide plant and other routine activities.
Valuation and Outlook
Godrej Agrovet reported a healthy quarter performance despite mixed results across segments. Animal Feed business segment margins improved remarkably due to favourable commodity positions, while subdued milk prices impacted its volume growth. Further, we expect the Animal Feed business margins to bounce back in FY25. At the same time, the turnaround in the Dairy segment, combined with favourable industry margins, should lead to much-improved earnings from that segment. The Domestic Crop protection business performed strongly, although climatic vagaries pose risk. Astec’s turnaround should gain momentum, while Other Businesses should continue to grow. Overall, the company’s performance improvement in Q1FY25 is encouraging, and we look forward to further consistency in performance in the upcoming quarters to consider a more constructive stance in FY25. However, the turnaround initiatives taken by the company are moving broadly in the right direction, and the medium-to-longer-term outlook remains positive.
