Godrej Agrovet Ltd-Quarterly Results Update

Better than expected quarterly performance

Godrej Agrovet Ltd. registered a flat annual revenue growth and was up 19.8% QoQ to Rs. 25,102 mn and was above market expectations. The company reported annual revenue growth in segment businesses such as Animal Feed (+3%), Dairy (+8%), Poultry and Processed Food (+25%), Crop Protection (+4%), and Other Businesses (90%). However, Vegetable Oil (-40%) reported a decline in revenue growth. The Animal Feed and Dairy business drove performance on the back of sustained volume growth, recovery in margin profile, and price hikes. However, Astec LifeSciences and Vegetable Oil businesses were adversely impacted by challenging market conditions. EBITDA increased 19.4% YoY / up 158.5% QoQ to Rs. 1,929 mn, while EBITDA margin stood at 7.7% (up 125bps YoY) in Q1FY24, led by an expansion in gross margins by 343bps YoY to 24.2%. The Profit after Tax stood at Rs. 1,071 mn (up 22.1% YoY / up 356.2% QoQ) in Q1FY24, above market expectations of Rs. 980 mn. The PAT margin rose to 4.3% versus 1.1% in the previous quarter

Key Concall Highlights

Animal Feed Business Outlook: The segment reported 3.1% YoY growth in revenues, driven by a higher market share in cattle feed, which registered 19% YoY volume growth. Management expects potentially a strong improvement in animal feed margins in FY24, driven by growth in cattle feed and the new fish feed plant.

Oil Palm Business Outlook: The segment’s revenue declined 39.9% YoY due to the sharp drop in crude palm oil prices and a marginal decline in the oil extraction ratio. The company commissioned its first downstream project in the vegetable oil business of an edible oil refinery in Andhra Pradesh. The refinery has a capacity of 400 MT per day. The company expects a significant increase in fruit production in the next 5-6 years due to increased plantations of hectares in Telangana and Northeast.

Standalone Crop Protection: Standalone crop business revenue delivered record topline and margin performance in Q1FY24 led by strong volume growth and higher realizations in in-house herbicides portfolio. Management expects new products to perform well in the market, while Gracia sales are projected to double in FY24.

Astec LifeSciences: The company’s Q1FY24 was severely impacted due to sluggish demand, lower realizations, and high-cost inventories of enterprise products. Astec continued to face demand-supply imbalance in its enterprise products portfolio in both domestic as well as global markets. The entire agrochemical industry faced challenges such as erratic rainfall and inventory pile-up in channels post the Covid situation.

Dairy Business Outlook: The dairy segment reported a 7.9% YoY increase in revenues, driven by strong demand for value-added products. Dairy business turned EBITDA positive in Q1FY24 led by buoyant margin performance across categories. Management expects strong operational performance going ahead in FY24 as well.

Godrej Tyson: The segment reported all-around performance in Q1FY24 with growth across categories, owing to healthy volume growth in branded business.

Capex Plan: The details of the first phase of the MPP project will be finalized in the next 3-4 months, which has a capex of Rs. 5 billion. The other businesses are for the second phase of the herbicide plant and will require an investment of around Rs1 billion. The company is expanding its Mahad facility by setting up a similar-sized facility at the site.

Valuation and Outlook

Godrej Agrovet reported healthy operational performance for Q1FY24 due to improvements seen in the animal feed, domestic crop protection, and poultry and processed food segments. We expect the animal feed business to perform better in FY24 due to sustained momentum in its volume. The management is confident of continuing to gain market share in cattle feed alongside improving overall animal feed margins. In regards to its oil palm segment, the volume growth is expected to accelerate in the coming years owing to large new areas allotted to Godrej Agrovet for the development of oil palm cultivation from the state governments of Odisha and Telangana. This has a combined potential of around 57,000 acres. The company’s domestic crop protection segment has done well and truly turned out well after a change in product mix and channel strategy. Its dairy business has maintained volume growth in value-added products and poultry is growing well in the branded segment. We expect the company’s profitability to improve in FY24 owing to an increase in its volumes across all the segments. However, the near-term headwinds such as a fall in prices of crude oil and continued pressure on Astec enterprise’s business margins due to sluggish demand and high-cost inventories of enterprise products may turn out to be a hurdle for the company’s profits.