Godrej Agrovet Ltd.’s Q3FY24 Result Update

Sector Outlook – Neutral
Godrej Agrovet Ltd. saw a slight revenue increase to Rs. 2,345 crores, performing slightly better than expected. Growth was noticed in segments like Animal Feed, Dairy, and Crop Protection, while Vegetable Oil and Poultry dipped. The Animal Feed business did well thanks to cattle feed, balancing out lower poultry and steady aqua feed sales. Dairy is expected to improve due to cost cutting and more value-added products. Astec is looking forward to growth from contract manufacturing and new products. EBITDA went up thanks to better gross margins, but net profit fell short of expectations.

Concall Highlights

Animal Feed Business Outlook:
The Animal Feed segment of Godrej Agrovet grew by 2% mainly because cattle feed sales went up by 8%, even though poultry feed sales dropped a bit and aqua feed sales stayed the same. The company is optimistic about the next quarter since feed sales got better in the last quarter. They also think the cost of materials like corn will stay stable because the government might not export it. Although the segment’s profit was hit by changing commodity prices, they expect a big improvement in profits next year, especially from cattle feed and a new fish feed plant.

Oil Palm Business Outlook:
Godrej Agrovet’s segment focusing on palm oil saw a 2% drop in revenue due to falling prices and a 4% decrease in fresh fruit bunches (FFB) volume. Crude palm oil and palm kernel oil prices fell by 9% and 12% respectively, but the oil extraction ratio (OER) saw an improvement. The company plans to significantly increase its palm tree planting from 3,500-4,000 hectares last year to 10,000-12,000 hectares this year, aiming for 15,000-16,000 hectares from next year, which should boost fruit production in 4-5 years.

Standalone Crop Protection:
In Q3FY24, Godrej Agrovet’s crop protection business saw impressive growth, especially due to increased sales from its licensed portfolio and plant growth regulators. Products like Hitweed and Hitweed Max grew by over 70%, benefiting from expanded co-marketing efforts and favourable rainfall. This segment’s success highlights the company’s effective strategy in meeting agricultural demand and leveraging seasonal advantages.

Astec LifeSciences:
In Q3FY24, the company faced challenges with slower demand and falling prices for its main products. There was too much inventory in the market, leading to lower sales and prices, especially for exports and due to increased supply from China. This situation caused the company’s profit margins to drop significantly.

Dairy Business Outlook:
The dairy business saw better profit margins due to improved operations and lower costs for raw materials. The share of value-added products (VAP) like specialty cheeses and yogurts grew by 20% year-over-year, making up 36% of sales in the first nine months of FY24, up from 32% the previous year. This growth in VAP was due to both higher sales volumes and prices. Looking ahead, the company expects to continue this strong performance in FY24.

Godrej Tyson:
The revenue from the poultry segment fell by 20% year-over-year because the price of live birds significantly dropped due to too many being available in Q3FY24. This oversupply situation also caused the earnings before interest, taxes, depreciation, and amortisation (EBITDA) for this segment to decrease by 89% compared to last year, as both the revenue shrank and the price at which live birds were sold was lower.

Capex Plan:
Godrej Agrovet is launching a new herbicide production facility in the next 1-2 months, signalling its commitment to growth and innovation. The company’s future spending plans (capex) will focus on improving current operations, launching new products, and diversifying its product range beyond what it already offers. This strategy aims to enhance the company’s product lineup and market presence.

Valuation and Outlook
Godrej Agrovet had a mixed quarter with some business areas doing better than before due to changes in management and efforts to improve. They expect better results soon because of increased sales, better product variety, and lower costs. They think the animal feed business will do better next quarter, and the dairy part should also improve with cost cuts and more sales of special products. The company’s oil palm sales should grow fast in the future, helped by new land for farming. The crop protection part of the business is doing well with some products selling a lot. The part of the business that makes products for other companies is also making more money. While this year looks promising, they want to see more steady good results in the future. However, the steps they’re taking to get better seem to be working, and they’re optimistic about the future.