by Suhani Adilabadkar

It was a stellar debut for Godrej Agrovet with its IPO being oversubscribed 96 times. For the pure agri-play company that was a long-ago high point, and the firm has since been on the receiving end for its slow and lumpy growth over the past few quarters.

Though the stock declined 30% since touching its life-time high in April 2018, recovery seems to be on the cards as Godrej Agrovet (which is in 14 screeners including promoter shareholding increase) has jumped 5% from early March this year. Godrej Agrovet, the largest diversified agri company has seen the rough terrain of the monsoon dependent agricultural sector, volatile raw material prices, high government regulation and uncertain weather conditions. But it still may be a long-term bet. 

Quick Takes:            

• Godrej Agrovet operates in six major business segments, Animal Feed, Crop Protection, Oil Palm, Dairy and Poultry and Processed Foods.
• With lower growth rates and falling margins, the firm has been struggling over the past few quarters.
• Godrej Agro played on a complete flat pitch for March quarter FY19 with only revenues exhibiting 12% YoY growth.
• Animal Feed was the best performer with 10% volume and 22% revenue growth.

A diversified company that recently acquired Astec Lifesciences

Godrej Agrovet Limited is a diversified, research & development focused agri-business company working towards sustainably enhancing crop and livestock yields. The company operates in six major business segments, Animal Feed, Crop Protection, Oil Palm, Dairy and Poultry and Processed Foods.

If this sounds boring, the interesting part is that it owns ‘Yummiez’ and the popular south Indian milk products ‘Jersey’ brand and completely off-terrain to this industry, acquired Astec Lifesciences in 2015 to bolster its crop protection business.

Thus, even in pure agricultural field play, Godrej Agrovet stands diversified with revenues form agrochemicals, frozen food, animal feed, poultry, vegetable oil and dairy business. The company has a pan India presence and has in its fold four subsidiaries, Godvet Agrochem, Astec Lifesciences, CreamLine Dairy (Jersey), Godrej Tyson Foods, joint venture with ACI group Bangladesh and Maxximilk, an Israeli biotech firm as an associate company. 

Muted March Quarter Results

Godrej Agro struggled in the March quarter FY19 with only revenues in the green, with 12% YoY growth. Revenue stood at Rs. 1344 cr against Rs. 1195 cr same period previous year, and a sequential decline of 8%.

Operating profit ended flat at Rs. 75 cr with margin of 5.57% in Q4 FY19 declining 64 basis points YoY. PBT for the quarter excluding exceptional item of Rs. 88 cr stands unchanged on YoY basis at Rs. 51 cr.

\Moving on to respective business segments, Animal Feed was the best performer with 10% volume and 22% revenue growth. The inhouse Crop Protection revenue decelerated 23% whereas subsidiary Astec reported 4% revenue growth YoY. Dairy Subsidiary, Creamline reported mild revenue decline of 1.3% but with EBDITA trebling YoY. And lastly, the government regulated oil palm business which has the lowest share in the revenue basket jumped 23% in revenue terms but declined both on operating margin and profitability front.

In each business, a different struggle

The danger for diversified companies is having to fight very different battles in multiple businesses. Godrej Agrovet with lower growth rates and falling margins, has seen every segment struggle for a different reason. Animal Feed segment impacted by higher raw material costs, Crop protection faced tough conditions in domestic market coupled with Astec Lifesciences reporting postponement of important export orders, lower prices of butter and SMP (skimmed milk powder) impacted Dairy business, processed food segment facing stiff competition from platforms like Swiggy and Uber Eats and lastly palm oil segment suffered due to price differential in FFB ( fresh fruit bunches) between Andhra and Telangana. 

And the interesting part is that, the management look pretty optimistic as Mr. Balram Yadav, MD, Godrej Agrovet Ltd, said, “I think anything between 10 to 15% growth in topline and 15 to 20% growth in bottomline is doable and that is the plan”.

This optimism is based on strong capex, R&D and long-term strategic plans outlined by the company management for its respective business segments. First and foremost, the Animal Feed business, its product portfolio comprising cattle feed, poultry feed (broiler and layer), aqua feed (fish and shrimp) and specialty feed manufactured at 31 state-of-the-art manufacturing plants. Godrej Agro is the largest organized player in the country in compound animal feed contributing almost half of the revenue basket. To maintain its leadership, the company is investing about Rs. 100 cr in Nasik and Bundi plants to produce R&D products for animal feed and poultry to target lower penetration of compound feed and falling fodder availability in india.

Next in line for revenue contribution is Dairy Business which is about 22% of total revenues. Godrej Agro functions in a highly fragmented industry where organized sector forms only 15-20% of entire market. The Dairy strategy has two layers, first increasing the salience of value added dairy product portfolio as Mr Balram Yadav clarified, “I think profitability will be determined largely by increase in salience of value added products where margins are stable and if I have to tell you that last year our salience grew from 24% to 27% and this year, we are looking at increase from 27% to 33%. So as this salience increases, the margin expansion automatically will happen”.

The company is also talking up its embryo transfer technology being developed in the R&D genetics centre in Nasik and result outcome in the next 12-18 months will revolutionize milk production in the country. The company intends to sell this technology to farmers to enhance milk production and in-turn its own processing capacity. 

Moving on to the processed food segment, apart from a manufacturing facility in Bangalore for non-vegetarian frozen foods, Godrej Agro is commissioning one more plant in Ludhiana for vegetarian frozen foods to focus on B2B segment and even cater to food delivery platforms which seems to be big opportunity in the current scenario. The management’s focus has also shifted to the live bird market which accounts about 96% of total Indian poultry and to pursue this, stake in Tyson Foods has been increased to 51% in March 2019 making it a subsidiary of Godrej Agrovet.

Palm Oil, the smallest constituent, 11% revenue contribution but garners 35% market share for the company with operations spread across Andhra Pradesh, Tamil Nadu, Gujarat, Goa, Odisha, Telangana, Mizoram and Chhattisgarh. The price differential of FFB have been corrected by Andhra government, leakage of fruits to Telangana have been curtailed and consequently 15% higher volume would be achieved in the current year.

Last but not least, subsidiary Astec Lifesciences aims to maintain 15% plus growth in topline and 20% plus growth in EBITDA. This is FY20-21 guidance and capex plans are also in the picture, Rs. 80 cr investment in R&D centre and Herbicide plant to be completed in next 12-18 months. Godrej Agrovet seems to be on a growth highway. Speed might be slow but ithe management expects that the arc will be steadily upwards. It be interesting to see if the company successfully bucks past trends.