Godrej Agrovet Ltd. share price target

Godrej Agrovet (GOAGRO) reported a strong operating performance (EBIT up 54% YoY) in 3QFY25 despite a modest growth in revenue (up 4.5% YoY).

Godrej Agrovet (GOAGRO) demonstrated a resilient performance in FY24 despite facing significant sectoral challenges. With a strategic turnaround underway, the company focuses on structural changes.

Godrej Agrovet (GOAGRO) reported strong operating performance (EBIT up ~22% YoY) in 1QFY25, driven by improved profitability in the animal feed (AF) business (EBIT up ~45% YoY).

Godrej Agrovet (GOAGRO) reported strong operating performance (EBIT
up ~3.4x YoY) in 4QFY24, driven by improved profitability in crop protection (EBIT up 3.5x YoY) and a turnaround in dairy business (EBIT of
INR203m vs. operating loss of ~INR83m).

Godrej Agrovet reported strong turnaround in Q2FY24, led by (1) better-than-expected volume growth and (2) correction in commodity prices. While the company has passed on partial benefits to trade/consumers, we note it has been able to improve margins by 152bps YoY.

Godrej Agrovet had reported average EBITDA margin of 8.1% over FY13-22 but its EBITDA margin dropped to 5.6% in FY23 due to steep inflationary pressures. With correction in commodity prices, its EBITDA margin recovered 130bps but it was lower than our expectations.

All segments of Godrej Agrovet have suffered YoY margin contraction due to (1) higher raw material prices and high priced raw material inventory, (2) change in revenue mix and (3) fall in prices of palm oil and negative operating leverage. While we model the profitability of Dairy and shrimp feed to remain under pressure, we believe there will be revival in profitability of cattle feed.

Due to steep decline in palm oil prices, Vegetable oil segment is likely to undergo margin and RoCE contraction whereas ~20% increase in milk procurement prices will likely result in losses of Dairy segment in Q4FY23 and H1FY24.

Godrej Agrovet has reported healthy 13.5% YoY revenue growth in Q2FY23, fuelled by growth across segments. However, margins remained stressed as all segments reported margin contraction YoY.

Demand recovery across segments to propel earnings Godrej Agrovet (GOAGRO) is likely to witness better demand across its segments of Palm Oil, Animal Feed (AF) and Crop Protection (CP). However, surge in commodity prices in the recent months due to the Russia-Ukraine crisis is expected to put its margins under pressure in the AF and CP businesses in the short term. Conversely, the palm oil business is likely to be a beneficiary of rising prices. The palm oil prices rallied 42% YoY to USD1,383/t as of Jan'22. However, the prices have further seen a 32% upsurge reaching USD1,840/t on 14th Mar'22...

GOAGRO reported weak results as cost pressure impacted margins. Topline growth of 28% was inline, driven by 34%/84% growth in Animal Feed/ Palm Oil segment. Blended gross margins contracted by 302 bps, driven by lower than expected margins in all segments. Price hikes in respective segments were not enough to offset cost inflation. Volume growth was healthy in Animal Feed but sharply lower than expected in Palm oil (@ 2% v/s exp of 11%), due to few weeks' delay in the season. Realisation growth was better...

In this note, we have analyzed the recent trends in palm oil prices, the parameters driving these prices, and the corresponding impact on the Palm Oil business of GOAGRO the revenue/EBITDA contribution for which stood at 12%/17% (as of FY21). Here are the key highlights:...

We roll forward to FY23 estimates and upgrade GOAGRO to BUY (from Accumulate) with SoTP (Exhibit 1) based target price of Rs 639 (previous 587). The company reported better than expected results driven by higher than anticipated margins in Animal Feed (@7.1% v/s PLe of 4.9%) and Crop protection (@20.3% v/s PLe of 18.6%) segment. Animal feed volumes were impacted by bird flu in Q4, but margins expanded by >300 bps due to commercialisation of R&D; initiatives. Increased sale of in-house products (up...