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MOSL: GODREJ AGROVET (Buy)-Animal feed nourishes revenue-Depressed oil prices dent palm oil biz. Margins

GODREJ AGROVET: Animal feed nourishes revenue; Depressed oil prices dent palm oil biz. margins

(GOAGRO IN, Mkt Cap USD1.2b, CMP INR428, TP INR522, 22% Upside, Buy)

 

• Revenue in-line; EBITDA/adj. PAT below estimates: revenue grew 15% YoY to INR17b (our estimate: INR16.6b), mainly led by the animal feed segment (+20% YoY to INR8.9b). EBITDA margin contracted by 105bp YoY to 8.3% (our estimate: 9.5%), mainly on account of higher other expenses. EBITDA grew 2% YoY to INR1,419m (our estimate: INR1,584m). Adj. PAT was down 5% YoY to INR760m (our estimate: INR916m).
• Margin pressures evident: Animal feed revenue increased 20% YoY, led by price hikes of 13% YoY (+9% QoQ). However, segmental EBIT margin shrank 80bp QoQ to 4.8% due to high RM prices. Astec, too, delivered strong revenue growth of 19% YoY, but the EBITDA margin shrank 470bp YoY due to lower realization. Palm Oil segment revenue declined 14% YoY, despite a 22% YoY increase in Fresh Fruit Bunches (FFB) arrival, owing to a sharp decline in oil prices and a lower oil extraction ratio (from 17% to 15%). As a result, segmental EBIT margin shrank ~12.5pp YoY to 8.7%.
• Key concall highlights: (i) Astec revenue growth guidance maintained at 15% for FY20. However, GOAGRO exhibited caution with respect to its 20% EBITDA growth guidance. (ii) The company expects 4-5 new product launches each year over next three years in the standalone crop protection.
• Valuation and view: We have incorporated Godrej Tyson Foods and Godrej Maxximilk into our forecasts as they now are the subsidiaries of GOAGRO. We, however, cut our earnings estimates by 20% and 10% for FY20 and FY21, respectively, to factor in the weak performance in palm oil, Astec, higher depreciation and interest cost. On an SOTP basis, we arrive at a target price of INR522, implying an upside of 22%. Maintain Buy.