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MOSL: GODREJ AGROVET (Buy)-Price hikes to support margin expansion in animal feed

Godrej Agrovet: Price hikes to support margin expansion in animal feed 

(GOAGRO IN, Mkt Cap USD1.4b, CMP INR518, TP INR609, 18% Upside, Buy)

• In-line revenue; miss on EBITDA/adj. PAT: Revenue grew 12.5% YoY to INR13.4b (our estimate: INR13.3b) in 4QFY19, mainly led by the animal feed segment (+22% YoY to INR8.3b). EBITDA margin shrank 60bp YoY to 5.6% (our estimate: 6.4%), primarily on account of higher RM cost, partly offset by lower employee cost and other expenses. EBITDA was flat YoY at INR749m (our estimate: INR850m). Adj. PAT, too, was flat YoY at INR254m (our estimate: INR274m). For FY19, revenue/EBITDA/adj. PAT grew by 13%/3%/11% YoY to INR58.7b/INR4.6b/INR2.4b.
• Price hike in animal feed to drive margin expansion: Price hike in the animal feed segment in 4QFY19 drove EBIT margin expansion of 250bp QoQ to 5.5%. GOAGRO is planning for two product launches in the standalone crop protection business. In Astec Lifesciences, it has guided for revenue and EBITDA growth of 15% and 20%, respectively, in FY20. We note that 4Q is a seasonally weak quarter for the palm oil business, wherein GOAGRO reported an EBIT loss of INR1m (v/s a profit of INR40m in 4QFY18) due to higher depreciation and interest cost for its new processing plant.