MOSL: GODREJ AGROVET (Buy)-Big miss-Crop Protection drags 2Q; But animal feed segment
GODREJ AGROVET: Big miss; Crop Protection drags 2Q; But animal feed segment – the star performer
(GOAGRO IN, Mkt Cap USD1.4b, CMP INR501, TP INR584, 17% Upside, Buy)
Miss on EBITDA while PAT above est.: revenue grew 17% YoY to INR18.5b (v/s est. INR18.9b), mainly led by the animal feed segment (+32% YoY to INR9.4b). EBITDA margin contracted 240bp YoY to 6.5% (v/s est. 8.3%), mainly due to lower margin in crop protection and palm oil. EBITDA declined 15% YoY to INR1,197m (v/s est. INR1,561m). Adj. PAT was up 10% YoY to INR1,040m due to deferred tax benefit (v/s est. INR958m).
- Animal feed drives performance: Realization improvement in animal feed biz (+21% YoY) drove segment revenue growth of 32%; EBIT/kg stood at INR1.3 (up 1.7x YoY; flat QoQ). Astec posted strong revenue growth of 24% while EBITDA declined 32% YoY on account of INR120 inventory loss (related to propiconazole) and provision of INR65m for reversal of export benefit. Despite 23% growth in Fresh Fruit Bunches (FFB) arrival, palm oil segment revenue has declined 12%, owing to sharp decline in oil prices and lower oil content, which led to EBIT margin contraction of 500bp YoY to 12.2%.
- Valuation & View: Factoring in 23% miss to our EBITDA estimates in 2QFY20, we have cut our annual EBITDA estimates by 6% for FY20; however, we broadly maintain our earnings estimates due to (a) the lower tax rate, (b) price increase in the animal feed segment, and (c) palm oil, which would drive performance in the near term. On an SOTP basis, we arrive at TP of INR584, implying an upside of 17%. Maintain Buy.
Godrej Agrovet Ltd is an India-based agribusiness company. The Company engages in animal feed, oil palm plantations, agrochemicals, poultry. It focuses to improving the productivity of Indian farmers by products and services that increase crop and livestock yields. The Company offers Dripzyme, a technique of drip irrigation. Dripzyme helps in growth of additional branches, flower and fruit buds. The Company helps in creating a root system giving plants greater access to nutrients and water in the soil thereby enhancing the nutritional value of the yield. The Company operates crop protection, godrej tyson foods, aci godrej agrovet, creamline dairy products and astec lifesciences.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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