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MOSL: GODREJ AGROVET (Buy)-Palm oil biz on strong footing for FY21 aided by higher volume and realization

GODREJ AGROVET: Palm oil biz on strong footing for FY21 aided by higher volume and realization

(GOAGRO IN, Mkt Cap USD1.3b, CMP INR486, TP INR584, 20% Upside, Buy)

 

Indonesia and Malaysia - that account for ~86% of the world's palm oil production - are planning to increase the usage of palm oil for the production of biodiesel. This should eventually lead to palm oil prices increasing as palm oil supply for food and other usages would decrease. In this note, we highlight the event and its impact on GOAGRO.

• Indonesia accounts for 54% of the global palm oil production. The country intends to implement B30 biodiesel (from B20 currently), which in turn would increase its domestic consumption by 3MMT. Thus, the implementation of B30 would incrementally take away 9% of Indonesia's palm oil supply.
• Malaysia accounts for ~32% of the global palm oil production and is also in the process of implementing B20 (from B10 currently), which would increase its domestic consumption by 1MMT (5% of its production).
• Thus, the intention of the two countries (together account for ~86% of the global supply) to use palm oil for biodiesel will divert ~6% of the global supply to biodiesel, resulting in palm oil prices inching up.