MOSL: GODREJ AGROVET (Buy)-Rising palm oil prices expected to taper
(GOAGRO IN, Mkt Cap USD1.7b, CMP INR655, TP INR758, 16% Upside, Buy)
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:
Higher demand from Bio-Diesel segment fuels palm oil prices
- Global palm oil prices have seen a sharp rally, primarily due to higher demand from the Bio-Diesel segment (primarily the US market) and increased demand from China. However, with expansion in plantations, coupled with the easing of logistic issues, the outlook for palm oil production remains strong. As a result, Jun’21 palm oil prices fell 12% MoM. Palm oil prices were flat on a YTD basis and up 55% YoY to USD1,017/mt.
- Prices of major vegetable oils, such as palm and soybean, have likely already peaked at multi-year highs in 2021 – primarily due to production hiccups, recovering food consumption, and an upbeat outlook for biofuel demand.
- The US Department of Agriculture (USDA) has announced USD700m in aid to biofuel producers as a part of a package to assist industries recovering from financial headwinds due to the coronavirus pandemic.
- This assistance was announced in the backdrop of biofuel groups advocating for relief after the pandemic slashed fuel demand and sank consumption of biofuels such as Ethanol. The USDA said it plans to implement the aid within the next 60 days (before end-Aug’21).
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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