EUR 120.00 For Business Accounts Only

MOSL : GODREJ AGROVET: Lower margin in AF and CP business hurts earnings

.  GODREJ AGROVET: Lower margin in AF and CP business hurts earnings

(GOAGRO IN, Mkt Cap USD1.2b, CMP INR509, TP INR670, 32% Upside, Bu

 

Earnings lower than expected

• GOAGRO reported a subdued operating performance, with EBIT declining 62%/46% YoY in the Animal Feed (AF)/Crop Protection (CP) business. EBIT margin saw an expansion in Palm oil and GTFL.
• Revenue growth of 26% YoY was seen across businesses, except the standalone CP business (down 18% YoY), which was impacted due to deferred application opportunities for Agrochemicals, led by a delayed southwest monsoon in Jun'22.
• Factoring in its 1Q performance, we cut our FY23 earnings estimate by 12%, led by subdued operating performance in 1Q, coupled with volatile raw material prices. We largely maintain our FY24 earnings estimate. We value the stock on a SoTP basis to arrive at our TP of INR670. We maintain our Buy rating.

 

Volatile raw material prices impacts performance

• Consolidated revenue grew 26% YoY to INR25.1b (est. INR23.2b). EBITDA margin contracted by 210bp YoY to 6.4% (est. 10%). EBITDA/adjusted PAT declined by 5%/22% YoY to INR1.6b/INR827m (est. INR2.3b/INR1.5b).
• Animal Feed business: Revenue grew 24% YoY to INR12.5b on robust volume growth (11%), which was led by market share gains and the development of new products. EBIT margin contracted by 440bp YoY to 2% in 1QFY23 due to high-cost inventories of key inputs and limited transmission. EBIT declined by 62% YoY to INR245m. EBIT/kg fell 66% YoY and 60% QoQ to INR0.69.
• Palm Oil business: Revenue grew 33% YoY to INR3.9b. EBIT margin expanded by 1,100bp YoY to 22.3%. EBIT rose by 2.6x YoY to INR858m. Improving oil extraction ratio (OER) and continued rise in oil prices led to a strong performance in 1QFY23. Volumes fell 8% QoQ on account of a shift in the harvesting season in Andhra Pradesh. Prices of Crude Palm Oil/Palm Kernel Oil rose 24%/41% YoY in 1QFY23.
• Crop Protection business: Consolidated revenue remained flat YoY at INR3.7b. EBIT fell 46% YoY to INR448m due to lower sales of in-house products in the standalone business and deferment of sales in Astec Lifesciences and the standalone business. EBIT margin contracted by 1,020bp YoY to 12.2%. In Astec Lifesciences, revenue/ EBIDTA grew 43%/10.6% YoY to INR1.8b/INR282m in 1QFY23, led by higher realization from exports and a rise in CMO volumes, while margin was impacted by deferment of sales and increased cost structure on account of the Herbicides plant.
• Dairy business: Revenue grew 48% YoY to INR3.9b, led by a 69% growth in value-added products. Operating loss stood at INR24m in 1QFY23, v/s a loss of INR31m in 1QFY22, due to a sustained rise in procurement and packaging costs.
• Godrej Tyson Foods (GTFL): Revenue from Poultry and Processed Food rose 40% YoY to INR2.5b. EBIDTA stood at INR209m in 1QFY23, v/s an operating loss of INR3m in 1QFY22, led by higher live bird prices and robust volume growth in the Real Good Chicken (RGC) category.