Godrej Agrovet fundamental analysis

Godrej Agrovet Ltd., part of the Godrej group, is a diversified agribusiness company engaged in manufacturing and marketing high quality animal feed, oil palm plantations, agrochemicals and poultry. The company has three major business segments—animal feed, vegetable oil (palm oil) and crop protection (agri inputs). It is one of the largest organised animal feed manufacturers in India. Godrej Agrovet had around 68,400 hectares of palm tree plantations across nine states for producing crude palm oil, palm kernel oil and palm kernel cake as on March 2019. It is also a niche player in select agri-inputs like insecticides, fungicides, soil conditioners and organic manure, with a pan India network of ~6,500 distributors. Kotak Fund with 1.2% holding is the largest non-promoter shareholder. Company’s market cap is Rs 8,876 cr.

Investment rationale

 

Diversified Businesses with Synergies in Operations: The Company mainly has five business verticals viz animal feed, crop protection, oil palm, dairy, and poultry and processed foods. The animal feed business comprises of cattle feed, poultry feed (broiler and layer), aqua feed (fish and shrimp) and specialty feed. The crop protection business includes wide range of products that cater to the entire crop lifecycle including plant growth regulators, organic manures, generic agrochemicals and specialized herbicides. In oil palm business, it produces a range of products including crude palm oil, crude palm kernel oil and palm kernel cake. The company purchase fresh fruit bunches (“FFBs”) from palm oil farmers and work closely with them by providing planting material, agricultural inputs and technical guidance. Thus, the company has an asset-light business model wherein it procures FFBs from farmers and sells it after processing the same. The company has MoUs with 9 states totalling 62K hectares of palm plantation which 1/5th of India’s palm cultivation. The dairy business is operated through Creamline Dairy (a subsidiary company) and it sells a majority of its milk and milk based products under the ‘Jersey’ brand across the states of Telangana, Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra. In poultry, The Company manufactures and market processed poultry and vegetarian products through its brands ‘Real Good Chicken’ and ‘Yummiez’.

 

Strong Parentage, Established Brands and Strong R&D Capabilities: Godrej Agrovet is part of the Godrej group, which is among India’s oldest and most prominent corporate groups. The company’s emphasis on R&D has been critical to its success and a differentiating factor from its competitors. The company undertakes dedicated R&D in its existing products primarily with a focus to improve yields and process efficiencies. The company offer a variety of cattle feed for the entire lifecycle of the cattle. The company has developed ‘Prepwell’ for pregnant cows, ‘CalfStarter’ and ‘Calf Grower’ for calves and ‘Milk More’, ‘Bypro’ and Bovino’ for lactating cows.
 

Global palm oil prices are expected to inch up: Both Indonesia and Malaysia, the world’s two largest palm oil producers are planning to increase the usage of palm oil for the production of biodiesel. With this, ~6% of the global supply of palm oil is expected to get diverted towards biodiesel. This would lead palm oil prices to inch up which would be beneficial for Godrej Agrovet which derives 10-12% of revenues from its palm oil segment.
 

Decent quarter: Adj. PAT surged by 16%YoY during the Q1FY21. The growth in palm oil and Tyson food cushioned the softness in dairy business. Besides, EBITDA margin expanded by 230bps YoY led low RM cost in turn leading to an EBITDA growth of 17%. The stock is currently trading at a 1-Yr forward PE of 44.06x.
 Fundamental analysis

Godrej Agrovet is a diversified agribusiness company and its principal activities include manufacturing and marketing of high quality animal feed, innovative agricultural inputs and palm oil & allied products.(Source : 201903 Annual Report Page No: 134)

• Market Cap:  8,907 Cr.
• Current Price:  463.75
• 52 weeks High / Low  598.00 / 265.05
• Book Value:  95.70
• Stock P/E: 27.40
• Dividend Yield: 1.19 %
• ROCE: 17.69 %
• ROE: 17.97 %
• Sales Growth (3Yrs): 12.35 %
• Listed on BSE and NSE
• Company Website
• Face Value:  10.00

• PEG Ratio: 2.38
• Promoter holding: 70.07 %
• Pledged percentage: 0.00 %
• Debt:  642.40 Cr.
• Price to Earning: 27.47
• EPS:  16.60
• Net profit:  318.69 Cr.
• Profit growth: 30.79 %
• Profit growth 7Years: 18.29 %
• Net profit preceding 12months: 306.18 Cr.
• Profit growth 3Years: 13.27 %
• Dividend yield: 1.18 %
• Debt to equity: 0.35
• Sales last year:  6,964 Cr.
• Sales growth: 11.08 %
• Unpledged promoter holding: 70.07 %
• Investments:  129.17 Cr.
• Intrinsic Value:  631.14