Godrej Agrovet (GOAGRO IN) · Godrej Agrovet January 24, 2020 4 GOAGRO – An Integrated Agri Play...

Rating: BUY | CMP: Rs555 | TP: Rs659

Godrej Agrovet (GOAGRO IN)

Play on uptick in Agri growth

Prashant Biyani [email protected] | 91-22-66322260

Animal

Feed

Poultry

Crop

Protection

Palm Oil

Dairy

Godrej Agrovet

January 24, 2020 2

Contents

Page No.

GOAGRO – An Integrated Agri Play ...................................................................... 4

Investment Argument ............................................................................................. 6

Animal Feed business to remain a cash cow ..................................................... 6

Animal feed market offers steady growth opportunity ........................................ 9

Broiler and egg consumption to drive poultry feed demand .......................... 11

Increasing the frequency of eggs in mid-day meal scheme to drive layer feed demand ........................................................................................................ 13

Pole position in Oil palm development to continue ........................................... 16

Balanced palm tree age profile to enable consistent volume growth ............ 16

GOAGRO will continue to garner large share of allocated area ................... 16

Efficient utilisation of wastes and by-products contributes substantially to EBITDA ........................................................................................................ 16

India imports USD 16 bn worth of vegetable oil and palm oil ....................... 18

GoI promoting palm oil production in India ................................................... 18

Palm oil cultivation area to grow by 33% Ha over the next few years ........... 19

GoI tinkers with import duty to protect the domestic processors................... 20

But B30 mandate in Indonesia to support consumption and prices .............. 21

Crop protection segment to outperform industry growth .................................. 22

New launches and expanding distribution reach to drive growth .................. 22

Robust outlook for Astec Lifescience ............................................................ 23

GOAGRO had bid for Gharda Chemicals but failed to seal the deal ............ 24

Dairy segment to witness steady 8-10% CAGR ............................................... 25

Poultry business is in nascent stage ................................................................ 27

Financials ............................................................................................................ 28

Outlook & Valuation ............................................................................................. 30

Key Risks ............................................................................................................. 31

Annexure ............................................................................................................. 32

Oil Palm Developing Project (OPDP) ............................................................... 32

Organised players to increase share in dairy market ....................................... 32

January 24, 2020 3

Rating: BUY | CMP: Rs555 | TP: Rs659

Play on uptick in Agri growth

We initiate coverage on Godrej Agrovet (GOAGRO) with a Buy rating and a

target price of Rs 659 on SOTP basis (blended EV/EBITDA & P/E on TP – 16.4x

& 27.2). We believe GOAGRO is an integrated play on Agri with strong

presence in Animal Feed (51% of revenue), Crop Protection (16%) and Palm

Oil (9%) business. GOAGRO’s unique blend of high growth and mature

businesses with market leadership in organized animal feed and oligopolistic

positioning in palm oil will enable it to scale up business further by keeping

working capital under check. We believe strong Agri commodity and dairy

prices will enable Animal Feed, Oil Palm and Crop protection business to

report significant acceleration in growth in FY21. We estimate 12% revenue

CAGR and EBITDA margin improvement of 160 bps between FY20-22E which

will enable 29% PAT CAGR. At CMP the stock is trading at 13.9x & 22.9x FY22

blended EV/EBITDA & P/E.

Animal Feed business to remain a cash cow: GOAGRO is the market leader

and only Pan-India cattle feed player with 8-10% organized share. Widening

demand-supply gap in green fodder availability, increasing animal protein

consumption (~10-15% CAGR) and formalisation of dairy industry (~14%

organised) will aid +10% volume CAGR for the segment. Market share gains

are expected to continue with increasing preference to compound feed over

home mix, rising share of Type-1 feed (higher protein content) and local players

increasingly becoming uncompetitive in the wake of acute input cost inflation.

Animal Feed will remain a cash-cow for GOAGRO with robust cashflows as it

is largely a cash & carry business and runs on negative working capital.

Pole position in Oil palm development to continue: We expect GOAGRO

to benefit as realizations have increased sharply due to 60% jump in

international palm oil price since July 2019. GOAGRO is the largest palm oil

producer with 35% MS and having +20% (68400 Ha) of India’s oil palm

plantation area. With ~65% of the plantation being in pre-harvest and growth

phase, we expect sustainable healthy volume growth in Fresh Fruit Bunches

(FFB) for the next decade. GoI’s thrust on boosting domestic oil palm

production to cut reliance on imports (Oil Palm & Vegetable oil imports @ USD

+6 bn & USD +10 bn p.a.) augurs well for GOAGRO. The potential area for

palm cultivation in India is ~19.3 lakh Ha while current area is 3-3.5 lakh Ha

indicating immense opportunity for next few years. GOAGRO, having a good

and clean track record in terms of execution, is bound to grow in the

oligopolistic oil palm plantation business in India.

Crop protection segment to outperform industry growth:

Commercialisation of new products & commencement of new herbicides plant

in Astec Lifesciences and +15 new launches in the branded business (including

6 inlicensed) in the next 5 years will drive growth for the CP segment. Astec

has rich product pipeline for the next 5-7 years in CRAMS & non-CRAMS

segment. The setting up of new R&D facility will enhance its capabilities in

rolling out new products. GOAGRO’ niche positioning in the domestic market

will continue to gain traction with 13% revenue CAGR between FY19-22E.

Godrej Agrovet (GOAGRO IN)

January 24, 2020

Company Initiation

Key Financials - Consolidated

Y/e Mar FY19 FY20E FY21E FY22E

Sales (Rs. m) 58,707 71,668 80,540 89,413

EBITDA (Rs. m) 4,558 5,191 6,817 7,889

Margin (%) 7.8 7.2 8.5 8.8

PAT (Rs. m) 3,290 2,808 3,955 4,659

EPS (Rs.) 17.1 14.6 20.6 24.3

Gr. (%) 43.5 (14.7) 40.9 17.8

DPS (Rs.) 4.5 4.5 5.6 6.2

Yield (%) 0.8 0.8 1.0 1.1

RoE (%) 21.5 16.2 20.9 23.0

RoCE (%) 18.6 17.1 22.1 24.7

EV/Sales (x) 1.9 1.5 1.4 1.2

EV/EBITDA (x) 24.2 21.3 16.1 13.9

PE (x) 32.4 38.0 27.0 22.9

P/BV (x) 6.5 5.9 5.4 5.1

Key Data GODE.BO | GOAGRO IN

52-W High / Low Rs. 574 / Rs. 422

Sensex / Nifty 41,386 / 12,180

Market Cap Rs. 107 bn/ $ 1,495 m

Shares Outstanding 192m

3M Avg. Daily Value Rs. 90.8m

Shareholding Pattern (%)

Promoter’s 69.00

Foreign 3.43

Domestic Institution 2.17

Public & Others 25.40

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute 13.9 17.3 10.2

Relative 14.6 7.6 (3.9)

Prashant Biyani

[email protected] | 91-22-66322260

Godrej Agrovet

January 24, 2020 4

GOAGRO – An Integrated Agri Play

Incorporated in 1991, GOAGRO (Godrej Group) is a diversified Agri play with

presence in Animal Feed, Crop Protection, Oil Palm, Dairy and Poultry & Processed

Foods (JV with Tyson Foods). The animal feed business is cash cow for GOAGRO

and comprises of cattle feed, poultry feed (broiler and layer), aqua feed (fish and

shrimp) and specialty feed. Crop protection primarily deals in PGR, organic

manures, generic agrochemicals and specialized herbicides. GOAGRO acquired

majority stake in Astec Life Science in FY16 and currently owns 69.14% stake in

company. GOAGRO has India’s largest crude palm oil producer with market share

of 35%. GOAGRO entered Dairy business with acquisition of 26% stake in

Creamline Dairy and currently holds 51.9% stake. It has presence in Poultry and

Processed Foods through Godrej Tyson Foods (51% stake, JV with Tyson Foods

USA) which markets poultry products under “Real Good Chicken “and “Yummiez”

brand. It has integrated breeding and hatchery operations and caters to retail as

well as institutional clients such as QSR, fine dining restaurants, food service

companies and hotels.

Godrej Agrovet

ANIMAL FEED

(51% of Rev; 36% of EBIT)

Capacity: 2.36 mn MTPA

Cattle Feed (Milk Yielding Cattles, Claves, Heifers and Buffaloes)

Poultry Feed (Broiler Feed and Layer Feed)

Aqua Feed (shrimp Feed and Fish Feed)

Specialty Feed (Sheep, Goat and Other Animals)

ACI Godrej (50:50 JV in Bangladesh)

Raw Materials (Maize, extractions, animal protiens, molasses,

amino acids, vitamins and minerals)

CROP PROTECTION


Capacity (Formulations): Liquid- 1826kl Solid-

15960 Kl

Plant Growth Regulators

Organic Manures

Generic Agro

Special Herbicides (Hitweed for Cotton; Oryzostar for Paddy)

~69% stake in Astec Life Science

RM (Org chemicals, petroleum solvents, intermediates, fluro

chemicals, catalysts)

PALM OIL


+35% market share; 68400 Ha of palm

cultivations

Crude Palm Oil

Crude Palm kernel Cake

Palm Kernel cake

RM( Oil Palm Seedlings)

DAIRY


Operates through Creamline Dairy (52%

stake)

Milk Processing Cap- 8 lakh Ltrs/day

Marketed under JERSEY Brand

Value Added Milk Products (28% of

segment rev)

Creamline Acquired assets of RBS Dairy,

Nutramax Food specialities in FY17

RM (Raw milk, cultures, sugar, spices, packaging

material

POULTRY & PROCESSED FOOD

(8% of Rev)

Operates through Godrej Tyson foods ltf (51%

stake)

JV with Tyson Foods Inc.

"Real Good Chicken" and "Yummiez" brands

Fresh Value Added Products

RM (Broiler feed, day old chicks and the Vencobb

breed of birds)

Godrej Agrovet

January 24, 2020 5

Animal feed business to partly integrate with dairy business in the long-term

Source: Company, PL

Poultry Feed and Poultry business to partly integrate in the long term

Source: Company, PL

Farmers

Cows

Milk

Procurement

Dairy & Dairy Products

GOAGRO

Poultry Feed and Poultry business likely to be

integrated in the long term

Sellers of Soy and

other raw materials

Contract Farmer Bank/Financial

Institutions

Poultry

Firm / Integrator

Broiler segment for chicken, meat

market

Feed

Manufacturing Unit

Wholesaler /

Retailer

Product Flow

Finance Flow

Input / Service Flow

Supplies chicks, feed, medicines and provides supervisory, extension and veterinary services

Credit

Tripartite Agreement

Godrej Agrovet

January 24, 2020 6

Investment Argument

Animal Feed business to remain a cash cow

GOAGRO, in absence of any large Pan-India player (~8-10% organised market

share in cattle feed), is poised to outperform industry growth by clocking 14% CAGR

between FY19-22E. Animal Feed, comprising of Cattle Feed (40-45% of revenue),

Poultry (40-45%) and Aqua Feed segments, is a mature business with stable 7%

EBITDA margins and nominal volume growth.

GOAGRO has reversed the tepid volume growth that it had seen between

FY13-18 (less than 3% CAGR) with various cost reduction initiatives,

deepening the penetration and improving the quality of product. Volume growth

in FY19 was 14%.

Going forward volumes will continue to grow in double digits driven by focus

on non-integrated markets, high potential markets, increase in channel

partners (currently 4200 distributors) and geographical expansion. The

endeavor is to be among the top 2 in the key states.

The company sells feed mostly on cash and carry / advance basis and

the segment largely runs on negative working capital.

Key brands in Animal Feed segment

Cattle Feed Poultry Aqua

Bovino MixBro Indica

Dudhratna Value Max Spark

Bypro Superstar Grow plus

Milk More Excel Nutrifry

Supreme Elite Shakti

Super Higain White Diamond

HPBC

Crum

Eggy

Source: Company, PL

Cost reduction initiatives playing out with double digit growth in FY19:

GOAGRO has successfully reversed the decline in Animal Feed business as a

result of its cost reduction initiatives, its strategy of focusing on non-integrated

markets and by making the product more competitive.

The company has partially substituted the high cost raw materials with the

lower cost alternatives but maintaining the overall nutritional value intact so that

the feed conversion ratio remains intact.

To make its feed more competitive and further cement its place in the market,

GOAGRO is planning to use enzymes and other mixtures in it. While GOAGRO

has made its feed more competitive from pricing point of view as well, overall

profitability is unlikely to take a hit as operating leverage benefits have kicked

in with significant pick up in volume growth (14% in FY19). This will also lead

to better asset turns and improvement in return ratios.

Growth drivers:

Widening demand supply gap in

green fodder

Increasing animal protein

consumption

Professionalization of dairy industry

Increasing share of organized players

Rising share of compound feed v/s

home mix

Animal feed is largely a cash and

carry business generating robust

cashflows and the segment runs on

negative working capital.

~8-10% market share in organized

market.

In 1H’20, Animal feed revenue has

grown by 26% YoY to Rs 18 bn

driven by both volume growth and

price hikes. EBIT grew by 46% YoY

to Rs 854 mn while margins

expanded 70 bps YoY to 4.7%.

Godrej Agrovet

January 24, 2020 7

EBIT growth driven by operating leverage

Rs mn 1QFY19 2QFY19 3QFY19 4QFY19 Q1FY20 Q2FY20

Volume (tons) 304220 304223 324261 331806 324035 332301

YoY% 19% 16% 13% 10% 7% 9%

Revenue 7,373 7,115 7,660 8,318 8,850 9,387

YoY% 16% 16% 18% 22% 20% 32%

EBIT 361 225 237 461 424 431

YoY% -9.3% -20.7% -39.0% -5.5% 17.2% 91.1%

Margin 4.9% 3.2% 3.1% 5.5% 4.8% 4.6%

Source: Company, PL

FY19 margins impacted by high RM costs: In FY19 the company reported 14%

volume growth and took price increase of 3.5%, however margins were adversely

impacted by sharp increase in prices of key raw materials such as maize, soybean,

rice bran extraction and fish meal etc. Despite taking price hikes, the entire increase

in raw material prices could not be passed on to the farmer.

Feed represents the major cost of poultry production, constituting up to 70 percent

of the total. Of total feed cost, about 95 percent is used to meet energy and protein

requirements, about 3 to 4 percent for major mineral, trace mineral and vitamin

requirements, and 1 to 2 percent for various feed additives.

The predominant feed grain used in poultry feeds worldwide is maize. The plant

protein source traditionally used for feed manufacture is soybean meal, which is the

preferred source for poultry feed. Feed supplements like probiotics, vitamins,

minerals, amino acids, mold inhibitors, enzymes, preservatives, coccidiostats,

antioxidants etc. are mostly imported.

Maize and Soyabean prices are trading higher due to lower yields due to pest infestation and crop damage

-40%

-20%

0%

20%

40%

60%

80%

-1,400

-900

-400

100

600

1,100

1,600

2,100

2,600

Apr-

14

Aug-1

4

Dec-

14

Apr-

15

Aug-1

5

Dec-

15

Apr-

16

Aug-1

6

Dec-

16

Apr-

17

Aug-1

7

Dec-

17

Apr-

18

Aug-1

8

Dec-

18

Apr-

19

Aug-1

9

Dec-

19

Maize (Rs/Qtl) YoY gr. (RHS)

-30%

-20%

-10%

0%

10%

20%

30%

-4,000 -3,000 -2,000 -1,000

- 1,000 2,000 3,000 4,000 5,000

Apr-

14

Aug-1

4

Dec-

14

Apr-

15

Aug-1

5

Dec-

15

Apr-

16

Aug-1

6

Dec-

16

Apr-

17

Aug-1

7

Dec-

17

Apr-

18

Aug-1

8

Dec-

18

Apr-

19

Aug-1

9

Dec-

19

Soyabean (Rs/Qtl) YoY gr. (RHS)

Source: PL

Increased penetration in its key existing markets and expanding presence in newer

territories aided double digit volume growth in broiler feed in FY19. However, cattle

feed segment showed modest growth and aqua feed volumes declined due to

challenges being faced by the shrimp feed industry. Like aqua feed, broiler feed

business is also expected to eventually integrate with animal protein business.

Unlike aqua feed, GOAGRO is well placed to take advantage of the trend because

of JV with Tyson Foods. In the animal feed business, globally all the feed players

have evolved into animal protein business.

Feed cost is 70% of total cost of

poultry production

Godrej Agrovet

January 24, 2020 8

GOAGRO’s Animal feed segment volume is expected to clock 9.7% CAGR

between FY19-22E driven by

Widening demand supply gap in green fodder

Increasing animal protein consumption

Professionalization of dairy industry

Increasing share of organized players

Rising share of compound feed v/s home mix

Increasing consumption of type 1 feed (more protein and fat content) vis-à-vis

Type 2 and Type 3 feed.

Animal Feed segt. revenue to clock 15% CAGR between FY19-22E 26,2

08 25,7

60

30,4

65

36,5

27

41,3

85

45,9

79

3.0% -1.7%

18.3%19.9%

13.3%11.1%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

FY17 FY18 FY19 FY20E FY21E FY22E

Revenue (Rs mn) YoY gr. (RHS)

Source: Company, PL

Segment margins to expand by 160 bps between FY19-22E

1,6

64

1,5

59

1,2

86

1,8

26

2,2

14

2,6

44

6.3%6.1%

4.2%

5.0%5.4%

5.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

-

500

1,000

1,500

2,000

2,500

3,000


EBIT (Rs mn) Margin (RHS)

Source: Company, PL

Topline growth will be driven by

volumes in FY21E & FY22E

Price hikes and operating leverage

benefits will drive margin expansion

Godrej Agrovet

January 24, 2020 9

Healthy return ratios due to lower working cap requirement

102.7%

48.8%

73.0%

58.3%

148.8%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

FY15 FY16 FY17 FY18 FY19

Source: Company, PL

Animal feed market offers steady growth opportunity

Widening demand-supply gap in green fodder availability, increasing animal protein

consumption (~10-15% CAGR) and formalisation of dairy industry (~14%

organised) will drive growth for the Feed industry. Animal Feed is 25-27mn MT

market in volume and ~Rs 720 bn in value with just 12% share of organized players.

Animal feed Industry volumes to grow at CAGR of 13%-14%

Source: Company, PL

Increase in animal protein demand and shift from unorganized to organized to drive growth

Source: Company, PL

Poultry (63%) Cattle (31%) Aqua (6%)

Organised (%) 80-85% 12% 80% 50%

Organised Segment Size

Rs480-490bn

16-17 MMT Rs148-150bn

7.5-8.5 MMT 0.9-1.0 MT

Rs64-65bn

0.7-0.8 MMT

Rs21-22bn

CAGR (%) (FY17-20) 14-15% 10-11% 12-13% 4-5%

25-27 MMT

Rs715-725bn

Fish Feed Shrimp Feed

31-33 MMT

Rs1,060-1,070bn CAGR: 13%-14%

Godrej Agrovet

January 24, 2020 10

Widening demand supply gap in green fodder: India’s CY 2019 cattle and

buffalo population is ~302.3 million compared to 300 million in 2012. The number

of livestock is growing, but the grazing lands are rapidly diminishing due to pressure

on land for agricultural and non-agricultural uses.

The area under fodder cultivation is limited to about 4% of the cropping area, and it

has remained static for the last four decades. Owing to the importance of food crops

and other cash crops, it is very unlikely that the area under fodder cultivation would

increase substantially.

Animal feed industry demand is being driven by short supply of green fodder and

its time consuming & capital intensive nature of sourcing of green fodder. We expect

green and dry fodder deficit to remain at 23-24%. Weak monsoon till FY19 has

further compounded the acute scarcity of feed and fodder.

Increasing demand supply gap in green fodder

Type of fodder Parameter (in Mn tonnes) 2012 2015 2020 2025

Dry Fodder

Requirement 480 491 530 550

Availability 375 387 408 433

Deficit (%) -22% -21% -23% -21%

Green Fodder

Requirement 820 840 880 1000


Deficit (%) -25% -26% -32% -40%

Concentrate

Requirement 82 87 96 105


Deficit (%) -33% -33% -36% -38%

Source: PL

Area under Fodder and Pastures remain stagnant

Year ('000 Ha) Fodder Crops Permanent Pastures

and other grazing lands

Total area under fodder and pastures

Total Agri acreage Fodder and pastures area as a % of Total

agri acreage

FY07 8212 10418 18630 183899 10.1%

FY08 8144 10362 18506 185437 10.0%

FY09 8477 10344 18821 184902 10.2%

FY10 7419 10340 17759 182476 9.7%

FY11 7722 10305 18027 191835 9.4%

FY12 7738 10311 18049 191523 9.4%

FY13 9188 10240 19428 187934 10.3%

Source: PL

Increasing animal protein consumption and formalisation of dairy industry to

drive cattle feed demand: With commercialization of dairy and meat production,

growth in ruminant feed (cattle) market has accelerated. India is among the leading

producers of ruminant feed owing to high milk & meat demand and presence of a

significantly large number of cattle and other ruminants.

India has the largest population of bovine animals and is the largest milk producer

in the world. With increasing demand of milk and meat, the acceptance of feed as

a major supplement in the animal diet is expected to increase further due to

associated benefits like improved health, enhanced meat quality and milk

production.

21-24% shortage of Dry and Green

fodder consistently

Acceptance of feed as supplement

Godrej Agrovet

January 24, 2020 11

India is the largest milk producer in the world however the feed sector for the dairy

is highly underpenetrated at 11 percent. The Indian dairy industry is worth USD 107

bn. The double digit growth rate of dairy industry is expected to continue driven by

higher share of value added products and increasing share of organised players.

The share of unorganised players stood at 73% in FY17 and is expected to decline

by 550 bps to 67.5% in 2022. With the entry of commercial dairy farms and

increasing awareness among the farmers about the importance of cattle feed in

enhancing the yield, the potential for the cattle feed is bound to increase.

The key factor for growth in animal protein consumption is increase in household

income. Changing lifestyles and rising per capita incomes in India have resulted in

a shift in the dietary habits in the country. This has resulted in an increase in the

consumption of milk and animal protein, leading to a growing demand for animal

feed.

Per Capita consumption growth is highest in dairy products

among animal protein product categories

Source: PL

India’s milk production to grow at CAGR of 3.7%

Year Milk Production (MT)

2017 169

2020E 188

2027E 244

Source: PL

Broiler and egg consumption to drive poultry feed demand

India is fourth largest broiler producer and third largest egg producer. Broiler and

egg production is driving growth for the poultry feed sector. 90% of the broiler

industry uses compound feed. Poultry consumption has seen a steady growth over

the last few years led by growth in household incomes.

Growth in income is associated with an increase in animal based protein intake.

Product Cateogry

2007-17 2017-2027

Dairy Products

44% (@84 kg) 38% (@116 kg)

Poultry Meat 62% 24%

Fish 12% 6%

Mere 11% penetration of feed in dairy

Commercialisation of dairy industry

Shift in dietary habits

Godrej Agrovet

January 24, 2020 12

Being a white meat, broiler meat has the advantage of being a healthier choice

vis-a-vis red meats like mutton, pork and beef, while also being cheaper than

seafood.

Per capita consumption of broiler meat is growing at 7.4% CAGR while that of

eggs is growing at 3-4% CAGR. The total feed requirement of organized poultry

sector is nearly 23 MMTs and nearly the whole of it is in compounded form.

The use of the compound feed in the layer industry varies from 5-25% and is

highly underpenetrated. Based on the current egg production total feed

demand is about 11.6 million tonnes although the consumption is 2-3 million

tonnes. Poultry Feed accounts for 58% of the total feed market in India. The

current demand for poultry feed in India is ~22-25 mn tons growing @ 7-8%

per annum. The broiler industry has been considered the strongest driver

behind the development of feed industry in India benefiting largely from the

presence of integrators and a shorter production cycle.

India is underpenetrated in per capita meat consumption (per Kg)

17.0

3.7

Global Average India

Source: PL

* However, poultry consumption has grown at 15%-20% CAGR in last 10 years

Poultry production growing at a CAGR of 6-7% since FY12

2.5

2.7

1.9

3.1

3.3

3.5

13.2%8.1%

-28.4%

58.9%

6.9% 6.1%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

FY12 FY13 FY14 FY15 FY16 FY17

Poultry Production (Mn tons) YoY gr. (RHS)

Source: Company, PL

Godrej Agrovet

January 24, 2020 13

While poultry integrators are much stronger in regional pockets of Andhra Pradesh,

Karnataka and Tamil Nadu, the much larger landscape for the poultry industry and

its expansion beyond these belts provide ample opportunity for standalone feed

players.

Top 5 states for Poultry production (FY17)

State Poultry Production (Mn)

Andhra Pradesh 161.33

Tamil Nadu 117.35

Maharashtra 77.79

Karnataka 53.44

West Bengal 52.84

Others 266.45

Total 729.2

Source: PL

Integrated region market size (MMT)

Region Broiler feed requirement p.a. Layer feed requirement p.a.

Tamil Nadu 1.38 1.97

Karnataka 0.88 0.52

Andhra Pradesh 1.27 3.09

Total 3.53 5.58

Source: PL

Large market size (MMT) of non-Integrated regions presents

Region Broiler feed requirement p.a. Layer feed requirement p.a.

Maharashtra 1.23 0.36

Gujarat 0.2 0.13

West Bengal 1.12 0.12

Odisha 0.27 0.24

Punjab & Haryana 0.88 1.49

Rajasthan 0.16 0.11

Uttar Pradesh 0.63 0.1

Madhya Pradesh 0.19 0.03

Chattisgarh 0.2 0.22

Others 1.51 0.06

Total 6.39 2.86

Source: PL

Increasing the frequency of eggs in mid-day meal scheme to drive

layer feed demand

Many states have introduced eggs in the mid-day meal scheme in school and

anganwadis. The frequency of egg serving per week varies from 1 to 5 from

state to state.

Currently ~13 states have been serving egg in the mid-day meal scheme

which has shown increase in attendance in schools and improvement in

health of the children.

Egg is the cheapest source of animal protein with higher protein bioavailability

(94%) v/s Bengal gram (76%) and soybean (54%).

Ample opportunity for standalone

players in non-integrated regions

Godrej Agrovet

January 24, 2020 14

With increasing focus of government in improving the nutritional intake

of the people from bottom of the pyramid and egg being the most

affordable source of protein, we expect increasing number of states to

include egg in the mid-day meal scheme and more frequent serving of

egg per week across states.

Many states have included eggs in mid-day meal scheme

Source: PL

Egg production growing at a CAGR of 6-7% since FY12

66.5

69.7

74.8

78.5

82.9

88.1

5.4%4.9%

7.2%

5.0%

5.7%6.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

FY12 FY13 FY14 FY15 FY16 FY17

Egg Production (Bn) YoY gr. (RHS)

Source: Company, PL

Chhattisgarh

School = 2 eggs

Godrej Agrovet

January 24, 2020 15

Animal Feed industry expected grow @ 5.0% CAGR by 2022E

Poultry feed demand 2016 2022E

Eggs (Bn) 83.0 136.0

Poultry Meat (Mn) 3.3 6.2

Feed required for eggs (MMT) 11.0 15.0

Feed required for poultry meat (MMT) 12.0 15.5

Total Feed required (MMT) 23.0 30.5

Source: Industry, PL

Organised cattle Feed industry is expected to grow at ~7-9% in FY20E led by

increasing share of organised players and shortage in green fodder. Currently the

market share of organised players in the cattle feed segment stands at mere 12%

(up 400 bps since FY13) indicating immense potential for market share gain by the

organised players like Godrej Agrovet.

1% shift every year from unorganised to organised may lead to

double digit growth for the latter

Particulars FY20 FY21 FY22 FY23

Size (MMT) 8.0 8.2 8.5 8.7

Growth 3% 3% 3%

Share of organised players 12% 13% 14% 15%

Organised players market (MMT) 1.0 1.1 1.2 1.3

Growth for organised players 12% 11% 10%

Source: PL

Godrej Agrovet

January 24, 2020 16

Pole position in Oil palm development to continue

GOAGRO is the largest palm oil producer in India with 35% market share. It

has 68400 Ha of oil palm plantation which is equivalent to ~20% of India’s oil

palm plantation area. The company is in the midst of developing additional 4

mandals of area consisting 10000 Ha that was allotted last year in Chittoor

(Andhra Pradesh).

Balanced palm tree age profile to enable consistent volume growth

It takes ~4 years for oil palms to produce fruits suitable for harvest. Utilisation,

which is low (~2 ton/Ha) in the initial years, picks up every year till 7th – 8th year

(~17-18 ton/Ha; 20 ton/Ha for good farmers). It then largely stagnates at that

level for ~20 years before starting to decline.

Every year for the next 7-10 years the plantations will move from Pre-harvest

to growth stage and from growth stage to mature stage leading to consistent

increase in FFB available for processing.

The age profile of oil palm plantations accessible to GOAGRO is well

distributed equally between Pre-harvest years (32%), Growth years (35%) and

Mature stage (33%).

Age profile of Oil Palm Plantations

Upto 3 years 32.4%

3-8 years 34.6%

More than 8 years 33.0%

Source: Company, PL

GOAGRO will continue to garner large share of allocated area

Getting more allotment/allocation is unlikely to be a challenge for GOAGRO as the

Oil palm development is an oligopolistic business in India with very few players and

even lesser number of companies with good and clean track record. Such is the

track record of GOAGRO that the state governments prefer them for allocation even

when the company is competing with PSUs.

Efficient utilisation of wastes and by-products contributes

substantially to EBITDA

GOAGRO manufactures several value added products from wasted generated in

the oil palm business. These wastes are converted into Biomass briquettes, Animal

feed additives and fuel for cogeneration plant. Biomass is used to make briquettes

which are then utilised for generating fuel. While the government assures ~20%

gross margins in the oil palm business, GOAGRO gets some additional fillip from

by-products/wastes enabling it to clock 20% margin at EBITDA level as well.

Growth drivers

8-10% CAGR in FFB arrivals

Massive surge in international palm

oil price

Ample scope for expanding palm oil

plantation

There will be consistent increase in

FFB over the next 10 years

Godrej Agrovet

January 24, 2020 17

Waste generated in Oil Palm segment being used to make Kernel cakes, Briquettes, Feed powder and co-gen

Source: Company, PL

Palm oil segment revenues are expected to grow by 12% CAGR between FY20E-

22E driven by

~8-10% CAGR in FFB arrivals as the age profile improves coupled with

increase in area under plantation (~4000 Ha per annum)

Massive surge in international palm oil price (trading at 7-8 year high on IPP

basis)

Ample scope for expanding palm oil plantation due to large untapped areas

(~1.6 mn Ha)

Lower CPO price in 1HFY20 to Impact FY20 sales

25.3%

15.5% 16.0%

-2.9%

21.3%

11.2%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

2000

4000

6000

8000

10000


Revenue (INR Mn) YoY gr. (RHS)

Source: Company, PL

Margins are likely to recover from FY21

20.3%19.2%

16.7%

12.0%

17.5% 17.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0

200

400

600

800

1000

1200

1400

1600


EBIT (INR Mn) Margin (RHS)

Source: Company, PL

Godrej Agrovet

January 24, 2020 18

RoCE nose-dived in FY19 due to commercialization of new plant

36.6% 35.2%

59.1%

53.9%

35.8%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%


Source: Company, PL

Correction in CPO price led to decline in profits


Revenue 1683 2665 1812 634 1454 2366

YoY 28.5% -0.2% 33.6% 22.5% -13.6% -11.2%

EBIT 358 458.4 319.1 -1.1 126.6 287.7

Margin 21.3% 17.2% 17.6% -0.2% 8.7% 12.2%

YoY 67.5% -25.6% 26.0% -102.8% -64.6% -37.2%

MCX CPO Price/Kg 64.8 60.2 53.7 54.8 52.4 53.7

YoY 31% 19% -4% -8% -19% -11%

Source: Company, PL

India imports USD 16 bn worth of vegetable oil and palm oil

India imports ~64% of its edible oil requirement (requirement ~25 mn MT). The

vegetable oil (USD 10 bn) and palm oil import bill (USD 6 bn) has been hovering

~USD ~16 bn over the last few years.

Palm oil imports hovering at ~USD 6 bn p.a.

Year Vegetable oil import

(Mn USD)

Palm oil and its fraction, whether or not refined, but not chemically modified

(Mn USD)

FY15 10,109 6,367

FY16 10,192 6,509

FY17 10,893 6,127

FY18 11,654 6,774

FY19 9,896 5,234

FYTD (till Oct) 5,672 3,171

Source: PL

GoI promoting palm oil production in India

Government’s thrust on boosting domestic oil palm production to cut reliance on

imports augurs well for GOAGRO. GoI plans to add large areas under oil palm

plantation over the next 5 years (~25000 Ha in FY20) which gives an opportunity to

players like GOAGRO who have proven track record of successful implementation.

The potential area for palm oil cultivation in India is ~19.3 lakh Ha of which the

current plantation area is between 3.3-3.5 lakh Ha indicating immense potential for

growth over the next few years.

Immense scope for expanding oil

palm plantation due to large untapped

areas

Godrej Agrovet

January 24, 2020 19

Potential Area (+1.9 mn Ha)

Andhra Pradesh &

TG24%

Karnataka13%

Tamil Nadu11%

Gujarat13%

Maharashtra

9%

Chattisgarh2%

Kerala0%

Odisha3%

Bihar10%

Others13%

Source: GoI, PL

Huge scope for expanding palm oil cultivation

19.3

3.3

16

Area undercultivation

Potential area thatcan be cultivated

Total

Source: PL

Palm oil cultivation area to grow by 33% Ha over the next few years

India’s domestic oil palm production is bound to grow for several years driven by

increasing per capita income and rising population. The growth will be driven by

domestic production replacing imports. India imports ~64% of its edible oil

requirement (requirement ~25 mn MT). Palm oil contributes 70% of the vegetable

oil import. Government of India’s developmental efforts to promote oil palm

plantation in India have resulted in area expansion under oil palm from 8585 Ha in

1991-92 to ~3.4 lakh Ha by FY16. Area under oil palm cultivation is expected to

increase by 1/3rd (1.05 lakh Ha) to 4.2 lakh Ha over the next few years. By FY22,

the government plans to more than double the production of vegetable oils in India

to 17.0 mt from 7.6 mn currently. Oil palm area cultivation is operated on allocation

basis i.e. companies like GOAGRO are allocated areas/mandals for the

development of the sector. GOAGRO being the largest player and the most

preferred company for allocation will be a key beneficiary of import replacement

theme that will play out in the sector in the coming decade.

All possible support and subsidies being provided to farmers

Subsidies are directly provided by the government while support is in the form of

hand holding by the processors. Palm oil development project with small and

marginal farmers is linked with identified processors including GOAGRO who

provide planting materials, technical know-how for cultivation and finally purchase

the fresh fruit bunches (FFB) at the collection centres.

Unlike with other crops like sugarcane, farmers are paid without going to the

processing locations and payment is made within 2 weeks of collecting the

fruits from farmers.

Area allotments to particular companies ensure that the companies can go

ahead with oil palm planting without restriction, depending on the conviction of

the farmers.

Both the Central and State governments are providing subsidy for plants (upto

90% of cost), subsidy on inter-cropping during the pre-bearing period., drip

irrigation subsidy, diesel/electric pump subsidy, Subsidy on inputs, Subsidy on

vermi-compost & Borewells, re-imbursement of specified expenses, etc.

Godrej Agrovet

January 24, 2020 20

Agreement between state governments and the mills

Source: Company, PL

GoI tinkers with import duty to protect the domestic processors

India has been frequently adjusting tariffs on imported palm oil to protect domestic

oil seed producers, processors, employment and to smooth the effect of fluctuating

world prices on domestic consumers. The import duty on crude and refined palm

oil has increased from 0% & 7.5% in 2013 to 44% and 55% respectively currently.

History of import duty hikes

Date Crude Palm Oil Refined Palm Oil

Jan-13 3% 8%

Dec-14 8% 10%

Sep-15 13% 20%

Sep-16 8% 15%

Aug-17 15% 25%

Nov-17 30% 40%

Mar-18 48% 59%

Jun-18 48% 50%

Jan-19 44% 50%

Aug-19 44% 55%

Jan-20 41% 50%

Source: GoI, PL

Godrej Agrovet

January 24, 2020 21

But B30 mandate in Indonesia to support consumption and prices

Indonesia plans to introduce biodiesel with 30% bio-content, known as B-30, from

January 2020 to increase palm oil consumption. It currently has mandate of 20%

blending of palm oil. The move will thereby give a boost to domestic consumption

of palm oil in Indonesia and take care of the sluggishness in demand that came in

after European Union (2nd largest importer of palm oil after India) imposed

restrictions of palm oil imports.

Palm oil consumption (fatty acid methyl ester) in Indonesia is expected

to grow by 50% in 2020 to 9.6 mn kl v/s 6.2 mn kl in 2019. Indonesia is

also aiming to conduct road tests with 40% palm-based fuel next year.

The move to switch to B-30 led to surge in international palm oil price by

50% since August 2019, with current prices at 3-year high.

Int’l price of Oil palm price has moved up +60% since July

-

500

1,000

1,500

2,000

2,500

3,000

3,500

-

10,000

20,000

30,000

40,000

50,000

60,000

30-0

4-2

014

29-0

8-2

014

31-1

2-2

014

30-0

4-2

015

31-0

8-2

015

31-1

2-2

015

29-0

4-2

016

31-0

8-2

016

30-1

2-2

016

28-0

4-2

017

31-0

8-2

017

29-1

2-2

017

30-0

4-2

018

31-0

8-2

018

31-1

2-2

018

30-0

4-2

019

30-0

8-2

019

31-1

2-2

019

INR MYR (RHS)

Prices have shot up +60% since July 2019

Source: Bloomberg, PL

Godrej Agrovet

January 24, 2020 22

Crop protection segment to outperform industry growth

Herbicides, Fungicides and PGRs are the focus area for GOAGRO in the CP

segment. It has some niche products like “Combine”, “Hitweed”, etc which have

seen immense traction.

New launches and expanding distribution reach to drive growth

The company introduced 5 new products in FY19. GOAGRO has launch pipeline

of 7-8 molecules, including in-house developed and inlicensed, which are slated to

launch in 4-5 years. In FY20 the company has launched Hitweed Maxx herbicide

for broad leaf and grassy weeds. Its niche product i.e. Hitweed took care of grassy

weeds only.

GOAGRO is also planning to fill the gap in product portfolio by launching some

products for Rabi crops.

Plans are afoot to launch a molecule inlicensed from Nissan, branded as

Hanabi miticide for tea. Vipul, Double, Combine, Hitweed, Orzyostar, Ovitan,

etc are some of its key brands.

We expect standalone CP segment revenue and EBIT to clock 11% & 10%

growth between FY19-22E.

+15 products to be launched in 3-5 years of which 6 may be inlicensed from Japan

FY18 FY19 2020-2025

Billiards Reflex Herbicides- 8 - Paddy, Maize, Cotton

Ovitan Pixel Insecticides- 4 - Paddy, Tea, Cotton, Hot pepper, Pulses, Soybeans

Loxys Annova Fungicides- 3 - Paddy, Grapes, Apple, Tomato, Chilli, Cucurbits

Oryzostar Beleaf PGR- 1 - Broad spectrum

Czaar

Green

Source: PL

Revenue is expected to clock 13% growth

76478818

987511190

1268114235

54.2%

15.3%12.0% 13.3% 13.3% 12.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

2000

4000

6000

8000

10000

12000

14000

16000



Source: Company, PL

Margins to remain flat

1708

20702312

2462

2853

3203

80.0%

21.2%

11.6%6.5%

15.9%12.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0

500

1000

1500

2000

2500

3000

3500



Source: Company, PL

Godrej Agrovet

January 24, 2020 23

RoCE has stabilized between 30-35%

55.6%

30.1%

34.3% 34.4%31.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%


Source: Company, PL

Margin contraction largely driven by Astec Lifescience


Revenue 2567 3192 2305 1811 2866 3416

YoY 1.8% 23.1% 47.9% -3.3% 11.6% 7.0%

EBIT 762 808 411 331 768 678

Margin 29.7% 25.3% 17.8% 18.3% 26.8% 19.8%

YoY 6.8% 24.7% 14.6% -5.7% 0.8% -16.1%

Source: Company, PL

Robust outlook for Astec Lifescience

GOAGRO’s subsidiary Astec Lifescience is set for structural growth over the next

5-7 years driven by its rich product pipeline across both CRAMS and Non-CRAMS

business, backward integration for its key products, commencement of new

herbicides plant and setting up of the new R&D centre to enhance its capabilities

(R&D is currently acting as a bottleneck).

In CRAMS, Astec has several products in pipeline which will be rolled out in

the coming years. The company plans to commercialise 2 new products in

FY20. Astec has long term relationship with few US and Japanese customers

who are driving demand in the CRAMS segment.

To reduce concentration risk on the fungicides (currently 100% of

revenue), Astec is working on some proprietary herbicide molecules.

Herbicide plant, expected to commence in 2020, will further aid topline growth.

Astec is in final stages of purchasing land for setting up a new R&D

centre which will lead to quantum jump in its capabilities of rolling out

new products. It plans to operationalise the new R&D facility in 18 months.

Robust R&D capabilities of Astec and de-risking supply chains by partially

shifting procurement away from China is driving growth for the company.

The company is flushed with orders and capacity continues to be fully

utilized. Given the quantum of orders in hand and negotiation with clients

for new orders, Astec will continue to expand capacity over the next 5

years

GOAGRO has very aggressive plans

for Astec

Rich product pipeline

Reducing concentration risk

New R&D facility to enhance

capabilities to roll out new products

Astec’s capacity to get fully utilized by

year end

Godrej Agrovet

January 24, 2020 24

On the profitability side, margins will continue to remain volatile depending on

shipment schedule and international price of technical.

Exports have doubled in the last 2 years

As a % of Sales FY17 FY18 FY19

Domestic 57% 45% 44%

Exports 43% 55% 56%

Source: Company, PL

Top 2 customers account for +25% of revenue

FY18 FY19

Revenue from top 2 customers 26% 29%

Source: Company, PL

Astec mostly deals in Triazole fungicides only

Technicals Formulations Combination Fungicides Intermediates

Tebuconazole Tebuconazole Difenoconazole + Propiconazole 2,4-Dichloro Acetophenone

Propiconazole Propiconazole Difenoconazole + Propiconazole 4-Phenyl 1-Butene

Hexaconazole Hexaconazole Difenoconazole+ Propiconazole 2-Chloro 4-Fluoro Acetophenone

Difenoconazole Difenoconazole Cyproconazole+ Propiconazole 4-Methyl pthalic anhydride

Metalaxyl Metalaxyl Metalaxyl+ Mancozeb Thiophene 2-ethanol

Tricyclazole Tricyclazole

Imazethapyr Imazethapyr

Lambda Lambda cyhalothrin

Source: Company, PL

Astec Lifescience financials

FY18 FY19 FY20E FY21E FY22E

Net Sales 3,676 4,309 5,171 5,946 6,838

COGS 2,350 2,795 3,542 4,014 4,582

Employee cost 217 251 300 345 397

Other expenses 421 499 543 624 718

Total expenses 2,988 3,545 4,385 4,983 5,696

EBITDA 688 764 786 963 1,142

Depreciation 147 193 220 242 266

Finance costs 107 124 140 150 155

Other income 81 111 116 128 140

PBT before exceptional items 515 558 542 699 861

Exceptional items -42 - - - -

Profit before tax 557 558 542 699 861

Tax expense 207 201 136 176 217

PAT 350 357 406 523 644

APAT 308 357 406 523 644

Adj EPS 15.8 18.3 20.8 26.8 33.0

Source: Company, PL

GOAGRO had bid for Gharda Chemicals but failed to seal the deal

As per our channel checks, GOAGRO had placed a bid for Gharda chemicals but

the same was rejected due to lower valuation. Gharda Chemicals itself is also

entangled in legal issues regarding promoter shareholding. GOAGRO would be an

ideal choice for Gharda chemicals due to the cultural similarity and will give provide

significant business scale, technological prowess and R&D capabilities. While the

size of Gharda Chemicals and GOAGRO are largely same but they have limited

commonality and given diverse range of businesses.

Astec’s topline /EBITDA/ APAT are

expected to clock CAGR of

17%/14%/22% between FY19-22E

Godrej Agrovet

January 24, 2020 25

Dairy segment to witness steady 8-10% CAGR

GOAGRO operates in the dairy segment through its subsidiary Creamline Dairy

Products Ltd. (CDPL). New launches, increasing the share of value added product,

reducing the share of buffalo milk and more direct procurement will be the growth

mantra for CDPL.

Value added products share to increase to 42% in 3 years: (1) Value added

products currently accounts for 29% of revenue. Creamline will continue to

launch new value added products to increase its share in total revenue to 42%

in 3 years. (2) It has launched products like Thickshake, Premium ice-cream

range, Buttermilk, Lassi, flavoured milk, flavoured yogurt, etc. (3) While working

capital requirements are expected to increase post GOAGRO’s entry into value

added products, the same is expected to be limited as the company is

expanding only into low shelf life products in value added segment to maintain

lower working capital.

South focus to continue: The company is focusing on its key markets of

Andhra Pradesh, Telangana, Tamil Nadu and Karnataka. Current milk

processing capacity stands at 8 lakh ltrs. In the long term the company may

look into setting up 3 greenfield processing plants of 1 lakh tons each (one

each in Tamil Nadu, North Karnataka and Maharashtra). Recently it

commenced a new plant of 1 lakh ltrs per day capacity in Visakhapatnam.

Focus on Direct procurement and Cow Milk: (1) CDPL has also scaled up

direct farmer procurement and added 373 villages/centres for procurement in

FY19 (189 centres till FY18). Direct milk procurement is 20% currently which

the company plans to take to 100% in 3-5 years. (2) The company has reduced

the composition of Buffalo milk from 38% in FY18 to 30% in FY19. (3)

GOAGRO is also providing support services like artificial insemination (through

a JV with Israel based Maxximilk) which will enable dairy farmers to grow high

output milk-producing cows within 32 months rather than the decade long

breeding programs that is currently prevalent. These measures will enable

Godrej to establish very long standing relationship with farmers thereby aiding

the procurement security for the business.

Process and infrastructure led improvements in procurement, food safety &

hygiene at chilling centres have yielded ~12% increase YoY in bacteriological

quality of milk (increase in Methylene Blue Dye Reduction Test to 106 minutes).

Input cost prices and competition from co-operatives a challenge: 25%

increase in milk procurement cost poses a near term challenge to margins and

profitability. In addition, strong presence of dairy co-operatives like Nandini

(Karnataka), Aavin (Tamil Nadu - TCMPF) and Vijaya (Andhra Pradesh -

APDDCF) will prevent any significant increase in margins in the long term.

In the long term, cattle feed business will backward integrate with diary

business wherein high quality feed will be provide to the farmers. GOAGRO

will supply high quality feed while CDPL will continue to procure milk from

farmers, process and then retail it.

Dairy segment will continue to grow in mid-to-high single digits over the next

few years as the company expands its reach, deepen its penetration and

enhances capacity. We expect dairy segment revenue & EBIT to grow at a

CAGR of ~6% & ~33% between FY19-22E.

GOAGRO market its products under

JERSEY brand

Increasing procurement cost,

competition from state co-operatives

and higher working capital

requirements are the concerns in the

sector

Cattle feed business will integrate

with dairy business in the long term

Godrej Agrovet

January 24, 2020 26

Revenue to grow at a steady 6% CAGR

14.6%

0.3%

3.0%

5.0%

10.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0

2000

4000

6000

8000

10000

12000

14000

16000



Source: Company, PL

Margins to improve by ~170 bps by FY22E

0.0%

-64.5%

14.2%

-39.6%

110.0%83.3%

-100.0%

-50.0%

0.0%

50.0%

100.0%

150.0%

0

50

100

150

200

250

300

350

400



Source: Company, PL

RoCE is expected to pick up with improvement in profitability

7.8%

2.8%3.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

FY17 FY18 FY19

Source: Company, PL

Dairy; subdued performance expected to continue


Revenue 3129 2996 2780 2707 3204 3063

YoY% 1.5% 2.3% -1.6% -1.3% 2.4% 2.2%

EBIT 2 -4 113 38 66 -2

YoY% -83.9% NA 25.6% NA NA -52.6%

Margin 0.1% -0.1% 4.0% 1.4% 2.1% -0.1%

Source: Company, PL

FY18 & FY19 RoCE was impacted

due to high provisioning cost in the

wake of adverse business scenario

Godrej Agrovet

January 24, 2020 27

Poultry business is in nascent stage

Poultry and processed food business comprises of Real good chicken portfolio,

Yummies portfolio, Live bird business and vegetarian processed food product

range. While GOAGRO’s JV (Godrej Tyson Foods Ltd, GTFL) with Tyson is more

than a decade old, the business has not achieved the desired scale under the

management of Tyson Foods Inc. During 2019, GOAGRO has turned GTFL into a

subsidiary by increasing the stake in the JV to 51%.

With the change in management & strategy, growth is expected to accelerate driven

by new products and deepening distribution reach. Currently GTFL has presence

in Maharashtra, Goa, Karnataka, Telangana, Tamil Nadu and Delhi. The company

is looking to deepen its presence where it is already present (i.e. few metros) rather

than expanding into newer areas.

With increased focus on live bird market the company has expanded the target

market size for itself multifold as 98% of the Indian poultry meat industry is live bird

market. With the commencement of Ludhiana plant, the new range of vegetarian

processed food will aid growth for the segment.

The poultry consumption has grown at 15-20% CAGR in the last 10 years. The fast

pace of growth is expected to continue driven by the increase in household income,

increase in number & popularity of fast food restaurants and QSRs, increasing

urbanisation and working population to increase the demand for processed food,

etc.

Revenue is expected to clock high single digit

growth

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0

1000

2000

3000

4000

5000

6000

7000



Source: Company, PL

Margins are likely to inch up to 3% by FY22

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

-50

-

50

100

150

200



Source: Company, PL

Godrej Agrovet

January 24, 2020 28

Financials

We expect revenue to grow at a CAGR of 11.0% between FY19-22E primarily

driven by Animal Feed and Crop protection segments (13% CAGR each).

Segment financials


Sales (INR Mn) 49,431 52,256 58,919 71,668 80,540 89,413

Animal Feed 26,208 25,760 30,465 36,527 41,385 45,979

Vegetable Oil 5,066 5,854 6,793 6,593 7,998 8,894

Crop Protection 7,647 8,818 9,875 11,190 12,681 14,235

Dairy 10,099 11,577 11,611 11,960 12,558 13,813

Others incl Poultry 410 248 175 5,398 5,918 6,491

Intersegment 167 197 212 - - -

Sales growth

Animal Feed 3.0% -1.7% 18.3% 19.9% 13.3% 11.1%

Vegetable Oil 25.3% 15.5% 16.0% -2.9% 21.3% 11.2%

Crop Protection 54.2% 15.3% 12.0% 13.3% 13.3% 12.2%

Dairy 270.1% 14.6% 0.3% 3.0% 5.0% 10.0%

Others incl Poultry 5.9% -39.6% -29.5% NA 9.6% 9.7%

Sales mix

Animal Feed 53% 49% 52% 51% 51% 51%

Vegetable Oil 10% 11% 11% 9% 10% 10%

Crop Protection 15% 17% 17% 16% 16% 16%

Dairy 20% 22% 20% 17% 16% 15%

Others incl Poultry 1% 0% 0% 8% 7% 7%

EBIT (INR Mn)

Animal Feed 1,664 1,559 1,286 1,826 2,214 2,644

Vegetable Oil 1,027 1,123 1,135 791 1,400 1,512

Crop Protection 1,708 2,070 2,312 2,462 2,853 3,203

Dairy 367 130 148 90 188 345

Others incl Poultry -112 25 265 -135 -30 65

EBIT growth

Animal Feed -9.4% -6.3% -17.6% 42.1% 21.2% 19.4%

Vegetable Oil 66.6% 9.3% 1.1% -30.3% 76.9% 8.0%

Crop Protection 80.0% 21.2% 11.6% 6.5% 15.9% 12.2%

Dairy NA -64.5% 14.2% -39.6% 110.0% 83.3%

Others incl Poultry -11.7% -122.1% 969.4% -150.9% -78.1% -319.4%

EBIT margin

Animal Feed 6.3% 6.1% 4.2% 5.0% 5.4% 5.8%

Vegetable Oil 20.3% 19.2% 16.7% 12.0% 17.5% 17.0%

Crop Protection 22.3% 23.5% 23.4% 22.0% 22.5% 22.5%

Dairy 3.6% 1.1% 1.3% 0.8% 1.5% 2.5%

Others incl Poultry -27.4% 10.0% 151.9% -2.5% -0.5% 1.0%

Source: Company, PL

Led by 10% volume CAGR, animal

feed segment will continue to grow

consistently due to cost reduction

initiatives and widening demand

supply gap. Realisations are

expected to grow by 10%/3%/1% in

FY20E/ FY21E/ FY22E (1HFY20-

16.5%) driven by RM cost inflation

CP segment revenue will be driven by

both Astec lifescience (15% CAGR)

and GOAGRO’s standalone business

(11.3% CAGR) driven by

commercialisation of molecules and

rich product launch pipeline

respectively.

While the Vegetable oil segment is

expected to report revenue decline of

3% in FY20 but FY21-22 revenue

CAGR is expected to be ~16% driven

by higher palm oil price and increase

in FFB for processing

Dairy segment growth and margins

are expected to remain subdued and

most of the growth will be back-ended

as the company expands its

distribution reach within southern

states and correction in procurement

costs.

Poultry business JV with Tyson

Foods Inc will continue to grow at a

healthy 10% CAGR over the next few

years driven by widening product

portfolio and increasing capacities.

Profitability will continue to be under

pressure due to subdued chicken

prices.

Godrej Agrovet

January 24, 2020 29

Gross margin is expected to be in the range of 22-23%. EBIT is expected to

grow at 19% CAGR while EBIT margins are expected to improve 160 bps to

6.7% driven by 500 bps and 75 bps improvement in vegetable oil and animal

feed segment margins respectively.

CP segment margins is expected to expand 50 bps to driven by favourable

domestic market.

Topline to grow at 14% CAGR between FY19-22E

49,1

11

51,8

55

58,7

07

71,6

68

80,5

40

89,4

13

31.0%

5.6%

13.2%

22.1%

12.4%11.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

-

20,000

40,000

60,000

80,000

1,00,000


Net Revenue Growth%

Source: Company, PL

Margins are likely to expand by ~100% between

FY20E-22E

4,3

80

4,4

31

4,5

58

5,1

91

6,8

17

7,8

89

8.9%

8.5%

7.8%

7.2%

8.5%

8.8%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


EBITDA Margin

Source: Company, PL

The company will continue to invest in capacity expansion and enriching its

portfolio in all segments by investing Rs 6-6.5 bn over the next 3 years.

Leverage is expected to remain at these levels with Net Debt:Equity ratio

reducing from 0.2 to 0.1 by FY22.

Capex is likely to get funded by robust cash flow generation. PBT and APAT

are expected to grow at 9% and 25% CAGR between FY19-22E. GOAGRO

will be a key beneficiary of the new tax regime and the effective tax rate is

expected to reduce to ~19% FY20 onwards.

PAT to clock 24% CAGR between FY19-22E

2,2

87

2,1

72

2,4

07

2,8

08

3,9

55

4,6

59

35.0%

-5.0%

10.8%

16.6%

40.9%

17.8%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

-

1,000

2,000

3,000

4,000

5,000


APAT Growth%

Source: Company, PL

Leverage is expected to reduce from 0.2 to 0.1

6,0

60

3,7

30

3,5

99

4,0

59

3,5

33

3,2

08

0.6

0.3 0.2 0.2

0.2 0.2

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


(x)

(Rs

mn

)

Net Debt Net Debt: Equity (RHS)

Source: Company, PL

Godrej Agrovet

January 24, 2020 30

Outlook & Valuation

GOAGRO’s unique blend of growth and mature businesses with oligopolistic

positioning in palm oil and market leadership in animal feed enables it to scale up

business even by keeping working capital under check.

Topline growth of 12% CAGR between FY20-22E will be driven by double digit

growth in volumes in all segments (except dairy).

Earnings are likely to grow by 28% CAGR led by 160 bps improvement in

EBITDA margin (@ 8.8% in FY22E) driven by better realisations for CPO &

Animal feed, cost reduction initiatives in Animal Feed and operating leverage

benefit for other segments.

At CMP the stock is trading at 13.9x FY22 blended EV/EBITDA multiple. We

initiate coverage on GOAGRO with BUY rating for a target price of Rs 659 on

SOTP basis (blended EV/EBITDA multiple on TP- 16.4x).

SoTP valuation break up

Particulars (Rs Mn) FY22 EBITDA Multiple Value

Animal Feed 2,343 22 51,539

Oil Palm 1,679 16 26,872

Crop Protection 3,294 14 46,117

Dairy 515 10 5,151

EV 1,29,521

FY22 Net Debt 3,158

Market Cap 1,26,521

Shares O/s 192

Target price (Rs/Sh) 659

Source: Company, PL

Peer comparison

Company Revenue EBITDA PAT

FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22

Godrej Agrovet 58,707 71,668 80,540 89,413 4,558 5,191 6,817 7,889 2,407 2,808 3,955 4,659

PI Industries 28,409 33,836 43,657 51,628 5,731 7,354 9,033 11,160 4,077 4,997 5,927 7,419

Rallis India 19,840 22,680 25,278 27,761 2,409 2,622 3,068 3,565 1,554 1,535 1,819 2,155

Avanti Feed 34,878 40,805 46,209 51,342 4,076 5,202 5,900 6,472 2,583 3,876 4,420 4,949

Parag Milk 23,957 26,991 30,943 35,648 2,235 2,402 2,894 3,449 1,207 1,204 1,540 1,906

Heritage Foods 25,084 27,994 31,615 35,532 1,905 1,607 2,043 2,546 855 755 1,046 1,258

Company Revenue

CAGR PAT

CAGR CMP

Mcap (Rs mn)

P/E (x) EV/EBITDA (x)

FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22

Godrej Agrovet 15.1% 24.6% 555 1,06,596 32.4 38.0 27.0 22.9 24.2 21.3 16.1 13.9

PI Industries 22.0% 22.1% 1,451 2,00,131 49.1 40.0 33.8 27.0 34.7 27.7 22.4 18.0

Rallis India 11.8% 11.5% 231 44,864 21.9 22.1 18.7 15.8 13.8 12.5 10.4 8.8

Avanti Feed 13.8% 24.2% 701 9,549 19.0 25.4 22.8 19.8 12.3 16.8 14.8 10.8

Parag Milk 14.2% 16.4% 149 1,249 14.4 10.4 8.1 6.9 10.8 6.0 4.9 4.7

Heritage Foods 12.3% 13.7% 362 1,680 18.4 22.4 16.1 13.9 14.9 11.3 8.9 7.8

Source: Company, PL

Godrej Agrovet

January 24, 2020 31

Key Risks

Outbreak of disease in livestock: Outbreak of disease could significantly hamper

the business performance and growth prospects. Outbreak of disease could result

in government restriction on domestic sale, import and export which has potential

to impact both the poultry business and feed business performance. Disease

outbreak may also lead to negative publicity and dent the brand value of the

company and its products.

Instance of disease outbreak: An outbreak of the most highly pathogenic strain

of avian influenza, H5N1, a disease contagious to turkey, poultry and other birds

was identified in poultry farms owned by ACI Godrej in Bangladesh resulting in

destruction or death of a substantial portion of its poultry flock, which adversely

affected the results of operations. H5N1 has been spreading throughout Asia since

2003, with a widespread outbreak in West Bengal in 2008 and outbreaks occurring

regularly throughout India with the most recent in January 2017.

High dependency on Andhra Pradesh- Geographical Risk: GOAGRO’s ~25%

of business (52% of oil palm, significant portion of dairy and aqua feed) is

concentrated in Andhra Pradesh (AP). Hence any natural calamity, economic,

social or political disruption in Andhra Pradesh may significantly impact the

operations of GOAGRO.

Inherent risks of the oil palm industry: The inherent risks of dealing in the oil

palm industry includes outbreaks of diseases, unscheduled interruptions in FFB

processing, adverse climate conditions, decreased yield in FFB, gestation period of

3-4 years between planting and first harvest, price of crude palm oil and oil palm

products, etc. The company endeavours to mitigate the risks by adopting the latest

technologies, disease prevention measures and imparting knowledge to farmers.

Godrej Agrovet

January 24, 2020 32

Annexure

Oil Palm Developing Project (OPDP)

GoI is promoting oil palm development by implementing several programmes since

1986-87 and from 2014-15 through NMOOP (National Mission on Oil seeds and Oil

Palm). In FY91, OPDP was launched as part of the government’s technology

mission on oil seeds program. Implementation of OPDP began in 9 states. Till

FY17, India has achieved an area expansion 305,624 Ha across 14 states out of

18 identified states. Similarly, production of FFB & CPO has increased from 21,233

tons and 1,134 tons respectively to 16.3 lakh tons and 2.7 lakh tons during FY18.

Statewise production of Fresh Fruit Bunches (FFBs)- Andhra Pradesh contributes ~90% of production

In Tonnes FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Andhra Pradesh 2,26,200 2,59,495 3,47,892 3,85,009 5,73,024 7,90,881 9,33,981 10,07,553 11,47,780 11,37,398 14,27,828

Karnataka 5,764 6,685 6,387 8,337 9,942 10,112 9,917 12,638 14,740 11,912 12,917

Tamil Nadu 1,659 1,987 2,080 2,920 4,743 5,244 5,495 6,568 7,810 7,422 6,995

Gujarat 12 2 6 26 91 134 158 409 523 775 996

Odisha - 2,799 3,464 5,128 12,720 2,920 3,639 3,769 4,569 4,965 6,702

Goa 1,936 2,236 1,591 1,878 2,229 2,056 2,046 2,146 3,217 NA NA

Kerala 29,300 38,400 35,100 41,000 43,200 41,350 38,350 40,798 40,611 34,198 30,220

Mizoram - 2 32 88 480 1,339 1,544 2,096 3,780 4,796 5,238

Telangana - 28,190 29,937 32,176 46,779 38,624 52,752 57,873 75,447 88,119 1,47,805

All India 2,64,871 3,39,796 4,26,488 4,76,561 6,93,207 8,92,660 10,47,881 11,33,850 12,98,477 12,89,603 16,38,759

Source: PL

Statewise production of Crude Palm Oil (CPO)- Andhra Pradesh contributes ~90% of production

In Tonnes FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Andhra Pradesh 38,000 43,593 57,402 63,487 97,987 1,27,570 1,61,566 1,70,478 1,93,562 1,90,999 2,34,696

Karnataka 1,037 1,170 1,118 1,459 1,740 1,770 1,736 2,176 2,538 2,051 2,224

Tamil Nadu 273 366 365 486 759 1,035 820 1,019 1,222 1,115 938

Odisha NA 476 589 871 2,162 443 558 557 618 NA NA

Goa 342 393 279 329 394 372 371 388 581 NA NA

Kerala 5,750 7,400 6,600 6,900 7,500 7,378 6,303 6,515 7,015 5,929 5,191

Mizoram - - - - - - - 365 496 603 648

Telangana - 4,770 5,100 5,655 8,494 6,825 9,373 10,012 12,499 8,947 27,275

Total 45,403 58,167 71,453 79,187 1,19,036 1,45,393 1,80,727 1,91,510 2,18,531 2,09,644 2,70,972

Source: PL

Organised players to increase share in dairy market

India is the world’s largest producer (FY17: 162 mn MT) and consumer of milk

(FY17: 154 mn MT) however on per capita consumption basis (@ 97 ltrs/yr)

we are well below that of other major milk markets, except for China.

Opportunities in the Indian dairy segment for private players remains large

given rising middle class and urban population, changing dietary patterns

towards protein based foods and increasing population.

The growth in Indian dairy industry is likely to get accelerated over the next

decade due to higher share of value added products (high margin) and

increasing share of organised players. By 2022, the industry is expected to be

worth Rs 16.4 bn.

Godrej Agrovet

January 24, 2020 33

The share of organised players stood at 73% in FY17 and is expected to

decline by 550 bps by 2022 to 67.6%. CDPL is working across the dairy value

chain to capitalise on the opportunity.

Focus will also be on increasing share of cow milk which has lower variability

in milk supply and on increasing the share of direct procurement from farmers.

Dairy consumption is expected to grow at a CAGR of 4.9%

Milk & Dairy products FY17 FY23 CAGR

Production (MT) 162 209 4.3%

Consumption (MT) 154 205 4.9%

Source: Company, PL

Share of organised players to increase by 550 bps by 2022

Year Organised (%) Unorganised (%)

2017 26.9 73.1

2018 27.9 72.1

2019 29.0 71.0

2020 30.1 69.9

2021 31.3 68.7

2022 32.5 67.5

Source: Company, PL

Dairy Industry EBITDA to grow by 2x by 2022 even at constant margins

Category

2016 2022

Org Mkt CAGR (%)

2016-22

2016 EBITDA (Rs Mn)

2022 Esti. EBITDA (Rs Mn)

Industry Size

(Rs Bn)

Share of Orgd.

Players (%)

Sale of Orgd

players (Rs Bn)

Industry Size

(Rs Bn)

Share of Orgd.

Players (%)

Sale of Orgd

players (Rs Bn)

Traditional Products

Liquid Milk 3154 29.5 930 7580 38 2,880 20.7 42 130

Curd 579 7 41 1366 9 123 20.3 3 9

Ghee 1519 16.5 251 3480 20 696 18.6 31 87

Paneer 210 2.7 6 483 4 19 22.7 0 1

SMP 123 100 123 280 100 280 14.7 9 21

Ice cream 109 56.9 62 275 70 193 20.8 9 29

Emerging Products

UHT Milk 32 100 32 125 100 125 25.5 2 9

Flavoured Milk 18 100 18 70 100 70 25.4 2 9

Flavoured & Frozen Yogurt 4 100 4 19 100 19 29.7 1 2

Lassi 17 100 17 58 100 58 22.7 1 4

Buttermilk 46 100 46 159 100 159 23.0 3 12

Cheese 14 100 14 58 100 58 26.7 2 7

Butter 24 100 24 73 100 73 20.4 3 9

Cream 3 100 3 7 100 7 15.2 0 1

Whey 4 100 4 12 100 12 20.1 1 2

Total 1,574 4,772 111 332

Source: Company, PL

Dairy Industry EBITDA to

triple between 2016-2022

Godrej Agrovet

January 24, 2020 34

Financials

Income Statement (Rs m)


Net Revenues 58,707 71,668 80,540 89,413

YoY gr. (%) 13.2 22.1 12.4 11.0

Cost of Goods Sold 45,736 56,801 62,850 69,453

Gross Profit 12,971 14,866 17,690 19,959

Margin (%) 22.1 20.7 22.0 22.3

Employee Cost 2,944 3,368 3,785 4,202

Other Expenses 5,469 6,307 7,088 7,868

EBITDA 4,558 5,191 6,817 7,889

YoY gr. (%) 2.9 13.9 31.3 15.7

Margin (%) 7.8 7.2 8.5 8.8

Depreciation and Amortization 982 1,532 1,718 1,890

EBIT 3,577 3,659 5,099 5,998

Margin (%) 6.1 5.1 6.3 6.7

Net Interest 339 429 418 406

Other Income 531 371 399 429

Profit Before Tax 4,651 3,602 5,080 6,022

Margin (%) 7.9 5.0 6.3 6.7

Total Tax 1,280 684 965 1,144

Effective tax rate (%) 27.5 19.0 19.0 19.0

Profit after tax 3,372 2,917 4,115 4,878

Minority interest 203 258 316 382

Share Profit from Associate 121 148 155 163

Adjusted PAT 3,290 2,808 3,955 4,659

YoY gr. (%) 43.5 (14.7) 40.9 17.8

Margin (%) 5.6 3.9 4.9 5.2

Extra Ord. Income / (Exp) - - - -

Reported PAT 3,290 2,808 3,955 4,659

YoY gr. (%) 43.5 (14.7) 40.9 17.8

Margin (%) 5.6 3.9 4.9 5.2

Other Comprehensive Income - - - -

Total Comprehensive Income 3,290 2,808 3,955 4,659

Equity Shares O/s (m) 192 192 192 192

EPS (Rs) 17.1 14.6 20.6 24.3

Source: Company Data, PL Research

Balance Sheet Abstract (Rs m)


Non-Current Assets

Gross Block 21,052 24,003 26,533 29,063

Tangibles 20,120 23,041 25,541 28,041

Intangibles 932 962 992 1,022

Acc: Dep / Amortization 3,192 4,724 6,442 8,332

Tangibles 2,900 4,432 6,150 8,041

Intangibles 292 292 292 292

Net fixed assets 17,860 19,280 20,091 20,731

Tangibles 17,220 18,609 19,391 20,000

Intangibles 641 671 701 731

Capital Work In Progress 1,126 615 615 615

Goodwill 2,649 2,649 2,649 2,649

Non-Current Investments 1,375 1,380 1,407 1,433

Net Deferred tax assets (2,044) (2,044) (2,044) (2,044)

Other Non-Current Assets 641 788 886 984

Current Assets

Investments - - - -

Inventories 8,987 11,388 12,798 14,208

Trade receivables 7,349 9,425 10,592 11,758

Cash & Bank Balance 299 285 579 902

Other Current Assets 1,566 1,676 1,818 1,960

Total Assets 42,336 48,030 52,041 55,908

Equity

Equity Share Capital 1,920 1,920 1,920 1,920

Other Equity 14,570 16,228 17,755 18,853

Total Networth 16,490 18,148 19,675 20,774

Non-Current Liabilities

Long Term borrowings 642 642 642 642

Provisions 67 72 81 89

Other non current liabilities 204 215 242 268

Current Liabilities

ST Debt / Current of LT Debt 3,235 3,652 3,420 3,417

Trade payables 12,394 14,726 16,549 18,372

Other current liabilities 3,203 4,222 4,763 5,295

Total Equity & Liabilities 42,336 48,030 52,041 55,908


Godrej Agrovet

January 24, 2020 35

Cash Flow (Rs m)

Y/e Mar FY19 FY20E FY21E FY22E Year

PBT 4,773 3,602 5,080 6,022

Add. Depreciation 982 1,532 1,718 1,890

Add. Interest 339 429 418 406

Less Financial Other Income 531 371 399 429

Add. Other (1,153) (371) (399) (429)

Op. profit before WC changes 4,941 5,191 6,817 7,889

Net Changes-WC 634 (1,369) (523) (523)

Direct tax (1,097) (684) (1,965) (3,144)

Net cash from Op. activities 4,477 3,138 4,329 4,222

Capital expenditures (2,800) (2,530) (2,530) (2,530)

Interest / Dividend Income 34 - - -

Others 367 371 399 429

Net Cash from Invt. activities (2,400) (2,159) (2,131) (2,101)

Issue of share cap. / premium 3 - - -

Debt changes (680) 417 (232) (3)

Dividend paid (1,076) (1,010) (1,254) (1,390)

Interest paid (354) (429) (418) (406)

Others (59) - - -

Net cash from Fin. activities (2,166) (1,023) (1,904) (1,799)

Net change in cash (88) (43) 294 322

Free Cash Flow 1,719 608 1,799 1,692


Quarterly Financials (Rs m)

Y/e Mar Q3FY19 Q4FY19 Q1FY20 Q2FY20

Net Revenue 14,541 13,439 17,026 18,511

YoY gr. (%) 19.1 12.5 14.7 16.5

Raw Material Expenses 11,356 10,637 12,968 14,497

Gross Profit 3,185 2,802 4,058 4,015

Margin (%) 21.9 20.9 23.8 21.7

EBITDA 1,010 749 1,419 1,197

YoY gr. (%) 4.2 1.0 1.9 (14.9)

Margin (%) 6.9 5.6 8.3 6.5

Depreciation / Depletion 264 257 351 375

EBIT 746 492 1,068 823

Margin (%) 5.1 3.7 6.3 4.4

Net Interest 98 75 102 125

Other Income 49 107 102 113

Profit before Tax 696 1,407 1,068 811

Margin (%) 4.8 10.5 6.3 4.4

Total Tax 244 191 356 (222)

Effective tax rate (%) 35.0 13.6 33.3 (27.4)

Profit after Tax 453 1,216 712 1,033

Minority interest 76 70 16 (14)

Share Profit from Associates 33 (9) 63 3

Adjusted PAT 409 254 760 1,050

YoY gr. (%) 9.1 1.4 (5.3) 11.4

Margin (%) 2.8 1.9 4.5 5.7

Extra Ord. Income / (Exp) - - - -

Reported PAT 409 1,137 760 1,050

YoY gr. (%) (17.5) 353.9 (5.3) 11.4

Margin (%) 2.8 8.5 4.5 5.7

Other Comprehensive Income - - - -

Total Comprehensive Income 409 1,137 760 1,050

Avg. Shares O/s (m) - - - -

EPS (Rs) - - - -


Key Financial Metrics


Per Share(Rs)

EPS 17.1 14.6 20.6 24.3

CEPS 22.2 22.6 29.5 34.1

BVPS 85.9 94.5 102.5 108.2

FCF 9.0 3.2 9.4 8.8

DPS 4.5 4.5 5.6 6.2

Return Ratio(%)

RoCE 18.6 17.1 22.1 24.7

ROIC 13.7 14.0 18.3 20.8

RoE 21.5 16.2 20.9 23.0

Balance Sheet

Net Debt : Equity (x) 0.2 0.2 0.2 0.2

Net Working Capital (Days) 25 31 31 31

Valuation(x)

PER 32.4 38.0 27.0 22.9

P/B 6.5 5.9 5.4 5.1

P/CEPS 25.0 24.6 18.8 16.3

EV/EBITDA 24.2 21.3 16.1 13.9

EV/Sales 1.9 1.5 1.4 1.2

Dividend Yield (%) 0.8 0.8 1.0 1.1


Godrej Agrovet

January 24, 2020 36

Notes

Godrej Agrovet

January 24, 2020 37

Notes

Godrej Agrovet

January 24, 2020 38

Notes

Godrej Agrovet

January 24, 2020 39

Price Chart

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Bayer Cropscience Hold 3,700 3,730

2 Dhanuka Agritech BUY 423 416

3 Insecticides India BUY 948 472

4 P.I. Industries Hold 1,355 1,444

5 Rallis India Accumulate 248 220

6 Sharda Cropchem Accumulate 306 290

7 UPL BUY 740 591

PL’s Recommendation Nomenclature

Buy : >15%

Accumulate : 5% to 15%

Hold : +5% to -5%

Reduce : -5% to -15%

Sell : < -15%

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

428

508

589

669

750

Oct

- 17

Mar

- 18

Jul -

18

Dec -

18

Ap

r -

19

Se

p -

19

Jan

- 2

0

(Rs)

Godrej Agrovet

January 24, 2020 40

ANALYST CERTIFICATION

(Indian Clients)

We/I, Mr. Prashant Biyani- CA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

(US Clients)

The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.

DISCLAIMER

Indian Clients

Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com.

This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014

PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.

PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.

PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.

PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.

PL or its associates might have received compensation from the subject company in the past twelve months.

PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.

PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months

PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.

PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.

It is confirmed that Mr. Prashant Biyani- CA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company

Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest.

PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

US Clients

This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India | Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

www.plindia.com

http://www.plindia.com/

Godrej Agrovet (GOAGRO IN) · Godrej Agrovet January 24, 2020 4 GOAGRO – An Integrated Agri Play...

Documents

Transcript of Godrej Agrovet (GOAGRO IN) · Godrej Agrovet January 24, 2020 4 GOAGRO – An Integrated Agri Play...