Godrej Agrovet did well in Q4, but sustaining momentum is key

Overall, Godrej Agrovet’s consolidated revenues declined by 2.4% y-o-y to Rs1,455 crore. A sharp fall in other operating revenues meant total operating revenues declined by 10%.Premium
Overall, Godrej Agrovet’s consolidated revenues declined by 2.4% y-o-y to Rs1,455 crore. A sharp fall in other operating revenues meant total operating revenues declined by 10%.
 2 min read . Updated: 12 May 2021, 12:17 AM IST Pallavi Pengonda

Agri-business company Godrej Agrovet Ltd’s performance in the financial year 2021 was bumpy. Lower demand from the hotels, restaurants and cafes (HoReCa) segment and lower out-of-home consumption weighed on volumes in its animal feed business.

In this context, the second covid-19 wave understandably brings jitters for Godrej Agrovet’s investors. “As long as the lockdowns prevail, demand for the company’s animal feed business is expected to be subdued. It is only when the HoReCa segment revives, the demand for underlying commodities such as milk, eggs and broiler meat will improve, thereby improving demand for the animal feed categories," said Gnanasundar Saminathan, analyst at Spark Capital Advisors (India) Pvt. Ltd.

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For Godrej Agrovet, the animal feed business contributed about 51% of its revenues for the March quarter (Q4FY21). The division’s revenues declined by 9.3% year-on-year (y-o-y) to around ₹800 crore. Lower demand from the HoReCa and out-of-home segments meant that consumption of milk, chicken and eggs was subdued.

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This has impacted demand for cattle, broiler and layer feed, and resulted in volumes being flat in Q4FY21. True, the low base helped, considering animal feed volume in Q4FY20 had declined by 11.3%. Last year, poultry feed declined in February-March 2020 and there was a slowdown in sales of the other feed segments from mid-March 2020. For FY21, animal feed volume fell by 12.6% y-o-y.

The performance of the dairy segment too was lacklustre in Q4FY21, with revenues declining by 0.3% y-o-y. The company maintains that while out-of-home consumption and institutional demand picked up sequentially, it was still lower than pre-covid levels. Vegetable oil and crop protection segment revenues grew 7.9% and 6.2%, respectively.

Overall, Godrej Agrovet’s consolidated revenues, excluding other operating income, declined by 2.4% y-o-y to ₹1,455 crore. Earnings before interest, tax, depreciation and amortization (Ebitda) margin expanded to 7.7% from 7.4% in the December quarter.

The Godrej Agrovet stock is 9% below its pre-covid highs seen in January 2020. “Apart from a favourable base of FY21, we believe Godrej Agrovet can benefit due to a forecast of normal monsoon in FY22, essential goods such as animal feed, milk, palm oil continue to do well, possibility of recovery in HoReCa sector in FY22, and benefits of cost-saving initiatives," ICICI Securities Ltd’s analysts said.

Further, it might help investor sentiment if all segments deliver at the same time. As Saminathan said, “Given that the company is present in many segments, over FY19-FY21, the challenge has been that all segments haven’t been able to perform well simultaneously. In short, when one or two segments perform well, others don’t fire enough." Of course, the new covid wave needs to be monitored as well.

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