Prabhudas Lilladher's research report on Godrej Agrovet
Godrej Agrovet (GOAGRO) reported weak results as 1) cost pressure impacted margins, 2) Revenues stood flat (up 1% YoY) largely driven by +10%/-23%/+19%/+133% YoY growth in Animal Feed/ Palm Oil/Dairy/others segment, 3) EBITDA was down 56% YoY largely led by muted profitability across segments, 4) Animal Feed / Palm Oil/ Crop protection EBIT declined 26%/45%/84% YoY on account of high channel inventories, adverse climatic conditions, volatile commodity price movement and pricing pressure, 5) Blended gross margins contracted by 460 bps, driven by lower than expected margins in all segments resulting in EBITDA margin contraction of 450bps YoY to 3.6%. Going forward, management alluded focus on value added products within Dairy and Poultry segments plus CDMO within Astec CP business (higher margin business). However, we are of the view that these measures would take some time to meaningfully contribute to overall margin profile and hence near term margin pressures cannot be ruled out. Further GOAGRO’s portfolio remains not just cyclical, but also low margin which will continue to weigh on overall valuations of the company. Downgrade to ‘HOLD’.
Outlook
We trim our EPS estimates by 39%/29% for FY24/25E, after factoring in subdued FY23 performance along with bleak revenue/margin outlook in the near term and downgrade to ‘HOLD’ from Accumulate with revised SOTP based TP of Rs420 (Rs570 earlier).
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