Q1FY24 Review: Godrej Agrovet: Several segments showcase recovery

9 Aug 2023 , 11:43 AM

Godrej Agrovet delivered stark improvement in Q1 performance (in line with expectations), as headwinds across various businesses have begun to ease. While Astec continues to face challenges, margins of most other businesses (barring Vegetable Oils) have started showing improvement. However, the sharp cut in Astec estimates, coupled with increase in finance costs and depreciation, lead us to cutting FY24-26 EPS estimates by ~5-17%. Analysts of IIFL Capital Services SOTP-based TP, rolled forward to Sep’24 comes down to Rs540.

Headwinds easing: 

Over the past few months, margins of segments like Animal Feed, Standalone Crop Protection, Dairy and Poultry have been under pressure, but showed signs of recovery in Q1. While the recovery in Animal Feed and Dairy was driven by softening raw material prices, Poultry witnessed an improvement in realisation; B2C Crop Protection business demonstrated healthy volume growth. Analysts of IIFL Capital Services believe that these businesses will continue to demonstrate healthy growth through the rest of the year; Vegetable Oil business is expected to recover its lost margins over this period. 

Limited visibility of recovery in Astec: 

While CDMO business is expected to display robust growth in FY24, enterprise product sales remain under pressure. The company is in process of expanding its herbicide plant and is also planning on setting up 2 new plants (one brownfield expansion at Mahad and another dedicated CDMO plant). While Analysts of IIFL Capital Services cut their FY24 estimate by ~66%, the cut in FY25-26 EPS is limited to ~11%. Their TP, rolled forward to Sep’24 comes down to Rs1,075. They maintain REDUCE on Astec. 

Optimistic on margin improvement: 

While Animal Feed, Dairy and the B2C Crop Protection businesses are expected to grow of an easy base, long-term outlook for Vegetable Oil business (given aggressive volume growth) and Astec (as focus shifts towards CDMO) is also promising. However, at 19x 25 P/E, valuations are not too expensive. Faster-than-expected recovery in Astec is an upside risk to estimates.