Q3FY24 Review: Godrej Agrovet: Astec and Poultry (GTFL) drag

6 Feb 2024 , 02:13 PM

Godrej Agrovet delivered strong earnings as domestic crop protection and Diary business showed healthy improvement. Poultry mar gin were impacted by sharp drop in live bird prices while Astec continued to face extremely challenging external market condition resulting into sharp cut in estimates. However, the cut in Astec estimates got buffered by the improvements seen in standalone crop protection and diary business. Analysts of IIFL Capital Services cut FY25-26 EPS estimates by ~1% each. Their SOTP-based TP, rolled forward to Mar’25 goes up to Rs565. 

Delivers strong earnings growth: 

Godrej Agrovet delivered strong earnings growth led by domestic crop protection and dairy businesses while Astec and Poultry underperformed. While crop protection benefited by in-licensed portfolio, improvement in diary was on the back of operational efficiencies, lower raw material costs and increase in value added products In Feed business, volume growth in cattle-feed was offset by slightly lower poultry feed and flat aqua feed volumes. 

Sharp cuts in Astec:

Astec reported yet another disastrous performance in 3Q as revenue declined 57% YoY and Ebitda turned negative. With the significant lower sales, the company was unable to cover its fixed costs. While the CDMO business is expected to recover and display healthy growth, enterprise product sales will remain under pressure. Analysts of IIFL Capital Services cut their FY25-26 estimate sharply by ~53-27%. their TP, rolled forward to Mar’25 comes down to Rs815. Analysts of IIFL Capital Services maintain REDUCE on Astec. 

Valuations not expensive: 

While Animal Feed and Dairy are expected to grow of an easy base, the B2C Crop Protection businesses is expected to hold on to the gains and grow. Further, long-term outlook for Vegetable Oil business (given aggressive volume growth) is also promising. However, Astec is likely to be a drag in the near term, although the medium term still holds good as the company shifts focus to CDMO. Valuations, at 17x 26 P/E, are not too expensive. A faster than expected recovery in Astec are an upside risk to estimates.