Q4FY23 Review: Godrej Agrovet: Margins continue to disappoint

11 May 2023 , 11:50 AM

Godrej Agrovet delivered another disappointing quarter, as margins of Animal Feed and Astec Lifesciences continue to face headwinds. While margins will likely recover from Q1FY24, there is little visibility of them returning to FY22 levels. In lieu of this, analysts of IIFL Capital Services cut FY24/25 estimates by ~5-10%, since challenges are likely to remain across most segments in the near term.

Challenges in passing on high input costs: 

Margins of Animal Feed, Dairy and Poultry have been under pressure over the past few months, given the company’s inability to pass on rising input costs. Management believes that with input inflation cooling down, margins of these segments are likely to recover slowly over FY24. Animal Feed margins will likely stay below FY22 levels, as broiler and shrimp feed will continue to face headwinds due to pricing pressure. Dairy is likely to break even in FY24. Poultry margins are expected to improve, on higher salience of value-added products. 

Limited visibility of recovery in Astec: 

While the CDMO business is expected to display robust growth in FY24, enterprise product sales are expected to remain subdued due to low demand of Astec’s key products. Prices of Propiconazole and Tebuconazole are down ~42-69% from peak levels. Analysts of IIFL Capital Services cut Astec’s FY24-25 EPS estimate by ~20-52%, due to ongoing headwinds. Analysts of IIFL Capital Services TP, rolled forward to Jun’24 comes down to Rs1,165. They maintain REDUCE on Astec.

Optimistic on margin improvement: 

Analysts of IIFL Capital Services remain optimistic for margins to recover across Animal Feed and the B2C Crop Protection businesses from Q1. Long-term outlook is promising for the Vegetable Oil business (given aggressive volume growth) and Astec (as focus shifts towards CDMO). At 15x 25 P/E, valuations are reasonable. They think demonstration of margin recovery can spark a re-rating.

Analysts of IIFL Capital Services SOTP-based TP, rolled forward to Jun’25 comes down to Rs555.