GODREJ AGROVET LIMITED
Overview
Group Profile
The Godrej Group is one of the largest and oldest diversified business groups in India, with a legacy of over 120 years. Godrej group encompasses a diverse business portfolio with interests spanning a wide range of sectors, including consumer goods, real estate, appliances, agribusiness, furniture, security solutions, industrial engineering, etc.
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The Company
Godrej Agrovet Limited (GAL), established in 1991, is a 64.88% subsidiary of Godrej Industries Ltd, along with the group, who collectively hold a 74.05% stake in the company. GAL is a diversified company operating across five key business verticals such as Animal feed, Crop protection, Oil palm, Dairy & Poultry, and Processed foods.
Astec LifeSciences Ltd (Astec) is a subsidiary of GAL, by holding a 64.76% stake. Astec is listed on the stock exchanges, with a current market capitalization of approximately Rs 1750 crore. Astec is engaged in the manufacturing and sale of crop protection chemicals, active ingredients, and formulations.
GAL also operates a joint venture, ACI Godrej Agrovet Pvt Ltd, in Bangladesh dedicated to the manufacturing of animal feeds.
Business Segments
GAL is a prominent player in the Animal feeds industry in India, specifically in the production of feeds for poultry, cattle and aquaculture. The company offers nutritional solutions for livestock and various other animals. It offers a diverse range of agri-input products, covering crop protection chemicals and plant nutrients, aimed at supporting agriculture and optimizing crop yields. The company is also engaged in the cultivation and processing of oil palm – utilized in the production of edible oil and various other products. In the palm oil segment, GAL maintains palm tree plantations across nine states for the production of crude palm oil and palm kernel. The company is also engaged in the dairy and poultry sectors, offering products and services to farmers within these segments. Its dairy segment operates through its subsidiary, Creamline Dairy Products Ltd, while in the processed poultry and other food products segments, it operates through subsidiary named ‘Godrej Tyson Foods Ltd’.
Strengths
Godrej Agrovet holds the position of being the largest Animal feed producer in India, having 32 strategically located state-of-the-art manufacturing facilities, equipped with quality assurance labs, spread across the country. This extensive network is complemented by a vast supply and distribution network, reinforced by dedicated infrastructure and R&D capabilities. It is assumed that the Company is selling one bag of animal feed every second. Leveraging its extensive manufacturing and marketing network, the company is strategically positioned to spot crucial market trends. This allows it to introduce a diverse range of innovative and value-added products to meet the ever-evolving needs of customers in the market.
As part of a largest business group, Godrej Agrovet enjoys operational efficiencies, financial and management support as well as economies of scale through extensive backing from the parent company, whenever necessary. GAL used to predominantly concentrate on the Animal Feeds business, with 80% of its revenue derived from this segment, a decade ago. The company has now strategically diversified into new segments over the years, including palm oil, crop protection, dairy, and poultry with the aims to reduce its dependence on the animal feed business and enhance its overall profitability. This strategic diversification reduces the company’s overall business risk profile by supporting its dependence on a single business segment. In the last financial year, less than 48% of its revenue contributed from the feeds industry. However, the Animal Feed business of the company managed to outperform the industry average over the years, with sustained volume growth, resulting in further increase in the market share.
Among the crop protection business, the company offers products in the insecticides, fungicides, and plant growth regulator segments, encompass a pan-India network of over 6,600 distributors. The company’s proprietary herbicide and licensed insecticide products have established a robust niche in the highly competitive Indian Agrochemical sector. Going forward, in addition to the current product portfolio, the company plans to prioritize new product development with the support of in-house R&D initiatives and collaborations with innovators or large global players through in-licensing arrangements. In the Dairy Business segment, the Company is dedicated to new product development and the introduction of several additions to its product line. It has recently, expanded its Value-Added Product portfolio, introducing new variants of Recharge Plus drinks and flavored milk. In the last fiscal year, the company launched a cost-effective variant in the flavored milk category known as “Milky Shots” with Chocolate and Coffee flavors, priced at Rs 10.
In the Poultry and Processed Food Business, Godrej Tyson Foods Limited reached a significant milestone, achieving sales of Rs. 1,000 Crore for the first time in FY 2022-23. Within the branded categories, Company’s ‘Real Good Chicken’ (RGC) demonstrated impressive volume growth, exceeding 50% for the second consecutive year, driven by robust sales in the Quick Service Restaurant (QSR) and Institutional segments in the last financial year. Additionally, RGC’s retail business experienced an increase of over 20%, contributing to the rapid growth of the overall category.
Expansion and Future Plans
In the future, the company aims to emphasize the expansion of branded value-added products within Creamline Dairy and Godrej Tyson, alongside the Contract Manufacturing (CDMO) activities of Astec LifeSciences, as part of its strategy to diversify and enhance the overall revenue mix.
Since April, with the establishment of GAL’s new R&D center, it has rapidly expanded its product pipeline. The Company is actively diversifying its existing portfolio, including Enterprise products, and has ambitious plans to introduce new products into the next financial year. The company’s herbicide plant is on track for commissioning, and it expects to commission it in the next one to two months.
Godrej Agrovet stands as the largest producer of Crude Palm Oil in India, with an expansive potential plantation area exceeding 2,15,000 hectares. With a strategic focus on forward integration and enhanced margin expansion within the Palm oil value chain, GAL commenced the construction of a refinery with a capacity of 400 metric tons per day and a Solvent Extraction plant with a capacity of 200 metric tons per day in the last year. Both plants are poised to contribute to the company’s growth and value addition initiatives, shortly.
GAL has significantly intensified its efforts following the implementation of the National Mission on Edible Oils (NMEO) scheme, particularly in terms of expanding its plantation. The Company’s annual plantation has seen a substantial rise, increasing from 3000-4000 hectares to an impressive 11,000-12,000 hectares. Looking ahead, it is poised to elevate this commitment further, with a projected increase to 15,000-16,000 hectares per annum starting from the next FY. The company is optimistic about its prospects in this industry, given that almost 95% of India’s palm oil demand is currently met through imports.
In the upcoming Financial Year, Astec LifeSciences will maintain its emphasis on scaling up R&D projects, diversifying into other molecules and chemistries, and broadening its customer base for the contract manufacturing business. Besides its R&D facility, Astec has undertaken the expansion of its herbicides plant at the existing Mahad facility during the year. With a dedicated focus on R&D, business diversification, and forward-looking investments, Astec’s management team remains firmly committed to achieving long-term strategic growth.
Financials and Balance sheet
In Q3 FY24, Godrej Agrovet reported profit after tax of Rs 84 crore, a decrease from the Rs 115 crore recorded in the corresponding quarter of the previous fiscal. Despite the dip in profitability, revenue for the period remained relatively stable, standing at Rs 2345 crore compared to Rs 2325 crore in the same quarter, year ago. The Company reported consolidated revenues from operations of Rs. 7,426 crore in 9M FY24 as compared to Rs. 7,278 crore in 9M FY23, a growth of 2% year-on-year. 9M FY24 Profit after tax, increased to Rs. 299 crore from Rs. 224 crore in 9M FY23, a growth of 33.4% year-on-year.
Godrej Agrovet has a strong financial risk profile as its debt on books stood at Rs 1564 crore as against a reserve of Rs 2173 crore as of September,2023. Though, the debt levels are expected to remain high in order to fund the capital expenditure plan and working capital requirements, the overall financial risk profile expected to remain comfortable levels.
Cause of Concern
Godrej Agrovet is engaged in the Food and Agri businesses, which inherently exhibit volatility due to various reasons. As an agriculture-based company, GAL’s operations are sensitive to unfavorable local and global weather patterns, which can have adverse effects on the business. Most of the Agri products are price sensitive on weather conditions and perishable in nature. The occurrence of unfavorable weather patterns may have adverse effects on business, results of operations and financial condition.
Even though the company has a diversified portfolio of businesses, many of these businesses face intense competition from unorganized sector, particularly in the Animal feeds sector. So, the company’s ability to pass on increases in prices is often delayed or limited, which may cause margin pressure. Additionally, in the palm oil business, revenue sharing with farmers follows a formula linked to international crude palm oil prices. Consequently, both revenue and operating margin are susceptible to fluctuations in commodity prices.
Sector: Fast Moving Consumer Goods
Market Price: Rs. 525.10 as on today
FV: Rs 10/-
Stock Name: Godrej Agrovet Ltd
BSE Code: 540743, NSE Code: GODREJAGRO
Market Cap.: Rs 9933 Cr
Book Value: Rs. 123
Segment: Animal Feed
Incorporation: 1897
Headquarters: Mumbai, India.
