Volume growth is likely to revive owing to the arrival of more FFB and corrective steps undertaken by the company to prevent the pilferage of FFB to other mills. Moreover, a new plant with improved technology would ensure higher yields going forward. We maintain our estimates and value the stock on an SOTP basis, arriving at a target price of INR443. Maintain Buy
GOAGRO reported decent results with adjusted topline/EBITDA/PAT growth of 12%/9%/43% respectively driven by Animal Feed (+30% growth) and Palm Oil (+24%) segment. CP segment dragged growth as GOAGRO is tightening screws on receivables collection in the domestic market. Dairy and Poultry segment were under pressure due to inability of the industry to hike prices commensurate to the cost increase. Overall performance was commendable as GOAGRO has started to reap benefits of the steps taken to increase profitability. We believe GOAGRO is an integrated play on Agri with strong presence in Animal Feed (51% of revenue), Crop Protection (16%) and Palm Oil (9%) business. GOAGRO’s unique blend of high growth and mature businesses with market leadership in organized animal feed and oligopolistic positioning in palm oil will enable it to scale up business further by keeping working capital under check. Strong agri commodity and dairy prices will ensure continued growth acceleration in Animal Feed, Oil Palm and Crop protection business in FY21 as well. Maintain Buy with SoTP based target price of Rs 659 (blended P/E and EV/EBITDA multiple of 27.2x & 16.4x resp).
We initiate coverage on Godrej Agrovet (GOAGRO) with a Buy rating and a target price of Rs 659 on SOTP basis (blended EV/EBITDA & P/E on TP – 16.4x & 27.2). We believe GOAGRO is an integrated play on Agri with strong presence in Animal Feed (51% of revenue), Crop Protection (16%) and Palm Oil (9%) business. GOAGRO’s unique blend of high growth and mature businesses with market leadership in organized animal feed and oligopolistic positioning in palm oil will enable it to scale up business further by keeping working capital under check. We believe strong Agri commodity and dairy prices will enable Animal Feed, Oil Palm and Crop protection business to report significant acceleration in growth in FY21. We estimate 12% revenue CAGR and EBITDA margin improvement of 160 bps between FY20-22E which will enable 29% PAT CAGR. At CMP the stock is trading at 13.9x & 22.9x FY22 blended EV/EBITDA & P/E.
We expect consolidated revenue/ EBITDA CAGR (FY18-21) of 12%/16% to INR73b/ INR7b. We expect GOAGRO to generate strong CFO of INR12b over FY19-21 and RoCE should increase to 18.3% by FY21 from 14.7% in FY18. We ascribe (i) 18x EV/EBITDA multiple to crop protection (avg. RoCE of 35.6% over FY13-18) and 16x to the oil palm business segment, given GOAGRO’s strong positioning and growth prospects (avg. RoCE of 30.1% over FY13-18), (ii) 14x EV/EBITDA to animal feed segment considering its strong RoCE profile (avg. RoCE of 51.3% over FY15-18), and (iii) 15x EV/EBITDA to dairy and the processed food business, considering its strong growth prospects. Our SOTP-based target price stands at INR610 implying 20% upside. We initiate coverage on GOAGRO with a Buy rating.