For each and every 5% raise in palm oil rates, Godrej Agrovet’s earnings can raise by c.2%.
Higher palm oil rates (up 60% y-o-y) have improved realisations as properly as profitability of Godrej Agrovet’s vegetable oil segment. Lower supplies from South-East Asia are top to greater palm oil rates in India. With gradual reopening of the economy, demand from HoReCa segment is probably to boost, which may perhaps additional raise palm oil rates. For each and every 5% raise in palm oil rates, Godrej Agrovet’s earnings can raise by c.2%.
Customs duty on palm oil imports has been reduce from 37.5% to 27.5%. However, we think there is nevertheless a huge gap involving Indian and imported palm oil rates and this differential will make sure healthful demand for palm oil made by GAVL. We stay confident of worth creation (RoE > Cost of Equity) by Godrej Agrovet and sustain our Add rating with a DCF-primarily based target price tag of Rs 560 (27x FY22e).
Sharp raise in palm oil rates: Demand for palm oil in India is nevertheless muted thinking about weaker demand from HoReCa segment. Higher demand from HoReCa is probably to push palm oil rates upwards.
Expect profitability of ‘vegetable oil’ segment to raise: Company generates c.10% revenues and c.19% Ebit from its vegetable oil segment. Revenues as properly as margins of the segment will raise with greater rates of palm oil. Improving demand and greater promoting rates, coupled with favourable base, will raise profitability of the segment.
Maintain Add: We anticipate the business to report income and PAT CAGRs of 6.9% and 12.3% respectively, more than FY20-FY22e.