Analysing the price tag curve of commodities that influence Godrej Agrovet’s (GAVL) revenues, we note, the 68% enhance in rates of palm oil in previous one year is most likely to drive revenues and profitability the vegetable oil segment the ~8% y-o-y enhance in milk rates will increase revenues from cattle feed, but will influence profitability of the dairy segment shrimp rates have enhanced from $11.35/kg in Oct’20 to $11.93/kg in Feb’21 and this is most likely to increase revenues from shrimp feed and revival in rates of chicken and egg (immediately after decline due to bird flu) will enhance revenues from poultry and poultry feed.
We model most segments of GAVL to recover in FY22E provided favourable base of FY21. We stay confident of worth creation (RoE > expense of equity) and retain ‘add’ with a DCF-based target price tag of Rs 555 (26x FY23E earlier TP: Rs 575. Revival in shrimp rates to drive revenues from shrimp feed: Shrimp rates have revived from a low of $11.35/kg in Oct’20 to $11.93/kg in Feb’21. This will enhance profitability for all players in the shrimp worth chain such as farmers, feed producers and processing corporations. We anticipate GAVL’s revenues and profitability from shrimp feed (~8% of sales) to enhance provided greater shrimp rates.
Increase in milk rates to enable cattle feed, but will hurt dairy segment: Higher milk procurement rates will most likely increase income development in the cattle feed segment (20% of revenues), but will influence profitability of the dairy segment (~20% of sales).
Higher palm oil rates to advantage vegetable oil segment: The palm oil segment accounts for ~10% of sales and its revenues and profitability are straight linked to rates of palm oil, which have enhanced by 68% y-o-y . The enhance in rates will drive profitability upward.
Revival in chicken and egg rates to advantage poultry feed and poultry business enterprise: Prices of chicken and egg had declined post outbreak of bird flu in Q4FY21. While that is most likely to influence revenues for Q4FY21, we think the subsequent revival in rates is most likely to increase revenues from poultry feed (~25% of sales). It will also increase poultry segment revenues.
Maintain ‘add’. We anticipate GAVL to report income and PAT CAGRs of 4.9% and 12% respectively, more than FY20-FY23E. Return ratios (typical RoE 18% more than FY21E- FY23E) are also anticipated to be greater than the expense of capital. We retain ‘add’ on the stock with a DCF-based target price tag of `555 (26x FY23E EPS). Key dangers: failure of new merchandise and prolonged slowdown in out-of-property consumption.