Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Godrej Agrovet Ltd (NSE:GODREJAGRO, Financial) reported a 36% increase in profit before tax, excluding nonrecurring items, reaching INR169 crores compared to INR124 crores in Q1 FY '24.
- The Animal Feed segment saw a significant margin improvement from 4.2% in Q1 FY '24 to 6.8% in Q1 FY '25, driven by favorable commodity positions.
- The Crop Protection segment experienced strong growth, with margins improving from 32% in Q1 FY '24 to 45% in Q1 FY '25, due to higher realization in herbicide and pesticides categories.
- The Dairy segment demonstrated robust margin expansion, with EBITDA margins improving by 490 basis points, driven by operational efficiency gains and an improved milk spread.
- The company is seeing positive developments in its CDMO business, with expectations of 50% to 60% year-on-year growth over the next 2 to 3 years.
Negative Points
- Consolidated revenue from operations declined to INR2,351 crores in Q1 FY '25 from INR2,510 crores in Q1 FY '24.
- The Vegetable Oil segment faced challenges due to lower Fresh Fruit Bunch arrivals and lower Oil Extraction Ratio, impacting revenues and margins.
- Astec Lifesciences experienced pricing pressures and demand headwinds in the Enterprise Products business, leading to inventory write-downs and margin compression.
- The Poultry segment recorded a decline in revenues due to lower volumes in the live bird business as the company focused on branded business.
- The joint venture in Bangladesh, ACI Godrej, saw a 13% revenue decline year-on-year in Q1 FY '25, due to volume contraction and pricing pressures amid a challenging political and economic environment.
Q & A Highlights
Q: Can you share your thoughts on the enterprise sales scenario and the outlook on the CDMO business at Astec?
A: We are seeing significant headwinds in the enterprise business, particularly in the export market due to low price points and product dumping from China. However, domestic demand is firming up. We expect demand to return in the next one to two quarters, but export prices may take longer to stabilize. The CDMO business is growing at 60-70% year-on-year, and we aim to maintain this growth rate.
Q: What is the outlook for the new high-margin molecules launched for the enterprise capacity at Astec?
A: We have launched a new product for the export market, and volumes have started to pick up since Q4 last year. However, other enterprise products have not generated profitability, and some sales were deferred due to supply chain issues. We expect the impact on revenue to be visible from Q2 onwards.
Q: Can you provide an update on the palm oil plantation segment, particularly regarding OERs and FFB production?
A: Excessive heat has delayed the season by a month, impacting FFB production and OERs. However, we expect the season to extend into November and December, and with recent rains, productivity should improve. We are confident of achieving last year's numbers.
Q: What are the long-term plans for the Godrej Tyson JV after increasing your stake?
A: The partnership with Tyson was fruitful, but we believe managing the business alone will allow for quicker decision-making and investments. This will enable us to capture opportunities, restructure the business if needed, and make portfolio decisions more efficiently.
Q: How are recent political developments in Bangladesh affecting your joint venture there?
A: The political situation has been challenging, but we expect normalcy to return soon. Our business is classified as essential services, and we anticipate government support to resume operations quickly. Financial impact should be minimal and short-term.
Q: What is the status of inventory liquidation at Astec, and can we expect no further gross level losses?
A: We have taken inventory write-downs of INR 18 crores and issued credit notes due to falling prices. Most high-cost inventory has been liquidated, and we do not expect further gross level losses in subsequent quarters.
Q: How is the cattle feed business performing, and what impact have milk prices had on volumes?
A: Subdued milk prices have led farmers to reduce feed quantity, impacting volumes. However, milk prices in Maharashtra are improving, and we expect an uptick in volumes. The impact has been more pronounced in Maharashtra but is starting to improve.
Q: Can you provide guidance on the sustainability of the improved margins in the Animal Feed segment?
A: We expect to maintain margins around INR 2,000 EBIT per tonne for the rest of the year. Favorable commodity positions and good rainfall should support this.
Q: What is the outlook for the domestic Crop Protection business margins?
A: We expect margins to remain robust, driven by higher realizations and a strong product portfolio. Despite some challenges due to incessant rains, we are confident in achieving similar margin profiles as last year.
Q: What is the CapEx plan for fiscal '25, and what is the rationale behind the new Animal Feed plant in Maharashtra?
A: The INR 110 crore plant in Maharashtra is sanctioned in anticipation of future demand. Overall CapEx for fiscal '25 includes a new refinery and routine investments, all managed through internal accruals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
