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ICICI Securities
Godrej Agrovet (Hold)
CMP: ₹464.7
Target: ₹501
Outbreak of Coronavirus has hurt Godrej Agrovet’s three business segments as 1) sharp correction in chicken prices has impacted profitability of Godrej Tyson; 2) offtake of poultry feed has been impacted as poultry farmers are generating lower profits/ losses; and 3) lower supplies of agrochemicals is expected to impact Godrej Agrovet’s agrochemical segment in Q1FY21.
We also expect dairy business to remain in investment mode in FY21 as the company wants to expand the direct procurement and establish portfolio of value-added products. While we remain confident of value creation (RoE > Cost of Equity) by Godrej Agrovet, we believe stock price upside is capped at current valuations of 31.6x FY21E. We maintain our ‘hold’ rating with DCF-based revised target price of ₹501 (29xFY22E; Earlier target price ₹533).
Risks: a) Lower-than-expected off-take of new products: Any failure of new products may impact our estimates; b) Sharp increase in input prices and competition: Any major increase in commodity prices and/or competitive pressures will impact our earnings estimates.
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