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ICICI Securities
Godrej Agrovet (Add)
Target: ₹555
CMP: ₹513.25
Analysing the price curve of commodities that influences Godrej Agrovet’s (GAVL) revenues, we note: 1) the 68 per cent increase in prices of palm oil in past one year is likely to drive revenues and profitability the vegetable oil segment 2) the nearly 8 per cent y-o-y increase in milk prices will boost revenues from cattle feed, but will impact profitability of the dairy segment 3) shrimp prices have increased from $11.35/kg in October 2020 to $11.93/kg in February 2021 and this is likely to boost revenues from shrimp feed, and 4) revival in prices of chicken and egg (after decline due to bird flu) will increase revenues from poultry and poultry feed.
We expect Godrej Agrovet (GAVL) to report revenue and PAT CAGRs of 4.9 per cent and 12 per cent over FY20-FY23, respectively. We expect RoE to improve to 18.5 per cent in FY23 from 16.5 per cent in FY20.
We model most segments of GAVL to recover in FY22 given favourable base of FY21. We remain confident of value creation (RoE > cost of equity) and maintain Add with a DCF-based target price of ₹555 (26x FY23; earlier TP: ₹575).
Key risks: Failure of new products and prolonged slowdown in out-of-home consumption.
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