Concall Summary: Godrej Agrovet Q4FY20

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Business Update

  • False rumors of coronavirus from poultry impacted the business of animal feed and Godrej Tyson from Feb onwards.
  • Have resumed operations since April following all regulations for production.
  • Volumes for poultry feed were down for two months and for cattle and fish feed for one month in the quarter ended March 2020.
  • In the crop protection business traded goods were a higher proportion of sales and hence margins were lower.
  • Have launched two new products, a cotton herbicide and a product for tea plantation which should aid growth.
  • Astec Lifesciences which is a subsidiary had one of the best quarters from a revenue and profitability perspective.
  • Godrej Tyson was impacted two-fold because of the fall in prices of live birds and also drop in feed prices. However, prices have stabilized from April onwards.
  • The JV in Bangladesh recorded robust revenue growth of 84%.

Participants

  • Axis Capital
  • Sundaram Mutual Fund
  • Motilal Oswal
  • Fidelity Investments
  • Credit Suisse
  • ICICI Sec
  • Edelweiss
  • Anand Rathi
  • Anived PMS
  • Asian Market Securities
  • Wealth Financial

QnA

Poultry industry situation in India

  • India places around 75-80 million broilers a week and produces 220 crore eggs a week
  • The broiler production was down by 50% and egg production came down to 170-180 crore eggs a week
  • Since demand is down but supply is also down now prices have started to move up
  • Cost of production is down because maize prices have fallen due to a bumper crop in Eastern India
  • The industry has suffered heavy losses as the cost was Rs 84/kilo and market prices were Rs 4-5/kilo
  • There is an increase in ready to eat foods because out of home consumption has slowed down
  • Both poultry and cattle feed business should do well in the coming quarters
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The industry has very low entry and exit barriers and hence not too many bankruptcies happen but in current times no asset has come up for sale.

In the crop protection business focus is on collections.

In Astec Lifesciences:

  • The enterprise business had an advantage because Chinese supplies were out of the market in February and thus a lot of the South East Asian market was supplied by Astec
  • In the CMO business, many Japanese and European MNC’s are now looking at Astec for China plus 1 strategy so that is benefitting

Cost control measures that the management have undertaken are:

  • Recruitment remains frozen for now
  • Travelling expenses are down drastically since there is no travelling
  • Since production is low not spending on sales promotion
  • Keeping a very tight control on advancing credit to customers

In the palm oil business out of a total capacity of 3000 tons per day operating at 1200 tons per day currently.

The crop protection plants are running at around 65-70% capacity utilization currently.

The crude palm kernel oil prices are quite low because of lack of demand and because
personal care products of FMCG companies have not opened up yet. As this opens up the
prices should see an upward bias.

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The total size of the chicken industry in India is Rs 70000-80000 crores of which only 1-2% is processed or branded chicken and rest is unorganized.

Currently have four molecules in the Agri protection business that is under registration and those will be launched in 2021, 2022, and 2023.

Open to any inorganic acquisition going forward.

On pricing in the business of Astec for some products which the company supplies the
pricing is equal to the pricing provided by the Chinese players.

In the dairy business under Creamline, the share of value-added products should exceed
share from liquid milk sales over the next year.

The capex for next year will be in the range of Rs 200-250 crores.

Out of the total size of the milk sector of 180 MT around 45-50 MT is an organized sector and out of the organized sector, 33% goes into value-added products and institutional segments.

In the aquafeed business, there is no pressure of bad debts because China has been buying shrimp from India in huge quantities and prices have skyrocketed. The fish feed prices are also high because harvesting hasn’t happened yet.

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The pricing in the Astec business should maintain because production in China is also up to 100% levels.

Out of 100 odd acres of land on company’s book 86 acres have already been monetized and the rest 14 acres is being looked at.

Read more concall summaries here.

Image Source: Godrej Agrovet Official Website

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Karan Sharma
The Concall Summary Guy | CFA | Investor
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