Feed, farm, flourish: Multi-pronged momentum ahead
Godrej Agrovet (GOAGRO) has exhibited a pronounced and sustained recovery across its metrics over the last 12–18 months, as cost and margin gains prevailed over soft volume growth. We envisage growth gathering a stronger pace over the next 2–3 years, buoyed by: 1) steady recovery in Astec/CDMO performance, where weakness has likely bottomed out; 2) strong rainfall and reservoir levels bolstering the planting season for FY26E; 3) continued growth in the dairy segment; and 4) structural demand growth for agrochemicals (agro-chem) in India, given usage/per hectare in the country remains less than a tenth of that in developed countries. The stock has dipped 11% in last 12 months, we see material upside ahead. We initiate coverage on GOAGRO with a BUY rating and target price of INR 980.
FY25 performance driven by margin improvements
GOAGRO, in FY25, witnessed less than stellar volume/revenue growth across segments, bogged down by a weak demand environment and tepid volumes for dairy/animal feed/vegetable oil segments. However, strong realisation growth and cost optimisation enriched EBITDA/PAT margins by 140bps/ 80bps. GOAGRO’s Q1FY26 numbers too point to a welcome return of revenue growth in crop protection (Astec + domestic agri) and vegetable oil. Other segments should follow suit and catch up through the course of FY26.
Astec to gradually turn a corner over FY26–28E
Over the last two years, Astec has been a drag on GOAGRO’s earnings amid global de-stocking post Covid-19; thus, denting the prospects of its enterprise and CDMO segments (46:54 FY25 revenue split). Even so, management notes stronger traction on both fronts. With reinvigorated demand for agri inputs globally and fresh interest from innovators for GOAGRO’s CDMO capabilities, a turnaround is likely on the cards – EBIT should break even by FY28E.
Animal feed and vegetable oil segments to gain steam
Stronger FFB availability, aggressive focus on regional capacity and logistical expansion complemented by a recovery in demand prospects in the domestic market should help deliver strong growth in the animal feed and vegetable oil segments. We model ~10%/~7% revenue growth (FY26-28E) CAGR for the animal feed/ vegetable oil segments in our assumptions, with GOAGRO’s new Palm Kernel Oil (PKO) facility (100 t/d) also supporting growth over the period.
Domestic crop protection – stronger reservoir levels to buoy planting
We expect strong momentum over the next 12–18 months in this segment, due to the following: 1) Launch of Nissan’s in-licensed product Gracia (insecticide) and Ashitaka (new herbicide) to help offset the gradual reduction of the Hitweed range, which saw the patent expire in CY23 and will likely see slower growth over the next 3–4 years. 2) Strong rainfall and healthy reservoir levels. 3) pipeline of 5–6 additional products; 4) Commissioning of a new plant at Dahej to augment capacity of both Hitweed and Gracia range and also help produce some new launches 5) Continued improvement in per capital usage of agri inputs. We expect a healthy 13% revenue CAGR over FY26 28E.
Branded products to see aggressive focus, boost foods/dairy segment
GOAGRO has been making concerted efforts to boost the share of branded products in both its dairy business (value added products [VAP] constitute ~37% of its revenue, as of FY25) and its food segment (branded share >65% in FY25 vs. ~61% in FY24). The company has more aggressive targets to grow the share of VAP in dairy and further reduce the share of live bird in the food segment – this would entail more investment in brand building and also in the company’s cold chain. We estimate, over FY26-28E, 8.5% CAGR in dairy overall with stronger 18.7% growth in VAP; for the food business, we assume a 9% CAGR, in contrast to the 8% CAGR seen over FY21–25.
GST benefits to be additional driver of fortunes
The recent decision by India’s government to reduce GST rates for a whole swath of commodities shall have a spillover benefit on agro-chem companies as well. The reduction of GST for bio-pesticides, micro nutrients, fertiliser precursors and farm machinery and irrigation, from 12–18% to now 5%, helps improve affordability, encourages mechanisation of farming and builds domestic agri input manufacturing. As per some reports (link), farmers can see cost savings of 7–13% for select agro chemicals, saving INR 500-1,000 per hectare. This could have material impact on demand over the next few years.
Valuations underplay strong momentum over FY26-28E, material upside ahead
The stronger performance over FY24–25 (16%/19% PAT growth seen in FY24/FY25) has not really reflected in GOAGRO’s stock price, with a ~11% dip in the stock price seen in the last 12 months. At current levels, the stock trades at the lower end of the five-year PER and EV/EBITDA bands.
Therefore, we see the robust 26% EPS growth over FY26–28E, coupled with the 600/700bps boost in RoE/ROCE (FY28E vs FY26E) not fully reflecting in valuations – Applying the average 1 year forward PEG range over FY22-25 (1.3-1.6x) to FY27E/FY28E EPS delivers TP of INR 843/1820 per share – implying 23-164% upside from CMP. Our SoTP-based valuation, basis EV/EBITDA multiples of 12–16x based on FY28E for its different business segments and factoring in ~30% of HoldCo discount for Astec on current market price, delivers a target price of INR 980, ~42% upside from CMP. We initiate coverage on GOAGRO with a BUY rating.
Key risks
• Key upside risks: Good monsoon; decline in competitive pressures; decrease in raw material prices; and higher number of new products.
• Key downside risks: Weaker-than-expected monsoon; steep increase in competitive pressures; increase in raw material prices; lower-than-expected offtake of new products; and an outbreak of disease could result in governmental restrictions on import/export/domestic sale of its fresh chicken or other products.
