In hospitals, Brand is associated with Clinical Outcomes and the complexity of procedures. These are done when you have the best Doctors and the latest Equipment. if your and loved one’s life depends upon the operation you will do the research. The way new hospitals try to cover this by building 5 star buildings but outcomes are what matters. More complex surgeries you do more image builds for hospitals and famous people get operated and legacy is built.

Insurance companies and TPA would like to squeeze the margins of these hospitals but people can decide not take insurance from companies that don’t cover good hospitals. so the power of good hospital chain is immense. Think Breach Candy in Mumbai or Mayo Clinic in the US.

All the great Pharma company’s products even if it Novo Nordisk Ozempic will be recommended and can be sold by Hospitals.

No one is shopping for a cheap hospital esp with insurance. Life is precious so pricing power is unlimited.

What worked

• Animal Feed: 3.90KT this qtr, 2% revenue up.
• Processed Food: Revenue 21% up yoy. Mngmnt claims margin improvement is sustainable (Here).
• Domestic Crop Protection: Q3 Rev 172Cr, margin improvement
• Dairy, Bangladesh business

What didn’t work

• Commodity nature continues to impact profitability across different verticals
• Astec’s and Oil palm biz.

References: Presentation and Press release

Disclaimer: I may or may not be invested in Godrej Agrovet or its subsidiaries. I am not SEBI registered and this is not a buy or sell recommendation.

I think it’s valued same as peers like cantabil retail, TCNS clothing killer and other brands (excluding retailers like pantaloons, etc). For whatever reason, the stock didn’t do well at listing.
I’ve looked at this as an opportunity instead of worrying about why it’s not priced higher at IPO and didn’t list with good premium.

Anti thesis :

1. Margin improvement from 10% to 33%. Margins may or may not be sustainable
2. Wage hikes for lbaour could hit gross margin and so ebidta and profit margins
   These are the only major risk I could see

Other risks could be not growing in 14-15% but as the industry is growing in this rate. This growth rates are within reach

Thesis:

1. Not a asset heavy business, as the manufacturing is outsourced
2. Operating leverage will play out as Same store sales growth continues

Valuation rerating upwards is a major part of investment thesis for me (in addition to 14-16% growth and operating leverage)

Disc : No reco

Portfolio Update (as of 4th Feb 2024)

Changes:

1. Added Mufti (Credo Brands): Trading at 20x P/E and seemed like a good opportunity in Fashion and apparel space. Industry growth is in double digits and the management expects to double the sales in 4-5 years. There is chance for operating leverage. Anti thesis: Need to see if the margins could sustain above 30%

2. Added NHPC: Bought via OFS as the allotment was below then CMP. Stock price has good momentum and so holding half the quantity of the allocation and sold the other half. No strong fundamental view expect that the power sector sees tailwinds in near future . Holding as there’s good momentum

3. Sold ANGELONE after the results (~3400 rs) as I see the margin pressure could continue in near future. May turn out to be a bad decision for me, but won’t regret

4. Added small qty of Kaveri Seed Co. Ltd (KSCL) to participate in buyback as I see opportunity to make 6-8% in 2-3 months for small shareholders (investment < 2 lakhs)
5. Added small qty of DCMSRIND as I see value unlocking coming out of demerger… Expected timeline of 2 years (may take more time depending on NCLT hearings and postponements)

Please feel free to share your views or ask questions on my PF or any of the cos mentioned

Thank you
Praveen

Disc: No reco to buy or sell.