Godrej Agrovet on a turnaround journey; solid earnings, growth prospects spark bullishness

Godrej Agrovet shares surged close to 40 percent in the past month.

Diversified agri-business company Godrej Agrovet has been turning heads on the Street as its turnaround, reflected in its solid earnings and strong growth prospects, drives optimism for the stock. Helped by this, the stock has soared close to 40 percent in the past month.

Just a day before, on July 11, promoters of the company—Navroze Jamshyd Godrej and Jamshyd Naoroji Godrej—raised their stake in Godrej Agrovet, acquiring an additional 0.57 percent equity each, worth a cumulative Rs 82.97 crore.

The stake increase by the promoters ensures further confidence among investors about the company's strong growth prospects. Godrej Agrovet is the country's largest manufacturer of palm oil, and with the prices of the commodity witnessing a significant rise this year, it remains well-placed to make substantial gains. Additionally, the company has also shifted focus to value-added and specialty segments while taking cost-cutting measures that have aided its growth outlook, as per Kotak Institutional Equities.

Not just that, KIE also believes that the expected transformation of Godrej Agrovet is likely under-appreciated by the Street, resulting in its valuations still being attractive.

Solid earnings turnaround

The company reported a threefold increase in net profit for Q4 of FY24 to Rs 65.5 crore, compared to Rs 23.5 crore in the same quarter of the preceding fiscal. Revenue from operations grew by 1.9 percent to Rs 2,134.3 crore, up from Rs 2,095 crore in Q4 FY23. The growth was driven by higher sales and cost reduction efforts.

Operations also improved as the EBITDA margin swelled to 6.9 percent, up from 3.6 percent in the year-ago quarter.

Going ahead, the management remains optimistic about delivering better results. Nadir Godrej, Chairman of Godrej Agrovet, in an exclusive interaction with ET Now, stated that the outlook for the company's cattle feed and aquafeed segments looks good. He also expects the company's margins to rebound after a muted performance in recent quarters. Additionally, he stated that expectations of a good monsoon will be a major factor behind the company's growth.

Motilal Oswal Financial Services also highlighted the turnaround in the company's dairy and poultry/processed food businesses, adding that it is poised for continued robust performance in FY25 as well. "This growth trajectory is led by enhanced focus on value-added products/branded products," the firm added.

Robust growth prospects

Godrej Agrovet has already turned around its standalone crop protection business, which saw 37 percent year-on-year (YoY) revenue growth in FY24. That is along with an industry-leading 31 percent EBIT margin, thanks to an 80 percent revenue contribution from specialty products.

Additionally, Kotak also feels that its dairy segment's turnaround looks sustainable, with EBITDA margin at 8 percent in Q4 FY24 due to substantial cost-cutting measures and a rising share of value-added products.

To round it up, Kotak expects all segments of the company to move towards market-leading scale in the coming years.

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