Neutral Godrej Agrovet; target of Rs 758: Motilal Oswal

Motilal Oswal's research report on Godrej Agrovet

Global palm oil prices have seen a sharp rally, primarily due to higher demand from the Bio-Diesel segment (primarily the US market) and increased demand from China. However, with expansion in plantations, coupled with the easing of logistic issues, the outlook for palm oil production remains strong. As a result, Jun’21 palm oil prices fell 12% MoM. Palm oil prices were flat on a YTD basis and up 55% YoY to USD1,017/mt. Prices of major vegetable oils, such as palm and soybean, have likely already peaked at multi-year highs in 2021 – primarily due to production hiccups, recovering food consumption, and an upbeat outlook for biofuel demand. The US Department of Agriculture (USDA) has announced USD700m in aid to biofuel producers as a part of a package to assist industries recovering from financial headwinds due to the coronavirus pandemic. This assistance was announced in the backdrop of biofuel groups advocating for relief after the pandemic slashed fuel demand and sank consumption of biofuels such as Ethanol. The USDA said it plans to implement the aid within the next 60 days (before end-Aug’21).

Outlook

We expect a 39% revenue CAGR over FY21–23. We value the stock on an SoTP basis to arrive at TP of INR758. Maintain Buy.

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