Godrej Agrovet targets recovery through crop diversification, animal nutrition and palm oil expansion

Investment View and Recovery Drivers

Motilal Oswal Financial Services (MOFSL) reiterates its Buy rating on Godrej Agrovet and values the company at Rs 675 per share on a sum-of-the-parts basis. While near-term operating performance remains weak, the broker expects recovery to be supported by portfolio realignment and expansion across the company’s businesses.

Key earnings drivers include diversification in crop protection, expansion of animal nutrition, investment across the palm oil value chain, a greater mix of value-added products at Godrej Foods and the ramp-up of Astec LifeSciences.

1QFY27 Consolidated Performance

Godrej Agrovet reported consolidated revenue of Rs 28.5 billion in 1QFY27, up 9 per cent year on year and in line with MOFSL’s estimate. However, profitability was below expectations as gross margin contracted 275 basis points year on year to 24.9 per cent. EBITDA margin declined 190 basis points to 8.4 per cent, compared with MOFSL’s estimate of 10.1 per cent.

Consolidated EBIT declined around 13 per cent, primarily because Crop Protection EBIT fell 35 per cent amid delayed monsoon progress and slower kharif sowing.

Animal Feed Provides a Key Positive

Animal Feed revenue increased 12.6 per cent year on year to Rs 13 billion in 1QFY27. Volumes grew around 7 per cent and realisations rose 5 per cent. EBIT margin expanded 85 basis points to 6.4 per cent, supported by commodity sourcing, operating leverage and cost discipline.

Management indicated that cattle-feed volumes grew around 15 per cent and fish-business volumes around 20 per cent. Cattle represented around 55-56 per cent of the mix, while fish accounted for around 7 per cent. Management maintained its Animal Feed EBITDA-per-tonne guidance of Rs 2,100-2,250 and said it was seeking synergies between its dairy and animal-feed businesses.

Crop Protection Recovery and Astec Ramp-Up

Crop Protection revenue declined 13 per cent year on year to around Rs 3.4 billion. Standalone Crop Protection revenue fell 17.4 per cent, while Astec sales rose 5 per cent. Astec’s Enterprise revenue grew 41 per cent, partly offset by a 17 per cent decline in CDMO revenue.

Astec reached EBITDA breakeven in 1QFY27, compared with a loss of Rs 110 million a year earlier. Management expects to recover lost crop-protection business and targets an FY27 EBIT margin of around 26-27 per cent.

Ashitaka and Takai contributed around 18-20 per cent of 1QFY27 crop-protection sales. Ashitaka volumes tripled year on year to 30,000 litres, Takai recorded sales of 13,000 litres and the newly launched Ghassnash soyabean herbicide sold 26,000 litres. Management expects the outlook to improve by end-September 2026, although erratic rainfall remains a concern and new products have a lower margin profile.

Palm Oil Expansion Supports Medium-Term Growth

Palm Oil revenue rose 24 per cent year on year to Rs 6.1 billion, led by increases of around 18 per cent in crude palm oil realisations and 19.5 per cent in palm kernel oil realisations. EBIT grew around 14.7 per cent to Rs 996 million, although EBIT margin declined 131 basis points to 16.1 per cent because of formula-based pricing. Management expects this margin pressure to ease.

The company guides for high-single-digit to early-double-digit growth over the next four to five years. Growth is expected to be driven by 17,000 hectares of plantation expansion in FY27, maturing plantations, geographic expansion and improved efficiency.

Seed-garden and refinery investments over the next 14-18 months could add around 200 basis points to margins at scale. These investments are expected to generate an internal rate of return of around 16-18 per cent.

Dairy and Processed Foods Face Cost Pressures

Dairy revenue grew 11.5 per cent year on year to around Rs 4.6 billion, supported by around 8 per cent volume growth and an increase in the value-added-product mix to 49 per cent from 42 per cent a year earlier. Despite this growth, Dairy reported an EBIT loss of Rs 19 million because of elevated milk procurement costs, limited milk availability and input-cost inflation.

Poultry and Processed Foods revenue was broadly flat at Rs 1.8 billion. EBIT declined to Rs 9 million from Rs 45 million, reflecting higher input costs. Management is shifting the business towards branded consumer products: Yummiez grew around 22 per cent, and the company targets a 65-70 per cent branded-consumer mix over time. Live birds are expected to transition towards backend supply.

Earnings Outlook and Estimate Changes

MOFSL forecasts FY26-FY28 revenue, EBITDA and adjusted PAT compound annual growth of 11 per cent, 16 per cent and 18 per cent, respectively.

Sum-of-the-Parts Valuation

MOFSL assigns a sum-of-the-parts value of Rs 675 per share to Godrej Agrovet.

Key Risks to the Outlook

• Adverse weather, erratic rainfall and delayed sowing could affect crop-protection demand and recovery.
• Gross-margin pressure and commodity-cost inflation could weigh on profitability.
• Formula-based palm-oil pricing may continue to pressure margins.
• Elevated dairy procurement costs and limited milk availability could delay improvement in Dairy profitability.
• A delayed recovery in Astec CDMO orders could weaken the earnings outlook.