GODREJAGRONSEQ1 FY23August 3, 2022

Godrej Agrovet Limited

7,539words
70turns
10analyst exchanges
5executives
Management on call
Nadir Godrej
CHAIRMAN, GODREJ AGROVET LIMITED
Balram S. Yadav
MANAGING DIRECTOR, GODREJ AGROVET LIMITED
S. Varadaraj
CHIEF FINANCIAL OFFICER,
Anurag Roy
CEO, ASTEC LIFESCIENCES
Nitin Agarwal
DAM CAPITAL
Key numbers — 40 extracted
25.7%
we achieved robust volume performance in the majority of our businesses, and as a result, reported 25.7% year-on-year growth in our total income to reach INR 2,517.5 crore. However, profitability was imp
INR 2,517.5 crore
f our businesses, and as a result, reported 25.7% year-on-year growth in our total income to reach INR 2,517.5 crore. However, profitability was impacted for some of our businesses due to external as well as interna
rs,
er, profitability was impacted for some of our businesses due to external as well as internal factors, such as high-cost inventory, input cost inflation, limited transmission, and sales deferrals, etc.
11%
ey financial and business highlights of each of our business segments. In Animal Feed, we achieved 11% year-on-year volume growth in Q1. The volume growth was achieved across key feed categories and wa
2.6x
growth, led by improvements in yield levels and all- time high oil prices. Segment results grew by 2.6x year-on-year in Q1 FY23. The average prices of crude palm oil and palm kernel oil were higher by 2
24%
x year-on-year in Q1 FY23. The average prices of crude palm oil and palm kernel oil were higher by 24% and 41%, respectively in Q1 FY23 versus Q1 FY22. Standalone Crop Protection business suffered from
41%
n-year in Q1 FY23. The average prices of crude palm oil and palm kernel oil were higher by 24% and 41%, respectively in Q1 FY23 versus Q1 FY22. Standalone Crop Protection business suffered from lower s
43.3%
of our standalone Crop Protection business in Q2. Astec Lifesciences delivered revenue growth of 43.3% in Q1. The robust top line performance was mainly driven by higher export realizations and CMO vol
20%
rt realizations and CMO volume. However, Astec's growth was restricted by deferment of sales worth 20% of the total revenues. This coupled with the compression of margin in one of our key products and
39.8%
xt quarter. Our Poultry segment registered one of the strongest quarters, with a revenue growth of 39.8%, led by volume growth in Real Good Chicken and better realizations in the Live Bird category. EBIT
INR 20.9 crore
d Chicken and better realizations in the Live Bird category. EBITDA for the quarter also jumped to INR 20.9 crore as Live Bird prices rose sharply. Our Dairy segment continued to gain market share in value-added
69%
ghee, milk drinks, etc. in its key markets. As a result, revenue from value-added products grew by 69% in Q1 over the previous year, while milk revenues grew by 24%. This
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Guidance — 20 items
Nadir Godrej
opening
“We did not anticipate that it would happen as soon as it did.”
Nadir Godrej
opening
“On a more positive note, we have already utilized most of the high-cost inventories in Q1 and we expect a quick turnaround of profitability in Q2.”
Nadir Godrej
opening
“We expect a recovery in profitability of our standalone Crop Protection business in Q2.”
Nadir Godrej
opening
“These sales have been pushed to the next quarter.”
Balram Yadav
qa
“That is what we feel will be the average prices in Q2 and Q3, which are very critical for us.”
Balram Yadav
qa
“We must also remember once the inflation starts coming down because of other commodities, and with our oilseed season around the corner, the government will be willing to listen to increase in duties in case the oil prices fall further, because they don't want to shortchange our own oilseed farmer whose crop will be coming to market in 8 to 10 weeks from now.”
Anurag Roy
qa
“And definitely, we will be benefited in 3 to 5 years once the plantation starts yielding, because we are running Mizoram mill at a much lower capacity utilization than it was envisaged.”
Anurag Roy
qa
“I have one more question on Astec, but before that I just wanted to clarify on the NMEO-OP and the Northeastern expansion plan, any rough acreage we have in mind, sir, over the next 5 years, how much we plan to add in the Northeast?”
Anurag Roy
qa
“But next year onwards, it will be able to do between 8,000 to 9,000 hectares per annum.”
Anurag Roy
qa
“The deferment margins will be realized, obviously, in Q2 and Q3, because it was a deferred sale.”
Risks & concerns — 15 flagged
Other key input commodities, such as maize and fish meal, also witnessed a decline in pricing trend.
— Nadir Godrej
This coupled with the compression of margin in one of our key products and higher cost structures on account of the herbicide plant led to decline in profits.
— Nadir Godrej
Also, the outlook for margins, given the price pressure indicated in one of the key products and also the status of the ramp-up of the new herbicide plant, Astec's press release talks about commercialization of 2 CMO products this year.
— Anurag Roy
My sense is that in case the challenge continues, of course, the prices will increase.
— Balram Yadav
But having said that, I think shrimp feed and fish feed in Andhra Pradesh, difficult to increase prices because in all areas, in all businesses, the Andhra Pradesh government is exerting their pressure, they are trying to control.
— Balram Yadav
Roy clearly pointed out, what was the main contributors of margin decline this quarter.
— Balram Yadav
But we won't see any further correction from here because of a decline in raw material prices?
— Anurag Roy
So that is also creating some pressure on a few of our products.
— Anurag Roy
And do you think, is there any other pressure to further roll back the prices because of soymeal correcting?
— Balram Yadav
So, is there a further pressure to roll back?
— Depesh Kashyap
But between different states, I think Andhra is becoming very difficult to work with.
— Balram Yadav
So, there could be some pressure on the prices of Propiconazole.
— Saurabh Kapadia
See, that's what I discussed earlier in this call, that we have been seeing some supply- demand imbalances which is also putting pressure on margin.
— Anurag Roy
by when do you expect the RM pressure in the feed margins to settle down?
— Kruti Karani
First one would be the impact of lumpy skin disease on your business, both your feed business and your dairy business, because you would have a better handle than anybody else whether this is affecting or going to affect the industry or not.
— Nitin Awasthi
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Q&A — 10 exchanges
Q
I have two or three, sir. First on the soya inventory issue. Just sort of wanted to get your perspective on the decision-making process within the Indian government, whether the industry is normally kept informed about such changes in policy as, for example, the import of GMO soybeans. And also, how do we derisk ourselves as a business against such policy changes in the future? So yes, Abhijit, definitely, this was a big setback considering we had such good relation with the government and we were instrumental in getting soya imported last year which was a great relief to the industry. I must
Anurag Roy
Lastly, on NMEO-OP, I just wanted to brief them that we have got allocations in Assam, in Tripura and in Manipur, and these allocations are contiguous with our Mizoram mill. And definitely, we will be benefited in 3 to 5 years once the plantation starts yielding, because we are running Mizoram mill at a much lower capacity utilization than it was envisaged. And the performance of the plantations is much better in Northeast. So, we get a OER, which is at least 20% more than the OER we get elsewhere. And productivity also is 15% to 20% more and we are in the process of setting up a seed garden i
Q
Yes. Sir, on dairy, how do we see the profitability for rest of the year now that the milk prices have started and, the cattle feed prices remaining high. Farmers have no choice but to increase prices. The question is, milk procurement upcycle has started. How do we see the profitability for rest of FY23 as well as FY24 for Creamline? That is one. And the second question is the Animal Feed profitability is also at the lowest level in many quarters. So, what are the initiatives to improve the profitability here?
Balram Yadav
So Creamline Dairy, I think our woes are very similar to the woes of the industry that the pricing is not able to catch up with the procurement cost increase of milk. And every week, particularly buffalo milk is breaking all records of price increases. Having said that, we continue to embark on our plan and whatever we had envisaged as a strategy. However, margins are not up to the level we wanted because of high cost of milk. But if you see, we have had almost 70% growth in value-added products, which historically had better margins than liquid milk, even though we had 20% growth in milk volu
Q
My first question was on our Crop Protection business. So last 4 to 6 quarters, you've been talking about improving channel hygiene and like we've taken a lot of steps in that direction. But, like, there has been some of the other reason for which this part of the business has been affected. So, I just wanted some medium-term outlook. And like, if the management feels that our overdependence on herbicides is causing this issue with the business? Let me tell you 3 things about this business. One of the things is that definitely, in this business, the external factors are very important. But if
Balram Yadav
Right. Got it, sir. And sir, my last question is on Astec. So as Mr. Roy clearly pointed out, what was the main contributors of margin decline this quarter. But more sequentially and medium term, as the high-cost inventory is being used in this quarter and the teething issues with probably the herbicide plant having more fixed costs would also improve. What is our outlook on margins going ahead? See, obviously, we do not make any firm statements on forward looking, but we maintain our position that our margins will grow in double digit. Obviously, you would have to realize that Astec is also i
Q
I just have one question. Can you share the volume in the vegetable oil business? And also, what was the realization for this quarter versus previous quarter?
Balram Yadav
Yes. So, I'll tell you, Q1 to Q1. Q4 over Q1. I mean, previous quarter. It's not a good comparison because Q4 is off season. Yes. Or you can tell me both. I mean, I wanted to know the realization for Q4. Q4 realization we find out. But I'll tell you, in the meantime, Q1 CPO volume, last year, we did 21,411 tons. And this year, we have done INR 22,174 million. And revenue last year, Q1 was INR 241 crore in CPO. And this year, it's INR 309 crore. Realization INR 1,13,000 a ton and CPO price this quarter was INR 1,39,000 a ton. Q4 CPO realization was INR 1,19,000 a ton. And contribution margin af
Q
Sir, just in terms of data points, could you also give us the OER for this quarter?
Balram Yadav
Thank you for this question. We have done well. So OER, Q1 last year was 17% and this year is 19%. I must tell you something. So normally, OER should not be that high in June, but there were no rains. Yes. Since there were no rains, you had higher OER? Yes. Got it. So, in terms of the Animal Feed business, now that soymeal prices have started correcting after the import being allowed, do you see the feed industry taking any price corrections? Or this is what prices will be? And do you only see margin improvements, sir? Yes. So, no price increases have happened in poultry feeds, but price incre
Q
Sir firstly, on palm oil. In the last call, I think you gave a guidance of 17% to 18% volume growth in FY'23. Will you maintain that despite the fall in FFB arrival that you saw in the first quarter?
Balram Yadav
So, I think we have seen that FFB arrival varies with several factors. And one big factor is monsoon. So. if you ask me, my sense is that we will have 17% to 18% growth in this business from CPO and PKO volumes. One driver of growth will be more FFB and second will be more OER because we believe that this year, again, we will have some improvement in OER. So that was one of my premise. And we are very happy at the delay of the season, because normally, when post monsoon, the OER goes up significantly. So, the trees are looking very good. We have done another survey. My sense is that the recove
Q
Sir, my question is on the Astec. So, the high-cost inventory was related to the raw material? Or it was for the finished good?
Anurag Roy
Yes, it was related to the raw material. So now everything has been liquidated. So, in Q2, we should not see any impact? Right. Yes. And the second one on the deferment of about 20% of the sales. So what kind of impact it had on this current quarter's margins? So maybe 100-200 basis points, what would be the impact? So almost 20% of the revenue, more or less similar kind of profit margins or the PBT as for the existing revenues and PBT which have been realized. So almost similar kind of impact on the PBT, which was deferred into Q2. Okay. And is it everything for the enterprise business? Or wa
Q
Just a couple of questions from my side. On the Animal Feed margin, like, what should be the stable margin on a rupee per KG basis for you? So last year, in Animal Feed, we made something like INR 1,700 a ton. So, I have a feeling that with 10% to 11% volume growth, we'll end up close to this number, maybe 5% less or something like that, yes.
Kruti Karani
Okay. by when do you expect the RM pressure in the feed margins to settle down? I said that we have flushed all the high-cost inventory in the feed business. So, I think there is no mark-to-market issues anymore. And I must also tell you, in case mark-to-market is there, that is all positive for us now.
Q
Just 2 questions from my side. First one would be the impact of lumpy skin disease on your business, both your feed business and your dairy business, because you would have a better handle than anybody else whether this is affecting or going to affect the industry or not. And if so, how will it affect the industry? Very good question, my dear. I'm so happy that you asked about lumpy skin disease. One of the reasons why milk flushes did not happen last year was because of this lumpy skin disease at several places. And it has been underreported. According to us, it is much more rampant. But as i
Balram Yadav
Yes. So, one of the big issues is that we continue with a lot of diseases, because culling is not possible. But I think vaccination and other remedies are there. But I think in case you are more interested in the subject; I think we should talk offline. Definitely, sir. And sir, the next question would be fish feed market share of the company. 7-8%.
Q
My question is regarding Crop Protection, and we have seen underperformance by Godrej Agrovet in Crop Protection in the last couple of years compared to industry growth. And sometimes, we have seen as a volume degrowth. And then we have seen a margin contraction, also. So, as compared to industry margin contraction, we are severely underperforming in this quarter and maybe in last couple of quarters also. So, for this side, what we are doing for to protect our business, also a better margin profile?
Balram Yadav
So, I think I answered this question earlier, that I think a lot of our issues were also internal, which we have addressed. Unfortunately, it took us much longer time to correct them because of 2 years were COVID and last year, we had failure of monsoon in July, which is our main season for herbicide. Having said that, at one time, we had the highest EBIT margins in the industry. Definitely, I think that will be our aspiration to go back to that level again and balance our top line growth and margin growth in future. But most of the corrections have been taken according to us. And let us see h
Speaking time
Balram Yadav
25
Moderator
12
Anurag Roy
7
Saurabh Kapadia
6
Depesh Kashyap
5
Falguni Thacker
4
Aniruddha Joshi
2
Vidit Shah
2
Nitin Awasthi
2
Nitin Agarwal
1
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Opening remarks
Nitin Agarwal
Thank you. Hi, good afternoon, everyone, and thank you for joining us on the Godrej Agrovet Q1 Earnings Conference Call. From the company, we have with us Mr. Nadir Godrej, Chairman of the company; Mr. Balram S. Yadav, Managing Director; Mr. S. Varadaraj, Chief Financial Officer; and Mr. Anurag Roy, CEO of Astec Lifesciences. We would like to begin the call with brief opening remarks from the management, following which we will have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Nadir Godrej to make the initial remarks. Please go ahead, sir.
Nadir Godrej
Good afternoon, everyone. I welcome you all to the Godrej Agrovet earnings call. I hope and wish you are doing well and are healthy and safe. Q1 FY23 was a mixed quarter for Godrej Agrovet as we achieved robust volume performance in the majority of our businesses, and as a result, reported 25.7% year-on-year growth in our total income to reach INR 2,517.5 crore. However, profitability was impacted for some of our businesses due to external as well as internal factors, such as high-cost inventory, input cost inflation, limited transmission, and sales deferrals, etc. During the quarter, soymeal prices sharply declined as the government of India allowed import of GM soymeals. We did not anticipate that it would happen as soon as it did. Other key input commodities, such as maize and fish meal, also witnessed a decline in pricing trend. The delayed Southwest monsoon in June impacted the sowing of Kharif crops and the application of crop protection products was delayed. On the other hand, c
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