GODREJAGRONSEQ2 FY2023November 10, 2022

Godrej Agrovet Limited

7,444words

80turns

8analyst exchanges

5executives

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Management on call

Ranjit Cirumalla

IIFL SECURITIES LIMITED

Nadir Godrej

CHAIRMAN - GODREJ AGROVET

Balram Yadav

MANAGING DIRECTOR –GODREJ AGROVET

Varadaraj. S

CHIEF FINANCIAL OFFICER GODREJ AGROVET

S. Varadaraj

Chief Financial Officer. We would like to begin the call with

Key numbers — 40 extracted

13.5%

Call. I hope and wish you all are doing well. Godrej Agrovet clocked a healthy topline growth of 13.5% in Q2 FY2023 and 19.5% in H1 FY2023 year-on-year. However, it is a challenging quarter in terms

19.5%

you all are doing well. Godrej Agrovet clocked a healthy topline growth of 13.5% in Q2 FY2023 and 19.5% in H1 FY2023 year-on-year. However, it is a challenging quarter in terms of profitability as it w

financial and business highlights of each of our business segments – In animal feed, we achieved 6% year-on-year volume growth in Q2 and 8% in H1 FY23. The volume growth in Q2 was mainly led by mar

ch of our business segments – In animal feed, we achieved 6% year-on-year volume growth in Q2 and 8% in H1 FY23. The volume growth in Q2 was mainly led by market share gain in the cattle feed segmen

Rs.694

e animal feed segment achieved a sharp recovery in EBIT per metric ton on a sequential basis from Rs.694 per metric ton in Q1 to Rs.1,381 per metric ton in Q2. For the vegetable oil segment, it was a mix

Rs.1,381

a sharp recovery in EBIT per metric ton on a sequential basis from Rs.694 per metric ton in Q1 to Rs.1,381 per metric ton in Q2. For the vegetable oil segment, it was a mixed quarter with strong recovery i

16%

ffset by lower prices. The average realizations of crude palm oil and palm kernel oil declined by 16% and 3% respectively in Q2 FY23 versus Q2 FY22. On the other hand, Fresh Fruit Bunches (FFB) volum

lower prices. The average realizations of crude palm oil and palm kernel oil declined by 16% and 3% respectively in Q2 FY23 versus Q2 FY22. On the other hand, Fresh Fruit Bunches (FFB) volumes grew

15%

pectively in Q2 FY23 versus Q2 FY22. On the other hand, Fresh Fruit Bunches (FFB) volumes grew by 15% year-on-year in Q2 more than offsetting lower volumes recorded in the first quarter. The standalo

11%

corded in the first quarter. The standalone crop protection business recorded a topline growth of 11% year-on-year driven by higher sales of inhouse herbicide products. Reduced applic

35%

fesciences continue to deliver a strong performance as profit after tax doubled in Q2 and grew by 35% in H1 FY2023 over the corresponding previous period. The robust topline performance was driven by

14%

l. For our poultry segment, Q2 is a seasonally weak quarter. Despite that Godrej Tyson recorded 14% topline growth led by robust volumes in Real Good Chicken and the Yummiez category. The EBITDA ma

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Guidance — 20 items

Ankur Periwal

“How are we looking to address this RM inflation and whether it is just one quarter phenomena and maybe next quarter onwards things should back to normal.”

Balram Yadav

“As I have conveyed to you last time that we took help of external consultants for a long project in trying to overhaul this business.”

Balram Yadav

“Hygiene is of prime importance for us, so I think that project is still underway and as and when we get an opportunity to clean up a few things which are unsold or some toxics better we are doing that on regular basis.”

Balram Yadav

“Having said that I must tell you that more new molecules are come in the pipeline through our own molecules as well as through in licensing and you must be knowing that the Gracia has been a great hit and we are likely to double the volumes next year again.”

Balram Yadav

“I am very sure that the kind of traction we are seeing now and the collection which we are seeing now which is very evident in our working capital for this business we will be back to normal in one or two quarters.”

Balram Yadav

“If not in Q4 this year 100% sure that Q1 next year we will be again back to normal.”

Balram Yadav

“One of the things which we are noticing in last two years, particularly this is the second year, is that the season is getting shifted by at least a month and that is why you saw some shifting of volumes from Q1 where we grew 5% to volumes in Q2 where we grew more than 15% and the growth in Q3 will be even higher than 15% maybe 20-25%.”

Balram Yadav

“So, this is one change we have seen, we are studying that have and in case we feel that this is going to be a normal phenomenon considering October rains from next year onwards our budgeting will reflect this change.”

Balram Yadav

“If you see in H1 FY23, it was 18.62% as compared to H1 FY22 which is 17.75%, I can definitely say that it will be much more than 18.62% for us in H2 in the current year, I think lot of our initiatives are proving to be very, very good in improvement of OER and definitely yield also.”

Abhijeet Akela

“Should we expect that Q3 also be the low water mark in terms of profitability for the business?”

Risks & concerns — 13 flagged

However, it is a challenging quarter in terms of profitability as it was impacted due to volatile commodity prices, higher input costs and limited transmission of those costs.

— Nadir Godrej

For our poultry segment, Q2 is a seasonally weak quarter.

— Nadir Godrej

The EBITDA margin contracted as there was a sharp decline in live bird prices during the quarter.

— Nadir Godrej

However, profitability remains a drag as continued increase in procurement prices could not be fully passed on.

— Nadir Godrej

Sir, first question on the RM inflation side, now this quarter specifically we saw decent pressure on the RM side across many of the business segments, Animal Feed, crop protection, so your thought there in terms of that.

— Ankur Periwal

Suddenly the government of India under the pressure of inflation announced import and that is the only time we got caught because of adverse raw material situation, however you can see we have corrected that, the margins in animal feed has come back from Rs.694 to Rs.1,381 per metric ton and now that raw material prices are falling so, the margins are likely to improve further in Q3 and Q4.

— Balram Yadav

I think that is hitting us very badly, that remains a concern, however in all other parameters of CDPL business we are doing okay.

— Balram Yadav

We are not selling unless and until the outstandings are reconciled and paid for etc., so we are very cautious I think we have strict rules for the sales team now to give credit and we have suffered, so we are not interested in topline at least for this quarter.

— Balram Yadav

When everybody said that CPO prices will not fall, they fell and a month ago everybody said that they will not rise, now they have started rising again to Rs.91-Rs.92, such a weak situation in global commodity market.

— Balram Yadav

We need to understand what are the strategic investments we have taken and we are going to take to mitigate the risk of so many variables we have in our company across segments.

— Sumant Kumar

But externally I cannot say because this is a very, very volatile sector and something or the other will definitely hit us.

— Balram Yadav

Got it, sir actually my question for Q3 was on the traditional crop protection business, so that is the weak quarter for us?

— Aejas Lakhani

Actually, right it will be a weak quarter.

— Balram Yadav

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Q&A — 8 exchanges

Thanks for the opportunity. Sir, first question on the RM inflation side, now this quarter specifically we saw decent pressure on the RM side across many of the business segments, Animal Feed, crop protection, so your thought there in terms of that. How are we looking to address this RM inflation and whether it is just one quarter phenomena and maybe next quarter onwards things should back to normal.

Balram Yadav

Let me first talk about animal feed RM. I think we have sufficient experience and knowledge on these movements of raw material prices in case there is no external intervention which can cause disturbance, which is not natural. We only faltered once in this year and that too in soya because of which our poultry feed as well aqua feed contribution took a hit when the prices of soya bean were ruling very high and there was no chance that India will import anymore soya bean and all the poultry people and the aqua feed people were well covered for off season. Suddenly the government of India under

Good afternoon and thank you for taking my questions. Just a couple on few of the segments. First on oil palm if it is possible to share a few metrics around the volumes both the fresh food branch as well as the oil volumes themselves. As well as the average realizations on the key products and the oil extraction ratio, please? Thank you.

Balram Yadav

Let me give you answer to what is happening in the industry. One of the things which we are noticing in last two years, particularly this is the second year, is that the season is getting shifted by at least a month and that is why you saw some shifting of volumes from Q1 where we grew 5% to volumes in Q2 where we grew more than 15% and the growth in Q3 will be even higher than 15% maybe 20-25%. So, this is one change we have seen, we are studying that have and in case we feel that this is going to be a normal phenomenon considering October rains from next year onwards our budgeting will refle

Thanks for taking the question. My first question was around the share of profits from associates that dropped sharply from Q1 levels this year and even year-on-year. What happened there, has the profitability at ACI JV declined sharply or is it coming from other sources?

Balram Yadav

I need to give you some flavor of what is happening in our neighboring country in Bangladesh where we have a substantial business, we are almost we are number two now in the animal feed business there and they are growing volumes at 7-8% last year again was a big growth. The big problem came last year was from the price controls on poultry feeds because Bangladesh has brought lot of price controls in poultry feeds and that has hurt us very badly there and unfortunately, poultry feed used to be the most profitable product. But in the first half has become a loss-making product, so that has hurt

Hi! Sir, my question is regarding the margin volatility for overall company and we have seen some segments like the animal feed, sometimes margins is on the peak and again we have seen some risks. Overall, all these segment we see maybe the animal feed is complimentary for milk business and the animal feed is complimentary for Tyson food business and having backward integration but sometimes have a severe impact also on the margin front. We need to understand what are the strategic investments we have taken and we are going to take to mitigate the risk of so many variables we have in our compa

Balram Yadav

One thing I fully agree with you because of such a diverse business and you are present in all parts of the Agri value chain, whether it is pesticide, whether it is technical, oils and all kinds of animal protein both on the feed side and the output side, some or the other volatility will hit because we have never had a year in last thirty years of my experience when one part of the segment has not being hit. That is very well understood and that criticism very well accepted by us, and I can definitely say that we are looking at our portfolio very closely. But it is not easy to solve this prob

Thank you for the opportunity. Sir in shrimp feed business have we taken any price hikes in the current quarter Q3?

Balram Yadav

We have taken a price hike but the government asked us to roll it back. The price hike was Rs.2250 a ton unfortunately we have to roll it back because Andhra Pradesh government advised the industry to do that. Okay, but despite that the raw material price correcting should continue to benefit us in the remaining two quarters, is it correct? The issue is that even though the raw material price correction is there but these businesses now require lot of initial investments, very sophisticated plant and laboratories and we have already commissioned R&D center. The issue is that we need certain am

Hi! Thanks for the opportunity. My first question is, have there been any inventory losses in any of the segments that have impacted margins in this quarter?

Balram Yadav

We have taken some hits in some pesticide stock not much but since you asked that question I must disclose that. We sold lot of stocks which were near expiry etc., at discount. That is the only hit we have taken in Q2 rest most of hit was in soya in Q1. This is traditional crop protection two thirds of the portfolio that is our own product basket? This was a traded portfolio. Then your blended margins in the traditional crop protection have been higher. What exactly happened this quarter could you just explain that again? There are many things which have happened, one is that we have taken som

Hello! Mr. Yadav, I would appreciate if you can spend a minute taking about Maxxi Milk every time I see you investing in that, I get excited. What is your plan over next three-four- five years’ by when it will start contributing to us topline and bottom line etc, etc?

Balram Yadav

I can tell you that generational improvement in large animals takes a long time. We produce an embryo then we impregnate the cow and then nine months later the new calf is born and then it takes another fifteen-sixteen months for that calf to mature sexually and get inseminated again. Normally, it takes about thirty to thirty-three months for the kind of herd we want to build because we are interested not in the surrogate mother but in the progeny of the off spring, if you understand what I mean. It takes time since it is also a biological activity, so plenty of times the embryo transfer fails

Before I make my closing comments, I just wanted to comment on some of the questions. There was a question about palm oil prices and right now palm oil is tracking gas oil very closely because there is a lot of demand for biodiesel from palm oil to replace diesel. And another comment I wanted to make is that although it will take a long time to expand our palm oil production at least takes five years to grow, there will be very good nursery business in the next five years and that itself will be a significant business and beyond that there will be rapid growth in palm oil production. With thos

Management

Speaking time

Balram Yadav

Aejas Lakhani

Moderator

Abhijeet Akela

Ankur Periwal

Vidit Shah

Rajesh Khetarpal

Anurag Patil

Nadir Godrej

Sumant Kumar

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Opening remarks

Ranjit Cirumalla

Thank you, Vivian. Good afternoon everyone and thank you for joining us on the Godrej Agrovet Q2 Earnings Conference Call, hosted by IIFL Securities. From the company we have with us Mr. Nadir Godrej- Chairman of the company, Mr. Balram Yadav – Managing Director and Mr. S. Varadaraj – Chief Financial Officer. We would like to begin the call with a 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 during today’s call maybe 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. Thank you and over to you, sir!

Nadir Godrej

Good afternoon everyone. I welcome you all to the Godrej Agrovet Earnings Call. I hope and wish you all are doing well. Godrej Agrovet clocked a healthy topline growth of 13.5% in Q2 FY2023 and 19.5% in H1 FY2023 year-on-year. However, it is a challenging quarter in terms of profitability as it was impacted due to volatile commodity prices, higher input costs and limited transmission of those costs. During the quarter, crude palm oil prices corrected sharply from all time high levels in May 2022 on account of over supply from Indonesia and Malaysia post the lifting of exports ban. The south-west monsoon was erratic and unevenly spread, prices of rice bran extraction jumped sharply in Q2 and maize prices continued to trend higher. Coming to the key financial and business highlights of each of our business segments – In animal feed, we achieved 6% year-on-year volume growth in Q2 and 8% in H1 FY23. The volume growth in Q2 was mainly led by market share gain in the cattle feed segment. On

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