GODREJAGRONSEQ3 FY2023February 14, 2023

Godrej Agrovet Limited

7,775words

95turns

8analyst exchanges

5executives

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Management on call

Sumant Kumar

MOTILAL OSWAL FINANCIAL SERVICES LIMITED

Nadir Godrej

CHAIRMAN - GODREJ AGROVET LIMITED

Balram S Yadav

MANAGING DIRECTOR – GODREJ AGROVET LIMITED

S. Varadaraj

CHIEF FINANCIAL OFFICER - GODREJ AGROVET LIMITED

Anurag Roy

CHIEF EXECUTIVE OFFICER - ASTEC LIFESCIENCES LIMITED

Key numbers — 40 extracted

12%

ope and wish you are doing well. Godrej Agrovet continued to report a healthy topline growth of 12% in Q3 FY2023 and 17% in the nine months of FY2023 year-on-year. Most of our businesses maintained

17%

e doing well. Godrej Agrovet continued to report a healthy topline growth of 12% in Q3 FY2023 and 17% in the nine months of FY2023 year-on-year. Most of our businesses maintained robust growth in vol

68.4 Crore

ter we successfully sold land situated at Ambattur, Tamil Nadu, and the profit net of expenses of 68.4 Crores has been included in other income for Q3 FY2023 and nine months FY2023. Coming to the key fina

segments. In animal feed we achieved the highest ever quarterly volumes in Q3 FY2023 recording a 7% year-on-year volume growth. The volume growth was mainly led by market share gains in the cattl

Rs.1,381

also, the animal feed segment was able to sustain sequential recovery in EBIT per metric ton from Rs.1,381 in Q2 to 1,507 in Q3. Our vegetable oil segment registered 13% growth in Fresh Fruit Bunch volumes

13%

in EBIT per metric ton from Rs.1,381 in Q2 to 1,507 in Q3. Our vegetable oil segment registered 13% growth in Fresh Fruit Bunch volumes in Q3 FY2023; however, the average realization of crude palm

24%

average realization of crude palm oil and palm kernel oil declined from last year’s high base by 24% and 26% respectively in Q3 FY2023. As a result, segment profitability declined year-on- year.

26%

realization of crude palm oil and palm kernel oil declined from last year’s high base by 24% and 26% respectively in Q3 FY2023. As a result, segment profitability declined year-on- year.

38%

The poultry segment recorded strong growth in topline as well as profitability. Revenues grew by 38% year-on-year with EBITDA margin of 6.3% in Q3 FY2023 led by robust volumes and branded categories

6.3%

owth in topline as well as profitability. Revenues grew by 38% year-on-year with EBITDA margin of 6.3% in Q3 FY2023 led by robust volumes and branded categories coupled with the recovery in live bird

45%

h the recovery in live bird prices. Real Good Chicken (RGC) and Yummiez achieved volume growth of 45% and 46% year-on-year respectively. The dairy segment sustained volume growth in both value-adde

46%

covery in live bird prices. Real Good Chicken (RGC) and Yummiez achieved volume growth of 45% and 46% year-on-year respectively. The dairy segment sustained volume growth in both value-added produc

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Guidance — 20 items

Lokesh Maru

“Keeping the palm prices apart we have seen that our volume growth has been quite handsome how do you guide the volume growth going forward and where do we stand today in terms of acreage and any potential additions because of this Nagaland approval so any light on growth part, volume part of the palm oil business, that is my last question?”

Balram S Yadav

“Godrej would you like to give some guidance on CPO prices.”

Nadir Godrej

“We do expect that CPO prices will rise a little bit but not very much.”

Abhijit Akella

“On the standalone business basically I guess we are implying that the upcoming year will be significantly better in terms of margins particularly.”

Abhijit Akella

“On Astec if you could share your thoughts on how you see the industry shaping up, do you see these challenges persisting for some indefinite amount of time in the future or will be more of a transient passing phase?”

Abhijit Akella

“Just one last thing from my side was actually on the Bangladesh business where also margins seem to have declined quite substantially so expect these price controls to continue in the foreseeable future, and how do we see margins progressing in that business?”

Balram S Yadav

“So my sense is I think that not in next few weeks but I think by April or May I think it will be a business as usual for Bangladesh unless and until a global recession sets in and I think they suffer as the economy because a lot of their foreign exchanges because of garments to western world and remittances from the western world.”

Balram S Yadav

“So I think in case there is an opportunity which is not there right now because I think most of our businesses are under external challenges and I think not a great time to probably look for any kind of consolidation, but I must say that definitely we will be and it is always on the table for us to review these things.”

Anurag Roy

“In terms of our performance on CDMO we stay very much on track, if you see our numbers last year we were roughly around 84 or 85 Crores on CDMO revenues and we plan to almost double it this year and that is the indication which we have given in the previous call as well and year-on-year we plan to maintain healthy 30% to 50% growth on our CDMO business as we are seeing a strong pipeline of enquiries building up as are our R&D is also coming on board.”

Anurag Roy

“So, we are observing these trends and the aggression from the China relaxation of dual control policy, and we are going forward with the preparation that for some of our zole products will continue to see these margin threat, and hence our strategy to quickly diversify and expand into CDMO business.”

Risks & concerns — 7 flagged

so the grain prices being again is that inflationary pressure zone what are you from this blend of three how are you seeing the margins actually on each of them turning around?

— Lokesh Maru

So, we continue to have very cautious next few months to meet the volatility coming in from the macros and we continue to focus on producing highest efficiency products, and strategic sourcing.

— Anurag Roy

So, I think CPB has been a mixed bag this year, if you ask me our performance as far as this year is concerned there is no problem in the topline growth, etc., and we have been extremely cautious not to get into that debtor and inventory track.

— Balram S Yadav

My sense is that this decline in the size of the market in shrimp is likely to continue next year also.

— Balram S Yadav

So my sense is that shrimp decline will definitely be compensated by the phenomenal growth we will see in fish.

— Balram S Yadav

Such as the attractiveness of this product that about a decade ago we had given an application to Government of India to allow imports of DDGS into the country so that pressure on protein inputs can reduce, but unfortunately all the DDGS outside is GM and that is why that permission was not given.

— Balram S Yadav

So, as you mentioned that shrimp business is having some volatile time and the aqua business may grow in future so what would be the future growth aspect, and whether you would be further diversifying the 50% revenue share you are gaining from the animal feed segment, what is your future outlook on the same?

— Harsh Mantri

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Q&A — 8 exchanges

Hi! Sir, I just have one question on margins within the feed segment. Given that soymeal prices have corrected quite significantly, what is hurting our margin recovery as such?

Balram S Yadav

I must tell you that particularly shrimp and poultry feed both layer and broiler, there is a shrinkage in the market size, but we still are growing and our market share is growing. Just because there is a little bit of intense competition the transmission of increased raw material costs had not been fully transmitted so we can see a little bit of price competition amongst the players, but my sense is that the margin recovery will start probably towards the end of this quarter when the rapeseed etc., is available and we see a further drop in raw material cost. So, I think I do not see that is h

Good afternoon Sir. Thanks for taking my question. Just a few from my side. One is on the crop protection business including Astec, if you could please just talk about your outlook for how that business is expected to perform given the inventory glut that seems to be underway across a lot of the world? Thank you.

Balram S Yadav

I will request Mr. Anurag to talk about Astec first then I will brief you about the crop protection business. For Astec as you might have seen the numbers we have experienced significant headwinds particularly in Q3 because of the muted domestic demand and the price erosion in the export market so that is how our Q3 was, so we are seeing some uptick in the market for supply demand situation to balance out for most of our Enterprise Products, but that uptick pace is relatively lower than what we have seen last year. So, we continue to have very cautious next few months to meet the volatility co

Hi! Team, thanks for the opportunity. My first question is to Anurag. Anurag couple of things, one is CDMO second-half is usually better how is that trending in this year, also if you could call out what kind of price erosion has happened for the enterprise product and more specifically for the two products that we have a good amount of revenues coming from Tebuconazole, and Propiconazole, if you could specifically call out what kind of erosion has happened, is there inventories which are still built up at customers end and for the base business what is the normalized margin range that we shou

Anurag Roy

I think there are three, four questions here. So, I will first talk about the CDMO business. So as Mr. Balram was also highlighting for Astec LifeSciences we clearly understand that in our current product portfolio on the enterprise side there is a huge amount of volatility and threat from China’s aggressiveness quarter-on-quarter or year-on-year. So in terms of our future strategy clearly the focus has been on the CDMO part of business so that we can ensure sustainable and profitable growth year-on-year and that we would kick start once our R&D is coming on board in a big way. In terms of our

Sir, just on the enterprise business in Astec now given that we have spoken about the overcapacity in a few products is there any way that over the next one-and-a-half, two years we can look at diversifying away from these products given that the competition from China will always be there and the margin volatility is likely to continue because of that?

Anurag Roy

Absolutely so that is what I mentioned earlier getting into CDMO is obviously one diversification strategy for having a sustainable margins and within the zoles or our product portfolio within the enterprise products as well we are working on further diversifying looking at few of the products, which could serve us higher margins in the short-term duration. So absolutely that is clearly one of the key strategies, which we would be seeing. If we see these muted margins in the coming quarter as well. Secondly in terms of our land acquisition and MPP which was supposed to be starting work in this

Wanting to know your views on two things broadly and the impact it would have on the company if any, one is the use of DDGS so now there is this room of ethanol plants coming up ethanol need from grain and the byproduct DDGS is being out going out there is plenty which is not there available in all parts of India previously, but what I understand from whatever is out there it says the synthesis of DDGS is not possible by everybody to require technological advancement by companies so if Godrej looking at it, if Godrej being able to synthesize it to use it to a great extent does it matter to God

Balram S Yadav

DDGS is going to be a very welcome thing for the feed industry in this country because it is a very good source of protein and it is very competitive also so we would welcome that, but I must tell you that when DDGS comes out of this system it has almost 80% moisture and I think that there is the biggest cost in DDGS is the energy cost to dry it. Now one of the issues which we are seeing with several ethanol plants is that they are not making efforts or not investing enough to drive DDGS they just want to get rid of it in a neighboring areas as a slurry, which can be directly fed to cattle als

Thanks for the followup. Sir just want to get a sense of the poultry business specifically so what was the contribution of live birds and the branded business this quarter?

Balram S Yadav

So, if you see the branded business was about 51% and live bird business was 49%. You want in Crores? No Sir that is fine I was just checking what can you call that out for nine months as well because your trajectory… Nine months we are 46% live and 54% branded. Got it Sir and could you also just again validate that contribution margins for RGC are in the low teens and Yummiez is quite high right that understanding is broadly correct, right? Yes. You are absolutely right and live bird is close to about 8%. Just wanted to get a sense that again the focus is could you speak a little bit on how t

Sir, I needed to understand the breakup of the market share of all the sub segments in animal feed business. So, as you mentioned that shrimp business is having some volatile time and the aqua business may grow in future so what would be the future growth aspect, and whether you would be further diversifying the 50% revenue share you are gaining from the animal feed segment, what is your future outlook on the same?

Balram S Yadav

I did not understand that. Sir, I needed to understand the breakup of the market share of all the sub-segments and the animal feed business? Very difficult. So what we do is that we collect this data once in Q4 when we discuss our AOP, LRP so I think that process is on, but I cannot give you a number, but definitely next time we have this we will give you segment wise market share and for that also we make an estimation of the industry since the data is very, very scattered in this industry, but I think the question is very good the only thing is that we need some time to answer that. Sir, any

Thank you. I hope we have been able to answer all your questions. If you have any further questions or would like to know more about the company, we will be happy to be of assistance. Stay safe and stay healthy. Thank you once again for taking the time to join us on this call.

Management

Speaking time

Balram S Yadav

Aejas Lakhani

Moderator

Abhijit Akella

Anurag Roy

Lokesh Maru

Nitin Awasthi

Harsh Mantri

Siddharth Gadekar

Nadir Godrej

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Opening remarks

Sumant Kumar

Good afternoon everyone and thank you for joining us on Godrej Agrovet 3Q FY2023 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 – CFO; and Mr. Anurag Roy – CEO of Astec LifeSciences. We would like to begin the call with a brief opening remarks from the management following which we will have the forum open for the 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. Over to you Sir!

Nadir Godrej

Good afternoon everyone. I welcome you all to the Godrej Agrovet Earnings Call. I hope and wish you are doing well. Godrej Agrovet continued to report a healthy topline growth of 12% in Q3 FY2023 and 17% in the nine months of FY2023 year-on-year. Most of our businesses maintained robust growth in volumes; however, profitability was impacted due to adverse sector specific macro conditions, unfavorable commodity price movement, and limited transmission of input cost inflation. During the quarter we successfully sold land situated at Ambattur, Tamil Nadu, and the profit net of expenses of 68.4 Crores has been included in other income for Q3 FY2023 and nine months FY2023. Coming to the key financial and business highlights of each of our business segments. In animal feed we achieved the highest ever quarterly volumes in Q3 FY2023 recording a 7% year-on-year volume growth. The volume growth was mainly led by market share gains in the cattle feed category as we further cemented our dominant

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