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Robust performance; sustenance will be key

In line performance

* GOAGRO’s strong 4QFY21 performance was aided by all segments and low base of 4QFY20. EBITDA margin expanded 440bp YoY due to lower raw material costs (-340bp YoY), which led to an EBITDA growth of 133%. All segments reported a margin expansion, led by Animal Feed and standalone Crop Protection.

* We have maintained the same for FY22E/FY23E as its 4QFY21 performance was in line with our estimates. We value the stock on a SoTP basis to arrive at our TP of INR615. Maintain Buy.

All round performance across businesses

* Consolidated revenue declined 2% YoY to INR14.6b (v/s our estimate of INR15.2b). EBITDA margin expanded 440bp YoY to 7.7% (v/s our expectation of 7.2%). EBITDA stood at INR1,122m, up 2.3x YoY (v/s our estimate of INR1,086m). Adjusted PAT increased 191% YoY to INR566m (v/s our expectation of INR560m).

* In FY21, revenue declined 8% YoY, whereas EBITDA/adjusted PAT grew 37%/25%. In FY21, CFO was a negative INR18m v/s INR2,398m last year due to increase in inventory and decrease in payables.

* Animal Feed business: Revenue fell 9% YoY in 4QFY21 (to INR8b) owing to a 10% decline in realization, which was offset by a 1% improvement in volumes. Consumption of milk, chicken, and egg was subdued due to lower demand from the HoReCa segment and lower out-of-home consumption. This impacted demand for cattle, broiler, and layer feed. EBIT margin grew 330bp to 7.1% due to favorable input prices and realization of R&D benefits. EBIT grew 71% to INR568m. EBIT/kg grew 70% YoY (+47% QoQ) to INR1.9/kg.

* Revenue/EBIT for the Palm Oil business grew 8%/23% to INR717m/INR53m. Crude Palm Oil (CPO) and Palm Kernel Oil (PKO) prices were high in 4QFY21, which aided performance.

* The Crop Protection business grew 6% YoY (to INR2.7b), with EBIT margin expanding 100bp (to 20.3%). Sales/EBIT in the standalone business grew 40%/251% YoY. Astec Lifesciences: Revenue/EBITDA declined 5%/19% YoY due to lower export prices and higher base in FY20. However, domestic sales have grown during 4QFY21, supported by higher prices.

* Dairy business revenue stood flat YoY at INR2.8b, with EBITDA margin expanding 60bp to 1.3%. While out-of-home consumption and institutional demand picked up sequentially in 4QFY21, it was still lower than pre-COVID levels, which has impacted volumes and revenue. EBITDA margin benefited from lower procurement prices.

* Revenue for Godrej Tyson Foods grew 22% YoY (to INR1.4b), with an EBITDA margin of 0.6% (v/s -29.4% last year).

Highlights from the management commentary

* Standalone Crop Protection: Six new products are in the pipeline, of which four are in-licensed and two are own products. The management plans to launch 1-2 products annually.

* The company is targeting 14-16% annual growth in the standalone Crop Protection business, half of which will be from organic growth and the balance from launching of new products, with an EBIT margin of 25-26%.

* Capex and investment: Capex in Astec Lifesciences is expected to be INR1.8b. Another INR800-900m will be utilized for setting-up a new Fish Feed plant in Barabanki, UP, the construction of which has already started. Total capex spend is expected to be INR3b in FY22.

Valuation and view

* The Crop Protection business is likely to do well going forward, due to: a) product launches in the standalone business (over the next 1-2 years), b) better performance in Astec Lifesciences owing to its expertise in triazole chemistry, and c) commencement of a new Herbicide plant.

* The Animal Feed segment is seeing lower demand from Restaurants/Hotels due to the second wave and is still operating at lower capacity utilization than preCOVID levels. This has impacted demand for milk, chicken, and eggs. While the recovery in the segment is slightly postponed, it is expected to deliver a better performance v/s FY21 on a low base.

* Volume growth in the Palm Oil segment is likely to return in FY22E on higher arrival of FFBs (due to higher acreages) and better yields from the new plant with improved technology. Higher Palm Oil prices (nearly doubled in the last 13- 14 months) to aid margin expansion.

* We have maintained the same for FY22E/FY23E as its 4QFY21 performance was in line with our estimates. We value the stock on a SoTP basis to arrive at our TP of INR615. Maintain Buy.

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