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Palm Oil drags overall performance due to white-fly attack

3QFY21 earnings below expectations

* GOAGRO’s 3QFY21 revenue decreased by 14% YoY due to a 23%/17%/10% decline in the Animal Feed (AF)/Palm Oil/Dairy segment. However, EBITDA margin expanded due to lower raw material costs, which led to 12% EBITDA growth. Margin expansion was witnessed in AF and Processed Foods and Dairy, but contracted in Palm Oil and Crop Protection (CP).

* Factoring in the below expected performance during 3QFY21 (mainly due to Palm Oil, AF, and CP), we decrease our FY21E PAT estimate by 7%. We have maintained the same for FY22E/FY23E as performance in 3QFY21 was impacted due to one-time white-fly pest attack and late recovery in the AF business due to a gradual opening of the HoReCa segment. We value the stock on a SoTP basis to arrive at our TP of INR645. Maintain Buy.

Muted show in Palm Oil and CP segment

* Consolidated revenue declined 14% YoY to INR15.3b (v/s our estimate of INR17.5b). EBITDA margin expanded 170bp YoY to 7.4% (v/s our expectation of 8.3%). EBITDA stood at INR1,124m, up 12% YoY (v/s our estimate of INR1,454m). Adjusted PAT increased 19% YoY to INR616m (v/s our expectation of INR796m), aided by higher other income and lower interest cost.

* In 9MFY21, revenue declined 10% YoY, whereas EBITDA/adjusted PAT grew 25%/11%.

* AF business revenue declined 23% YoY (to INR7.8b) owing to 16%/7% volume/realization decline. Restaurants/Hotels are still operating at a much lower capacity utilization than pre-COVID levels. As a result, demand for milk, chicken, and eggs remains muted, which continues to impact demand for cattle, broiler, and layer feed. EBIT margin witnessed a 140bp expansion to 4.9% due to favorable input prices. EBIT/kg grew 31% YoY to INR1.3/kg.

* Revenue/EBIT for the Palm Oil business fell 17%/30% to INR1.9b/INR305m due to the white-fly attack, which impacted the arrival of fresh fruit bunches (FFB). Also, the oil content in the fruit was significantly lower compared to last year. For 9MFY21, segment revenue growth is supported by higher crude palm oil (CPO) and palm kernel oil (PKO) prices. CPO/PKO prices were up 33%/28% YoY in 9MFY21.

* The CP business grew 1% YoY (to INR2.2b), with EBIT margin contracting 130bp (to 16.1%). Sales/EBIT in standalone CP grew 14%/23% YoY. Astec: Revenue/EBITDA declined 7%/24% YoY due to the deferment of few orders and decline in prices of one of its key products.

* Dairy business decreased 10% YoY to INR2.6b, with EBIT margin expanding 290bp to 2.6%. Low out-of-home consumption and subdued demand from HoReCa segment has adversely impacted sales. EBITDA benefited from low procurement prices.

* Revenue for Godrej Tyson Foods fell 2% YoY (to INR1.6b), with an EBITDA margin of 6.8% (v/s -5.8% last year).

Highlights from the management commentary

* Cattle feed/broiler feed/poultry feed reported a 12%/20%/24% fall in volumes in 3QFY21, except for shrimp feed, which grew 4% YoY in 3QFY21. Going forward, broiler and layer feed volumes are expected to pick-up from Mar-Apr’21 onwards.

* Of the 1.2MMT domestic shrimp feed market, 12-13% was dominated by Chinese and Vietnamese players. With an increase in duty to 15%, from 5%, the competitive advantage of foreign players is expected to be lost (as they had lower RM prices in their respective countries), thereby helping domestic players to gain market share and improve margin.

* New launches in CP: Six new products are in the pipeline. These include four herbicides and a fungicide and bio-fertilizer. Another five in-licensed products are in the pipeline and will be launched in the next 2-3 years.

* Capex: The management will invest USD11-12m on a fish feed plant in Uttar Pradesh in FY22.

Valuation and view

* The CP business is likely to do well going forward, due to: a) product launches in the standalone CP segment, b) strong performance in Astec owing to its expertise in triazole chemistry, and c) commencement of a new herbicide plant.

* The AF segment is seeing lower demand from restaurants/hotels as they are still operating at a much lower capacity utilization than pre-COVID levels. This has impacted the demand for milk, chicken and eggs. Further opening up of the economy is critical for a revival in demand.

* Volume growth in the Palm Oil segment is likely to return in FY22 on higher arrival of FFBs (due to higher acreages) and better yields from the commissioning of the new plant with improved technology. Higher Palm Oil prices to aid margin expansion.

* Factoring in the below expected performance during 3QFY21 (mainly due to Palm Oil, AF, and CP), we decrease our FY21E PAT estimate by 7%. We have maintained the same for FY22E/FY23E as performance in 3QFY21 was impacted due to one-time white-fly pest attack and late recovery in the AF business due to a gradual opening of the HoReCa segment. We value the stock on a SoTP basis to arrive at our TP of INR645. Maintain Buy.

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