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Broad-based performance drives operating profitability

Operating performance in line with estimates

* GOAGRO reported a healthy operating performance (EBITDA up 34% YoY), driven by improved profitability across businesses. Animal Feed/Crop protection business witnessed improved margins (EBIT up 16%/10% YoY), while Poultry/Dairy business turned profitable (EBIT of INR149m/INR29m vs. operating loss of INR103m/INR118m in 2QFY23).

* Palm oil business (EBIT up 5% YoY) is still under pressure, with revenue growth offsetting the decline in margins.

* We largely maintain our EBITDA estimates for FY24/FY25. We retain our Neutral rating on the stock with an SoTP-based TP of INR480.

Animal Feed and Palm oil business drive sales

* Consolidated revenue grew 5% YoY to INR25.7b (est. in line), with all the businesses witnessing growth on a YoY basis. EBITDA margins expanded 170bp YoY to 7.8% (est.7.6%). EBITDA stood at INR2b, up 34% YoY (est. in line). Adjusted PAT grew 47% YoY to INR1.1b (est. INR1b).

* Animal Feed business: Revenue grew ~2% YoY to INR12.4b, primarily led by volume growth in cattle feed/aqua feed category (up 16%/15% YoY). Total sales volume grew 4% YoY to 372KMT. EBIT/kg grew 11% to INR1.5, led by softening commodity prices and higher realization in cattle and fish feed business.

* Palm Oil business: Revenue grew 11% YoY to INR4.5b. EBIT margin contracted 80bp YoY to 15.4%. EBIT stood at INR687m, down 5% YoY. Continued volume growth in FFB arrivals (up 17% YoY) offset lower crude palm oil prices and a marginal decline in the oil extraction ratio.

* Crop Protection business: Consolidated revenue/EBIT grew 2%/10% YoY to INR3.8b/INR649m, led by robust revenue/operating performance in the standalone business (up 53%/2.5x YoY to INR2.6b/INR0.77b).

* Dairy business revenue grew 8% YoY to INR3.9b. Operating profit stood at INR29m (vs. operating loss of INR118m in 2QFY23), led by lower raw material cost and operational efficiency.

* Poultry and Processed Food business revenue grew ~4% YoY to INR2.4b. Operating profit stood at INR149m (vs. operating loss of INR103m in 2QFY23), led by better realization and cost efficiency in the live bird business.

* For 1HFY24, revenue/EBIDTA/adjusted PAT grew 3%/26%/37% YoY to INR50.8b/INR3.9b/INR2.1b.

Highlights from the management commentary

* Palm Oil: Oil Extraction Ratio stood at ~17.9% in 2QFY24 vs. ~18.4% in 2QFY23. However, it significantly improved to ~19%/20% in Sep/Oct’23. The company is expecting long-term annual growth of ~12-14% within the segment (~8-9%/2-3% from FFB arrivals/improved productivity)

* Animal Feed: Volume growth was aided by commissioning of new facilities in cattle/aqua feed. EBIT/MT stood at ~INR1,531 in 2QFY24 and is further expected to grow ~12-13% in 2HFY24 to ~INR1650-1750/MT.

* CDMO business: Going ahead, the company is expecting ~25-40% YoY growth in its CDMO business. Further, it expects to double the annual molecule launches. Currently, it has ~4-6 molecules in different stages of commercialization.

Valuation and view

* GOAGRO is expected to witness near-term hurdles in its key segments, such as Palm Oil and Crop Protection (Astec). However, Animal Feed, standalone Crop Protection, and Dairy are likely to sustain healthy performance.

* We largely maintain our EBITDA estimate for FY24/FY25. We retain our Neutral rating on the stock with an SoTP-based TP of INR480.

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