Godrej Agrovet Ltd Q1 FY2024-25 Earnings Conference Call

Summary

The Godrej Agrovet Q1 FY22 earnings conference call highlighted strong profitability growth despite a slight revenue decline, with a 36% increase in profits before tax. Key drivers included robust domestic crop protection business and margin expansion in animal feed and dairy. Challenges in the vegetable oil segment and pricing pressures in life sciences were noted. Management discussed business strategies, including portfolio optimization and addressing supply chain issues, with a focus on future growth and maintaining margins between 9%-10%.

Takeaways

• 📈 The company reported strong growth in profitability in Q1 FY25 with a 36% increase in profits before tax, excluding non-recurring items, despite a marginal decline in revenues.
• 🌱 The growth in profitability was primarily driven by robust volumes and improved realizations in the domestic crop protection business, as well as margin expansion in the animal feed and dairy businesses.
• 🐄 In the animal feed segment, margins improved significantly from 4.2% in Q1 FY24 to 6.8% in Q1 FY25 due to favorable commodity positions.
• 📊 The vegetable oil segment's revenues were impacted by lower fresh food bunch arrivals and lower opening stocks in Q1 FY25, along with a lower oil extraction ratio.
• 🌳 The standalone crop protection segment witnessed strong growth with segment margins improving from 32% in Q1 FY24 to 45% in Q1 FY25, attributed to higher realizations in herbicide and pesticide categories.
• 🧪 ASTEC Life Sciences faced pricing pressures and demand headwinds, which affected the topline and margins, necessitating inventory write-downs in Q1 FY25.
• 🍼 The dairy segment demonstrated robust margin expansion with AA margin improving by 490 basis points, driven by operational efficiency gains and an improved milk spread.
• 📉 The company's joint venture in Bangladesh, ACI GD, recorded a revenue decline of 13% YoY in Q1 FY25 due to volume contraction and pricing pressures.
• 🌱 The company's future outlook includes maintaining the current growth trajectory in the CDMO business with an expected 50-60% growth year on year for the next two to three years.
• 📊 The management anticipates demand recovery in the Enterprise business by the end of the year, with prices potentially stabilizing in the export market within the next couple of quarters.
• 💼 The company is considering restructuring some of its old plants to fit new molecules, potentially deferring capex investments by another year or year and a half.

Q & A

What was the main reason for the decline in revenues for the company in Q1 FY2?

The main reason for the decline in revenues was a marginal decrease in the company's consolidated revenue from operations, which was offset by strong growth in profitability driven by robust volumes and improved realizations in the domestic crop protection business, as well as margin expansion in the animal feed and dairy businesses.

How did the company's profitability perform in Q1 FY2 compared to the same period last year?

Profits before tax, excluding non-recurring items, improved by 36% to 169 CR rupees as compared to 124 CR rupees in Q1 FY24, indicating strong growth in profitability despite a slight decline in revenues.

What was the impact of the animal feed segment on the company's margins in Q1 FY2?

The animal feed segment margins improved sharply from 4.2% in Q1 FY24 to 6.8% in Q1 FY25 due to favorable commodity positions, contributing positively to the company's overall margins.

How did the vegetable oil segment's performance in Q1 FY25 compare to the previous year?

The vegetable oil segment's revenues in Q1 FY25 were impacted by lower fresh food bunch arrivals and lower opening stocks, and segment margins were affected due to a lower oil extraction ratio.

What was the main driver of the growth in the standalone crop protection segment in Q1 FY25?

The main driver of growth in the standalone crop protection segment was higher realizations in herbicide and pesticide categories, along with volume growth in plant growth regulations and herbicide categories.

How did the performance of the life sciences segment affect the company's overall financials in Q1 FY25?

The life sciences segment faced pricing pressures and demand headwinds in the Enterprise Products business, which adversely affected the topline and margins, necessitating inventory write-downs and contributing to margin compression in Q1 FY25.

What steps is the company taking to optimize its portfolio in the face of challenges in the triazole business?

The company is evaluating whether to pivot from the triazole business due to oversupply and is working on rejigging capacities to work around other intermediates, CDMO products, or new products to balance out the capacities and fully utilize them.

What is the company's outlook for the CDMO business in terms of growth and capacity scaling?

The company expects to maintain a growth rate of 50 to 60% year on year for the CDMO business and is planning to commercialize a second herbicide plant to cater to the ramp-up in CDMO demand.

How has the political and economic environment in Bangladesh impacted the joint venture ACI GD?

ACI GD recorded a revenue decline of 13% year on year in Q1 FY25 due to volume contraction and pricing pressures across categories, but the company remains committed to the joint venture as it is a profitable business.

What is the company's strategy for the animal feed business in light of the decline in volume growth?

The company is focusing on improving business hygiene, margin expansion, and branding to drive the animal feed business, with an emphasis on increasing the salience of branded products to reduce the impact of life bird prices.

What is the company's view on the impact of the recent budget on agriculture and its potential benefits to the business?

The company believes that the recent budget, with its focus on agriculture and the AG stack initiative, will bring about a technological revolution in the sector, providing valuable data that will benefit the company in the long run.