Expanding Vegetable Oils, Dairy And CDMO Will Create Lasting Value

Key Takeaways

• Expansion into value-added products and operational efficiencies is expected to boost margins and stabilize earnings across core business segments.
  
• Strong R&D pipeline and international market focus position the company for sustainable revenue growth and improved profitability.
  
• Margin pressure across key segments, weather-driven volatility, and overreliance on the domestic market threaten revenue growth, profitability, and resilience against sector and regulatory risks.

Catalysts

An agri-business company, provides products and services that enhance crop and livestock yields in India and internationally.

• Godrej Agrovet is rapidly expanding its value-added product portfolio in both its Vegetable Oils (notably with new refining and hydrogenation capacity) and Dairy segments, which is likely to drive higher net margins and improve earnings stability as the business mix shifts to higher-margin products over the next 2 years.
  
• The launch of new, R&D-driven crop protection products (like Ashitaka maize herbicide) coupled with strong growth in corn acreage, indicates potential for strong revenue growth in upcoming seasons as farmers increasingly adopt modern agricultural inputs amid rising demand for food security and sustainable farming practices.
  
• Scaling of Astec Lifesciences' CDMO (Contract Development & Manufacturing Organization) business, with a diversified international client base and a strong pipeline of new molecules, positions the company to capture high-value export opportunities, supporting topline growth and potential EBITDA margin expansion in the medium to long-term.
  
• Structural increase in animal protein (dairy, poultry, aquafeed) consumption in India is sustaining healthy volume growth in core feed businesses, while ongoing formalization and premiumization can lead to operational leverage and incremental margin improvement as branded/value-added products grow as a share of revenue.
  
• Strategic investments in operational efficiency (digital supply chain, capacity utilization) and upstream integration (procurement, new refineries, further downstream processing) provide a buffer against input cost volatility and improve cost competitiveness, with a likely positive impact on margins and consolidated profitability.

Godrej Agrovet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Godrej Agrovet's revenue will grow by 9.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.7% today to 6.3% in 3 years time.
• Analysts expect earnings to reach ₹8.1 billion (and earnings per share of ₹39.49) by about August 2028, up from ₹4.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as ₹9.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.5x on those 2028 earnings, down from 34.3x today. This future PE is greater than the current PE for the IN Food industry at 22.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.73%, as per the Simply Wall St company report.

Godrej Agrovet Future Earnings Per Share Growth

Risks

• The Crop Protection segment showed flat margins and pricing pressure due to increased competition and loss of exclusivity on core products like Gracia, with further returns expected in Q2 from unsold inventory; this heightens the risk of muted top-line growth and margin compression in the segment, potentially impacting consolidated revenues and overall profitability.
  
• Animal Feed segment exhibited healthy volume growth, but revenues and margins remained flat due to lower realizations and higher input costs (including vendor invoice discounting flows to material cost), indicating a challenge in passing on input price inflation to customers, which could suppress future segment profits and earnings growth.
  
• The company's strong Vegetable Oil business results were primarily due to extraordinary early rains and exceptional Fresh Fruit Bunch (FFB) arrivals in Q1 and may not be sustainable; any reversion to normal weather patterns or adverse agri-climatic events could reduce FFB supply and oil extraction ratios, risking revenue volatility and margin deterioration in future periods.
  
• The Dairy and Processed Foods segment faces flat revenues, declining EBITDA margins due to higher procurement and advertising costs, and adverse weather effects on value-added products; persistent input inflation or future unseasonal rains could further erode profitability, constraining overall earnings momentum.
  
• Overdependence on the domestic Indian market, highlighted by challenges in the Bangladesh JV (with revenues down 20% year-on-year due to a tough political and economic environment), indicates limited geographic diversification, exposing the company to domestic agri-sector cyclicality, regulatory shifts, and structural issues, thereby increasing vulnerability in both top-line and bottom-line performance.

Valuation

• The analysts have a consensus price target of ₹862.833 for Godrej Agrovet based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹980.0, and the most bearish reporting a price target of just ₹774.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹127.1 billion, earnings will come to ₹8.1 billion, and it would be trading on a PE ratio of 29.5x, assuming you use a discount rate of 12.7%.
  
• Given the current share price of ₹811.95, the analyst price target of ₹862.83 is 5.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.