CDMO Expansion And Branded Poultry Products Will Boost Future Potential

Key Takeaways

• Strong pricing and operational improvements in the Animal Feed and Vegetable Oil segments are poised to enhance future earnings and revenue growth.
  
• Strategic shifts in Poultry and Dairy segments aim to improve profitability and stabilize margins through focus on branded products and value-added offerings.
  
• External economic and political instability, supply chain issues, and commodity price fluctuations pose significant risks to Godrej Agrovet's revenue consistency and profit margins.

Catalysts

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

• Godrej Agrovet's Animal Feed segment has seen significant EBIT per metric tonne improvement, driven by favorable commodity pricing and R&D initiatives. This improvement is expected to enhance future earnings as the company anticipates sustaining higher EBIT per tonne while maintaining cost efficiencies.
  
• The Vegetable Oil segment delivered strong results owing to higher crude palm oil and palm kernel oil prices, coupled with an improved oil extraction ratio. This is likely to boost revenue growth, provided that the favorable pricing environment continues.
  
• Astec LifeSciences is anticipated to display a positive turnaround as it benefits from higher volumes in the CDMO business and improved enterprise product margins, forecasting 30% growth in CDMO for fiscal '26. This can significantly enhance future revenue and profitability.
  
• Godrej Agrovet's strategic shift in its Poultry business towards the branded segment is likely to improve long-term profitability, as seen by the significant improvement in Q3 driven by higher Live Bird prices.
  
• The Dairy segment is focusing on increasing direct farmer procurement and emphasizing value-added products, which reached 34% of total sales in Q3. This strategy is expected to stabilize margins and support steady revenue growth.

Godrej Agrovet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Godrej Agrovet's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 6.2% in 3 years time.
• Analysts expect earnings to reach ₹8.2 billion (and earnings per share of ₹42.88) by about February 2028, up from ₹4.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.4x on those 2028 earnings, down from 32.6x today. This future PE is greater than the current PE for the IN Food industry at 19.7x.
• 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 12.53%, as per the Simply Wall St company report.

Godrej Agrovet Future Earnings Per Share Growth

Risks

• The financial performance of Astec LifeSciences remains uncertain due to delays in CDMO project executions, with ongoing inventory issues in key export markets and fluctuating demand, which could negatively affect the overall revenue stability for Godrej Agrovet.
  
• Revenue from the Crop Protection business is susceptible to localized extreme weather conditions impacting sales volumes, leading to potential inconsistencies in revenue and net margins.
  
• The Dairy segment experienced temporary dips in profitability due to delayed price adjustments to increasing milk procurement costs, posing a risk to profit margins if such lag times persist.
  
• External economic challenges and political instability in markets such as Bangladesh have already led to a decline in revenues from joint ventures, potentially affecting the consolidated financial performance and earnings.
  
• Price volatility in major commodities like corn due to factors such as regulatory changes and demand from alternative sectors can significantly impact the profit margins in the Animal Feed segment, influencing overall earnings.

Valuation

• The analysts have a consensus price target of ₹825.571 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 ₹940.0, and the most bearish reporting a price target of just ₹729.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹133.1 billion, earnings will come to ₹8.2 billion, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of ₹705.2, the analyst price target of ₹825.57 is 14.6% higher.
  
• 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.