Godrej Agrovet Rating – Add: Spike in palm oil prices boosts outlook

For each 5% enhance in palm oil prices, Godrej Agrovet’s earnings can enhance by c.2%.

Higher palm oil prices (up 60% y-o-y) have elevated realisations in addition to profitability of Godrej Agrovet’s vegetable oil phase. Lower provides from South-East Asia are resulting in greater palm oil prices in India. With gradual reopening of the financial system, demand from HoReCa phase is probably going to enhance, which can additional enhance palm oil prices. For each 5% enhance in palm oil prices, Godrej Agrovet’s earnings can enhance by c.2%.

Customs responsibility on palm oil imports has been minimize from 37.5% to 27.5%. However, we imagine there’s nonetheless a big hole between Indian and imported palm oil prices and this differential will guarantee wholesome demand for palm oil produced by GAVL. We stay assured of worth creation (RoE > Cost of Equity) by Godrej Agrovet and keep our Add ranking with a DCF-based mostly goal value of Rs 560 (27x FY22e).

Sharp enhance in palm oil prices: Demand for palm oil in India continues to be muted contemplating weaker demand from HoReCa phase. Higher demand from HoReCa is more likely to push palm oil prices upwards.

Expect profitability of ‘vegetable oil’ phase to extend: Company generates c.10% revenues and c.19% Ebit from its vegetable oil phase. Revenues in addition to margins of the phase will enhance with greater prices of palm oil. Improving demand and better promoting prices, coupled with beneficial base, will enhance profitability of the phase.

Maintain Add: We anticipate the company to report income and PAT CAGRs of 6.9% and 12.3% respectively, over FY20-FY22e.

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