Shares To Buy: Godrej Company That Declared 90% Dividend, 70% Growth In PAT

Good decent numbers overall

For the quarter ending March 31, 2022, the company reported a 70.2% growth in its net profits. The profit after tax surged to Rs 110 crores from Rs 65 crores in the previous quarter ending March 31, 2021. Revenues for the quarter grew a solid 32% from Rs 1,462 crores for the quarter ending March 31, 2021 to Rs 2080 crores for the period ending March 31, 2022.

Looking at the segment wise growth, animal feed stood out. Volume growth was seen across all key feed categories - Cattle (25% in Q4, 20% in FY), Broiler (15% in Q4, 32% in FY) and layer (28% in Q4, 26% in FY).

Growth has been robust across all segments

The oil palm business saw stellar performance throughout the year driven by improvement in oil extraction ratio (OER), higher oil prices and healthy volume growth. In fact, the business grew a solid 163.8% in terms of revenues for the quarter ending March 31, 2022, when compared to the corresponding period of last year.

FFB volumes growth also improved to 38% in Q4 and 9% in FY22 as compared to same period previous year. The Astec Lifesciences business recorded a 58.2% growth on a quarter on quarter basis. Strong growth in Q4 and FY22 was driven by higher exports realizations, favorable product mix and operational efficiencies. Exports accounted for 70.8% of the segment revenues in Q4 and grew by 127.3% year-on-year. Gross margin improved to 42.8% in FY22 vs. 38.4% in FY21, supported by higher realizations and benefits from investment in backward integration.

Godrej Tyson Foods and Cream Business too see strong momentum

Godrej Tyson Foods which sells chicken nuggets, chicken sausage under the yummiez brand saw strong topline growth in Q4 and FY22 led by Real Good Chicken (RGC) and Live Bird categories. Volumes grew by 18.7% in Q4 and 21.9% in FY22. RGC volumes increased by 60.9% in FY22 vs FY21. The creamline dairy business was not to be left behind.

Strong volume growth momentum in value-added products sustained in Q4 (+16.4% year-on-year) driving overall revenue growth. FY22 growth was also driven by value-added products (+27.3% year-on-year); however, margins were under severe pressure due to covid-led disruption in H1 FY22 and elevated input costs throughout the year which could not be transmitted. Overall, it was a good segment wise performance across categories, though margins were under pressure. However, the company did make this up with good volume growth.

Valuations and view

The company has seen good growth across product categories and there is reason to believe the momentum would continue. While the promoters hold 71.6% of the stock, Foreign Portfolio Investors hold a solid 14.3% and domestic institutions 5.6%. There is barely 8% of the stock left with retail investors. We believe that Godrej Agrovet can do an EPS of Rs 30 by 2023-24 looking at the growth potential. We believe that if we discount the shares by 25 times, the stock should trade at Rs 750, as against the current market price of Rs 528. The shares are also available with a dividend of Rs 9 per share. Buy the shares for an upside of 40 to 50% in the next 2-years.