Motilal Oswal Suggests Buying This Godrej Group Stock For 32% Return, Revenue Up 26% YoY

Stock To Buy: Target Price, Current Market Price & Financials

The Current Market Price (CMP) of Godrej Agrovet is Rs. 509. Motilal Oswal has estimated a Target Price for the stock at Rs. 670. This stock has the potential to give 32% return, in the upcoming 1 year. This is a mid-cap stock with a market capitalization of around Rs. 9,761 crore.

The company's EBITDA margin contracted by 210bp YoY to 6.4%. EBITDA/adjusted PAT declined by 5%/22% YoY to Rs. 1.6b/Rs. 827m. Its dairy revenue grew 48% YoY to Rs. 3.9b, led by a 69% growth in value-added products. Operating loss stood at Rs. 24m in 1QFY23, v/s a loss of Rs. 31m in 1QFY22, due to a sustained rise in procurement and packaging costs.

Motilal Oswal: Why Should You Buy This Stock?

Maintaining a buy rating Motilal Oswal said, "Godrej Agrovet reported a subdued operating performance, with EBIT declining 62%/46% YoY in the Animal Feed (AF)/Crop Protection (CP) business. EBIT margin saw an expansion in Palm oil and GTFL. Revenue growth of 26% YoY was seen across businesses, except the standalone CP business (down 18% YoY), which was impacted due to deferred application opportunities for Agrochemicals, led by a delayed south-west monsoon in Jun'22. The AF business is expected to witness revenue/EBIDTA CAGR of 9%/14% over FY22-24, with product launches capturing a higher market share. We expect Astec Lifesciences to register double-digit growth in margin. We expect revenue/EBITDA/PAT CAGR of 11%/17%/17% over FY22-24."

"Factoring in its 1Q performance, we cut our FY23 earnings estimate by 12%, led by subdued operating performance in 1Q, coupled with volatile raw material prices. We largely maintain our FY24 earnings estimate," the firm added.

Company portfolio:

Godrej Agrovet has footprints in Animal Feed, Oil Palm, Crop Protection, Godrej Tyson Foods, ACI Godrej Agrovet for innovative, sustainable solutions to livestock and fishery farmers, Creamline Dairy Products, Astec LifeSciences, Aqua Feed, and Godrej Maxximilk. In the AF business, management has guided at a volume growth of ~10% in FY23, with an EBIT margin of 5-6%. EBIT margin in the standalone CP business is expected to be is in line/slightly higher than earlier levels. The company has envisioned a capex of Rs. 5b in FY23, of which 60% is for Astec Lifesciences (~Rs. 3b), Rs. 800m for the Palm Oil business, and Rs. 300m in the Dairy business for one more line in the VAP business due to exhaustion of capacity.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.