Godrej Agrovet Limited - IPO Note - Sushil Finance

COMPANY OVERVIEW

Godrej Agrovet Limited is a diversified research and development focused agri-business company. They operate across five business verticals: Animal feed, Crop protection, Oil palm, Dairy and Poultry and processed foods.

The company has a 50:50 joint venture in Bangladesh, ACI Godrej, which produces animal feed products in that country. In India, the company is the largest manufacturer of animal feed in terms of capacity. The company enjoys a pan-India network of distribution with approximately 4,000 distributors.

In the crop protection business, the company acquired Astec Lifesciences, a manufacturer of agrochemical active ingredients and formulations which are sold across the globe. The company has signed a MOU with 9 state governments which gives them access to 61,700 acres of land for oil palm plantation, which is 1/5th of the suitable land for such plantation.

Godrej Agrovet is the largest producer of palm oil in India.

In the dairy business, they operate through their subsidiary Creamline Dairy and their products are marketed under the Jersey brand across the states of Telangana, Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra.

Under the poultry business they have a joint venture with Tyson Foods Inc., USA, which is an experienced player in the field of selling poultry and processed products. Godrej Agrovet sells poultry under the Real Good Chicken brand and veg and non-veg processed foods under the Yummiez brand.

HIGHLIGHTS

- Pan-India presence with extensive supply chain and distribution network.
- Diversified business with synergies in operations.
- Strong R&D capabilities.
- Strong parentage and established brands.
- Experienced promoters and management team.

Objects of the issue

- Repayment or prepayment of working capital facilities availed by the company (Rs. 100 Cr.)
- Repayment of commercial papers issued by the company (Rs. 150 Cr).
- General corporate purposes, subject to applicable laws.

OUR VIEW

The company is well diversified with product offerings in 5 segments with each segment being well established in its space. The experience and backing of one of the oldest business houses of the country, Godrej, and strategic collaborations and acquisitions with industry experts has helped the company in achieving success in these segments.

On the financial front, the company has a consistently growing top line which has grown at a CAGR of 12% over the last 5 years. The EBITDA and PAT have grown at 21% and 23% CAGR over 5 years.in F.Y. '17 the company had ROE of 22% and ROCE of 31%. The Profit Margin for F.Y. '17 was 5.5%. Looking at the valuation, the asking price of 460 comes at 7 times the book value and the P/E Ratio comes to around 40 and seems to be reasonably priced.

Since the company is into animal products, on moral grounds as an internal policy we do not recommend the company and suggest investors to deduce their own view based on the business and financials.

Source : Equity Bulls

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