Godrej Agrovet IC Jan18

Equity Research
January 16, 2018 INDIA

BSE Sensex: 34844
ICICI Securities Limited

Godrej Agrovet BUY
is the author and
distributor of this report
High quality play Rs624
Reason for report: Initiating coverage
We initiate coverage on Godrej Agrovet (GAVL) with a BUY rating and DCF based
target price of Rs723 (implied PE of 34x FY20E EPS). We like the business due to
Agriculture three key reasons: 1) The company has developed multiple moats which allow it
to generate return ratios in excess of cost of capital, 2) it operates in large
Target price Rs723 unorganised markets where it can continue to grow in excess of nominal GDP
growth through market growth and market share gains, and 3) diversification
across multiple sub-segments of agri which helps maintain growth rates and
Shareholding pattern
Oct ‘17 margins despite pressure on any one segment. We expect the company to report
Promoters 68.8 revenue and PAT CAGRs of 11.4% and 20.6% over FY17-20 with return ratios
Institutional
investors 18.4 above cost of capital.
MFs and UTI 1.7  Strong moats in growing segments: GAVL operates in multiple growing
FIs/Insurance 0.7
FIIs 16.0 segments. Cattle & aqua feed, crop protection, palm oil plantation and dairy
Others 12.8 segments have grown at CAGR of more than 10% over past 5 years. The company
Source: BSE
has reported revenue CAGR of 15.5% over FY13-17. It has created multiple moats
which enable it to enjoy return ratios in excess of cost of capital. The moats include
Price chart 1) established promoter brand like Godrej, 2) multiple brands in each segment, 3)
640 strong distribution network and 4) manufacturing units across India. We also like
620 GAVL’s strategy to operate at single-digit EBIT margins which restricts other players
600 to play pricing games to gain market shares.
(Rs)
580
560
 Well diversified business model: GAVL operates in four major segments: Animal
540 feed, agri chemicals, palm oil plantations and dairy. It also has presence in animal
520 feed business in Bangladesh and poultry meat products in India. This helps the
500 company maintain healthy growth rates as well as profitability even if one segment
Oct-17
Nov-17
Dec-17
Jan-18
is under pressure.
 Major Player in unorganised industries: GAVL largely operates in segments
where the organised competitive pressure is relatively lower. The share of
organised market is less than 40% in segments such as cattle feed, dairy and palm
oil plantations. We reckon there are multiple smaller players in poultry feed and crop
protection chemicals; with demonetisation and GST roll-out, we expect unorganised
players to lose market shares to organised players like GAVL.
 Initiate with BUY: We expect the company to report PAT CAGR of 20.6% over
FY17-20 and stable return ratios. We value the stock on a DCF basis to arrive at a
target price of Rs723. Assumptions include cost of equity at 11.8% and terminal
growth rate of 5%. At our target price of Rs723 and FY20E EPS of Rs21.0, the
stock trades at PE of 34x.
Market Cap Rs120bn/US$1.9bn Year to Mar FY17 FY18E FY19E FY20E
Reuters/Bloomberg GODE.BO / GOAGRO IN Revenue (Rs mn) 49,111 52,155 59,505 67,916
Shares Outstanding (mn) 192.0 Net Profit (Rs mn) 2,291 2,421 3,366 4,017
52-week Range (Rs) 624/529 Dil. Rec. EPS (Rs) 12.4 12.6 17.6 21.0
Free Float (%) 31.2 % Chg YoY 35.4 2.1 39.0 19.3
FII (%) 16.0 P/E (x) 50.4 49.4 35.5 29.8
Research Analysts: Daily Volume (US$'000) NA CEPS (Rs) 16.4 17.1 22.6 26.5
Absolute Return 3m (%) NA EV/EBITDA (x) 28.4 30.2 23.6 20.6
Aniruddha Joshi Absolute Return 12m (%) NA 0.7 0.8 1.0 1.0
Aniruddha.joshi@icicisecurities.com Dividend Yield (%)
+91 22 6637 7249 Sensex Return 3m (%) 7.6 RoCE (%) 15.7 15.8 20.4 21.8
Sensex Return 12m (%) 29.6 RoE (%) 23.8 17.4 19.5 20.4
Please refer to important disclosures at the end of this report
Godrej Agrovet, January 16, 2018 ICICI Securities
TABLE OF CONTENT
Godrej Agrovet: High quality play .................................................................................. 3

Decoding Godrej Agrovet’s business model ................................................................ 4
Key moats and ‘rights to win’ for Godrej Agrovet ............................................................ 5
Healthy growth potential across segments .................................................................. 8
Salient features of animal feed business ...................................................................... 14
Godrej Agrovet enjoys multiple moats in animal feed business ................................... 16
Crop protection segment .............................................................................................. 18
Palm oil plantations ....................................................................................................... 24
Dairy segment ................................................................................................................28
Other businesses ........................................................................................................... 35
Financial performance................................................................................................... 38
Key assumptions ........................................................................................................... 41
Valuation ......................................................................................................................... 42
DCF-based valuation .................................................................................................... 42
About the promoters and management team ............................................................. 43
Financials........................................................................................................................ 44
Index of tables and charts............................................................................................. 47
2
Godrej Agrovet: High quality play

Winner company = Strong return ratios (> WACC) + earnings growth
(> nominal GDP) + established management
Godrej Agrovet’s average RoE is above 25% over past 5 years and we expect it to
remain strong (higher than cost of capital) going forward. The company has reported
PAT CAGR of 24.1% over FY13-17 (higher than nominal GDP growth). Considering
established promoter group (Godrej) and strong professional management led by Mr.
Balram Yadav, we believe Godrej Agrovet passes the entire criterion for a good
investment idea.
Chart 1: RoE and growth dynamics
Growth
(?) Multibaggers
(Godrej Agrovet)
Nominal GDP (~10%)
No investment zone Dividend Plays
RoE
WACC(~13%)
Source: Company data, I-Sec research
3
Decoding Godrej Agrovet’s business model

Godrej Agrovet is a strong play on Indian agriculture with the company focusing on
multiple agri segments such as animal feed, Crop protection, palm oil plantations and
dairy. The company’s business segments and revenue breakup are as follows.
Chart 2: Godrej Agrovet’s business segments
Godrej Agrovet
(53%) (16%) (10%) (21%)
Palm oil Associates and

Animal Feed Crop Protection Dairy
plantations JVs
Cattle Astec Godrej

Milk
Feed Life Tyson
Poultry Value ACI Godrej

Feed added Bangladesh
products
Aqua
Feed
Key segments of the company: The company is focused on multiple ‘agri input
segments’ such as animal feed and crop protection. It also focusses on multiple ‘agri
output’ segments such as palm oil, dairy and organised chicken products.
 Animal feed – Engaged in business of animal feed required for poultry, cattle and
fish
 Crop protection – Crop protection chemicals such as fungicides, insecticides,
herbicides, organic manures and plant growth regulators
 Palm oil plantations – Plantations and refining of palm oil
 Dairy – Milk and value added dairy products
Chart 3: Revenue breakup of GAVL Chart 4: EBIT breakup of GAVL
Animal feed Vegetable oil Crop protection Dairy Others Animal feed Vegetable oil Crop protection Dairy Others
120% 110%
100%
100% 90%
80%
80% 70%
60%
60%
50%
40% 40%
30%
20% 20%
10%
0% 0%
FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17
4
Key moats and ‘rights to win’ for Godrej Agrovet

The company has developed multiple moats over a period of time and we believe it
will help the company to enjoy stronger return ratios as well as maintain healthy
growth. Key moats and ‘rights to win’ are as follows.
 Strong advantage of Godrej brand
 Multiple brands for other segments
 Established distribution network
 Focus on high RoI segments
 Focus on large unorganised segments which will move to organised
 EBIT margins in single digits help to ease competitive threat
Strong advantage of Godrej brand
The company enjoys the advantage of Godrej brand. Being the trusted brand across
rural and urban markets, Godrej Agrovet enjoys decisive advantage over its peers.
With almost nil royalty payments, we reckon the company enjoys a big moat in almost
all segments. Godrej is one of the few Indian mega brands (Others include: Tata,
Mahindra) that can be consumed across most products.
Multiple brands for other segments
Apart from Godrej brand, the company has successfully established other brands
across segments. It has a portfolio of brands such as Bovino, Milk more, Bypro,
Mixbro, Value Max and Super star in animal feed segment. In crop protection
segment, it has winning brands such as Vipul, Double Combine and Hitweed. Its dairy
business is under the brand equity of Creamline Jersey. The chicken and other meat
products are sold under the brand equity of Real Good, Tyson and Yummiez.
Table 1: Multiple brands of the company
Segment Sub-segment Brands
Mother brand Godrej
Dairy Creamline Jersey
Chicken products Chicken Read Good, Tyson
Value added products Yummiez
Animal feed Cattle Feed Bovino
Transfeed
Bypro
Milk more
Cream label
Moo Magicmix
Poultry feed Mixbro
Value max
Super star
Excel
Elite
Hi Gain
HPBC
Crumbro
Crumegg
Aqua feed Indica
Spark
Grow plus+
NutriFry
Shakti
White Diamond
Crop Protection Plant growth regulators Vipul, Double, Combine,
Herbicide Hitweed
Insecticides Theron
Fungicides Billiards, Otivan, Turnus
5
Established distribution network
The company has developed a strong distribution network across segments.
Considering the company operates in rural areas, establishing distribution is more
difficult than urban markets. With established distribution network, we expect the
company to enjoy access to large customer base and it will be able to roll out multiple
new products at faster pace than peers. It can also leverage the distribution network of
one segment to drive revenues of other segments.
Chart 5: Established distribution network across segments
120,000
100,000
80,000
(No fo outlets)
60,000
40,000
20,000
0
Dairy Animal feed Crop protection
Focus on high RoI segments

While diversifying the business model, the company has entered high RoE
businesses. Most segments of the company enjoy return ratios above 30% (higher
than cost of capital). This has ensured that the company offers the benefits of
diversification along with strong return ratios.
Table 2: Strong return ratios (RoCE) across segments
Segment (%) FY13 FY14 FY15 FY16 FY17
Animal feed 393.2 610.6 102.7 48.8 72.1
Vegetable oil 33.9 33.3 36.6 35.2 59.1
Crop protection 57.9 82.7 55.6 30.1 33.9
Focus on large unorganised segments which will move to organised

The company operates in largely unorganised segments as it allows strong
competitive advantage with established brands, distribution, manufacturing units pan-
India, and strong balance sheet. We reckon the company can continue to gain market
shares from unorganised players in coming years without hurting its financials. With
regulatory changes such as demonetisation and roll-out of GST, organised players are
expected to grow ahead of unorganised players.
6
Chart 6: Presence in several unorganised markets
Organised Unorganised
120
100
80
60
40
20
0
Broiler Layer feed Cattle feed Fish feed Shrimp Crop Poultry Dairy
feed feed protection meat
EBIT margins in single digits help to ease competitive threat

Company’s EBIT margins are less than 10% for its animal feed and dairy segment.
This protects the company from competitive pressure due to pricing. A competitor may
incur losses if it reduces prices to gain market shares.
Table 3: EBIT margins in low single digits reduce pricing threats by peers
Particulars FY13 FY14 FY15 FY16 FY17
Animal Feed 6.3 7.2 8.3 7.2 6.3
Dairy* 3.7
Godrej Agrovet 6.3 6.9 8.1 6.5 7.4
Source: Company data, I-Sec research *Dairy business consolidated from FY16
7
Healthy growth potential across segments

Animal feed
Godrej Agrovet sells animal feed in India and it is present in cattle feed, aqua feed and
poultry feed. The company has also entered the Bangladesh market to sell organised
animal feed by entering a JV with ACI, Bangladesh.
Globally, the animal feed industry is divided in 4 segments: Poultry (45%), pig feed
(26%), cattle (20%), and fish and shrimp (accounting for the rest). However, India
lacks pig feed segment. Poultry accounts for 67% of market in India, whereas cattle
and aqua feed account for 21% and 12% of animal feed market respectively.
Chart 7: Animal feed: Global Chart 8: Animal feed: Indian Chart 9: Animal feed: Godrej
industry industry Agrovet
Other Other Shrimp &
feed feed Fish
Aqua feed 0%
Aqua feed 5% 12% 15%
4%
Cattle
feed Cattle
Poultry feed
20% feed 21% Poultry
45% 49%
Pig feed Poultry

0% 67% Cattle
Pig feed
36%
26%
Poultry feed market in India

The poultry feed industry is further divided in 2 segments in India. The broiler feed
accounts for 85% of the industry, and roughly 90% of the broiler feed industry is
organised. Layer feed is 15% of the industry and 30% is organised.
Chart 10: Breakup of poultry feed industry in India
Poultry feed
(15%) (85%)
Layer Broiler
(30%) (70%) (90%) (10%)
Organised Unorganised Organised Unorganised
8
Chart 11: Breakup of poultry feed industry in India (As per players)
Poultry feed industry
(80-85%) (15-20%)
players players
(70-75%) (10-15%)
Integrators Specialist feed Individual

manufacturers farmers
Rising per capita consumption of chicken and eggs in India

The per capita consumption of chicken and eggs is on the rise in India. We reckon the
inflation in meat products is lower than the inflation in vegetarian products, indicating
better affordability of meat in India. Rising demand is allowing farmers to invest in
improving productivity of animals. Usage of organised animal feed is one of the ways
to improve productivity.
Chart 12: Rising per capita consumption of chicken in India
Per capita consumption of Chicken

3.5
3.0
(kg/person/year)
2.5
2.0
1.5
1.0
0.5
-
2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Benefits for farmers by using organised animal feed

The farmer benefits from improvement in productivity of animals as well as
convenience. Usage of animal feed leads to increase in number of eggs in one year. It
helps improve the weight of chickens, resulting in better realisations for the farmers.
Table 4: Benefits to farmers by using organised animal feed
Particulars Unorganised feed Organised feed
Number of eggs in 52 weeks 285 325
Selling weight of hen after 52 weeks x 1.1x to 1.2x
9
Expect steady growth of 10%+ in coming years
We expect the organised poultry feed industry to grow at more than 10% per annum in
coming years due to 1) higher penetration of organised animal feed, 2) growth in
poultry animals at CAGR of ~1%, and 3) inflation in animal feed prices.
Chart 13: Steady growth of poultry feed market in India
800
700
600
500
(Rs bn)
400
300
200
100
0
FY17 FY20
10
Cattle feed in India
The cattle feed market in India is largely unorganised with share of organised market
at just 12%. Out of the organised feed industry, 70% of animal feed is sold by co-
operatives and private dairy players. Only 30% of organised cattle feed is sold by
independent animal feed manufacturers such as Godrej Agrovet.
Chart 14: Breakup of cattle feed industry in India
Private
playes
30%
Unorganised Organised
88% 12%
Co-
operatives
70%
Milk productivity per animal amongst lowest in India

We note milk productivity per animal is one of the lowest in India. The key reasons for
low productivity are 1) breed with lower milk giving capacity, and 2) inferior quality of
feed. There is aggressive usage of artificial insemination to improve the breed for
higher milk productivity. The farmers are also using organised animal feed to improve
milk yield.
Chart 15: Low milk productivity of cows in India
12,000
(Liters/Cow per annuam)
10,000
8,000
6,000
4,000
2,000
0
USA
Finland
India
Saudi Arabia
Sweden
Japan
Denmark
Israel
Canada
Spain
World average
11
Benefits to farmers from higher productivity
The farmers benefit from higher productivity of animals in terms of 1) higher milk yield
per bovine, 2) higher number of calves in a lifetime of bovine, and 3) convenience.
Table 5: Benefits* to farmers due to usage of organised cattle feed

Particulars Organised Unorganised
Number of calves 4 2
Sale proceeds of calves (Rs) 100,000 50,000
Milk (Liters) (15/12ltrs/day for 3/2 years) 16,425 8,760
Milk value (@Rs30/ltr)) 492,750 262,800
Sale proceeds of the bovine (Rs) 115,000 100,000
Total revenues in 5 years (Rs) 707,750 412,800
Source: Company data, I-Sec research *In timeframe of five years
Expect steady growth of ~10% in coming years

We expect the organised cattle feed industry to grow at ~10% per annum in coming
years due to 1) ~1.5% growth in number of bovines in India, 2) rising penetration of
organised animal feed, and 3) inflation in cattle feed prices.
Chart 16: Steady growth of cattle feed market in India

10
9
8
7
6
(mn te)
5
4
3
2
1
0
FY14 FY17 FY20P
12
Aqua feed in India
The aqua feed market has 2 segments: Fish and shrimp feed. Fish feed accounts for
25% of the industry and shrimp feed accounts for 75%. Organised players account for
50% share of fish feed market whereas organised players account for 80% of shrimp
feed market.
Chart 17: Breakup of aqua feed industry in India
Aqua feed
(25%) (75%)
Fish feed Shrimp feed
(~50%) (~50%) (~80%) (~20%)
Organised Unorganised Organised Unorganised
Usage of shrimp feed to comply with international standards

Out of total shrimp industry, ~80% of shrimps are exported out of India. To comply with
international standards, Indian shrimp farmers do not compromise on quality of shrimp
and use organised feed. Shrimp sales have clocked 23% CAGR over FY13 to FY17,
resulting in healthy growth of shrimp feed industry.
Chart 18: Growth of seafood industry in India
Domestic Exports
1200
1000
800
(Rs bn)
600
400
200
0
FY11 FY12 FY13 FY14 FY15 FY16
Expect growth of ~10% in coming years

The fish feed market has clocked CAGR of 6-7% over FY13-17 and it is expected to
register CAGR of 8-9% over next 3 years. The shrimp market is expected to clock 17-
18% CAGR over FY17-20 due to rising exports. This is expected to result in low
double-digit growth for aqua feed market in India.
13
Chart 19: Steady growth of fish feed market Chart 20: Growing shrimp feed market in India
30 120
25 100
20 80
(Rs bn)
(Rs bn)
15 60
10 40
5 20
0 0
FY13 FY17 FY20P FY13 FY17 FY20P
Salient features of animal feed business

We note the animal feed business offers healthy growth potential and salient features
of animal feed business are as follows.
 Strong correlation between monsoon and animal feed business

 Inflation in maize prices is lower than rural wage growth rate
 Integration in the animal feed industry
Strong correlation between monsoon and animal feed business
Though there is limited history, we believe there is strong correlation between
monsoon deficit and usage of animal feed. The monsoon has direct impact on both the
income levels of farmers as well as the productivity of the animals. The animal feed
segment reported weak results in FY15 and FY16 due to weak monsoon. However,
with normal monsoon in FY17 and FY18, revenue growth rates should improve.
Chart 21: Correlation in monsoon deficit and usage of animal feed
Monsoon deficiency Animal feed growth

10
0
(%)
(5)
(10)
(15)
FY14 FY15 FY16 FY17 FY18E
14
Wages are growing at faster than inflation in maize
The farmer has 2 choices in case of animal feed: 1) Procure animal feed from animal
feed companies, or 2) hire labour to prepare the animal feed. We note that maize is a
key raw material for animal feed and inflation in maize prices is less than increase in
agri wages. Hence, it is cost effective for the farmer to procure the ready meal instead
of incurring higher labour charges.
Chart 22: Rural wages growth rising at faster pace than maize inflation
WPI: Maize Rural wages
450
400
350
300
250
200
150
100
50
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Company data, I-Sec research (Rebased to 100) maize is a key RM for animal feed
Integration in the animal feed industry

We believe that animal feed industry is moving steadily towards integration. Dairy
companies such as Heritage, Hatsun or poultry companies such as Venkys are selling
their own animal feed to their farmers. Hence, farmers associated with these
companies will be required to use the animal feed supplied by these companies. In the
long run, this may shrink the addressable market for pure play animal feed
manufacturers like Godrej Agrovet.
Realizing the changing dynamics of the animal feed industry, GAVL has entered the
dairy and poultry business. Growth of Creamline as well as Godrej Tyson will create
captive market for Godrej Agrovet.
Chart 23: How the value chain works in the industry?
Animal feed
Farmer Milk Company
Milk
15
Godrej Agrovet enjoys multiple moats in animal feed business

Godrej Agrovet enjoys multiple advantages in this business as
 Brands: Apart from brand Godrej, GAVL has established a portfolio of products
across price points and across the needs of the target animals.
 Distribution network: The company boasts of strong distribution network with
80,000 retail outlets, stronger than any animal feed company in India.
 Manufacturing units pan-India: It has established 35 manufacturing units pan-
India. Since animal feed is high volume and low value product, freight cost is
higher, resulting in need for multiple manufacturing units across the country. With
35 manufacturing units (owned + outsourced), we reckon Godrej Agrovet can keep
its freight costs minimal.
Table 6: Strategic advantages for the company
Right to win Particulars
Major brand Godrej
Other brands Milkmore, Bovino, Bypro, Mixpro
Distribution outlets (Numbers) 80,000
Manufacturing units (Owned+ Outsourced) 35
Strategy of single-digit margins to shield from competitive pressures

The company’s EBIT margins are in a 5-8% range. We believe focus on lower margins
is a key strategy as it restricts competitors from playing pricing games to win market
shares. We reckon company’s price hikes are in the range of 5-6% per annum, lower
than nominal GDP growth, resulting in greater product affordability for end consumers.
Chart 24: EBIT margin of animal feed segment in mid-single digits
EBIT margin Average
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
FY13 FY14 FY15 FY16 FY17
Sub-segmentation strategy
Instead of launching just one product, the company has introduced multiple products
targeted at diverse needs of the animals. In case of cattle feed, it has introduced
different feed for calf, lactating cow, and feed for improving productivity. It has also
rolled out feed mix for adding to different types of feeds. Similarly, it has introduced a
portfolio of products across needs of poultry and fish and shrimp.
16
We note this strategy allows the company to target consumers across needs. Apart
from differentiated products, Godrej Agrovet has introduced multiples SKUs at
different price points.
Chart 25: Sub-segmentation strategy of the company
Godrej Agrovet
Cattle Feed Poultry Feed Aqua Feed
Calf Broiler White shrimp

Bovino Calf starter, MixBro, Valuemax, Indica
Bovino Calf grower Excel Broiler pre-
starter, Excel Broiler
Finisher Fish feed
Lactating cows
Spark, Grow plus,
Bovino Lactation Nutrifry
Layer
Valuemax, Moreggs
Buffalo Floating feed
Dudhratna Buffalo feed Shakti
To improve milk
productivity
Milk More
Feed mix
Moo Magicmix
Comparison with key players in animal feed segment

While there are no direct peers in the animal feed segment, we have made
comparison with Avanti Feeds which is largely present in aqua feed. Aqua feed is
used for shrimp which is primarily an export market. We note GAVL enjoys better
return ratios compared to Avanti, despite lower EBIT margin. However, revenue
growth is much lower than Avanti as GAVL is focused more on domestic markets
which were impacted by deficient monsoon in FY15 and FY16, whereas Avanti
focusses on feed for shrimp export industry.
Table 7: Comparison with key players in the industry
EBIT margin FY13 FY14 FY15 FY16 FY17
Godrej* 6.3 7.2 8.3 7.2 6.3
Avanti 7.0 9.4 9.7 10.5 10.5
RoCE
Godrej 393.2 610.6 102.7 48.8 72.1
Avanti 27.5 50.6 62.2 56.5 55.4
Revenue growth
Godrej 8.2 4.9 0.0 3.0
Avanti 74.6 57.4 13.3 31.5
Source: Company data, I-Sec research * Animal feed segment
Expect steady revenue growth and margins in coming years

Table 8: Revenues growth and margins over FY17-20
Particulars FY16 FY17 FY18E FY19E FY20E
Revenues 25,442 26,208 26,520 30,214 34,432
Growth (%) 3.0 1.2 13.9 14.0
EBIT 1,837 1,657 1,557 2,056 2,367
Margin (%) 7.2 6.3 5.9 6.8 6.9
17
Crop protection segment

Limited scope to grow land under cultivation in India
India’s land under cultivation has grown at CAGR of just 0.1% over FY1967 to
FY2015. However, population continues to grow at CAGR of ~1.6% per annum. The
additional requirement of foodgrains and clothing is expected to be met through better
agri productivity. We believe this will result in higher demand for agri inputs.
Chart 26: Land under cultivation in India growing at meager rate of 0.1% p.a.
135
130
125
(mn Hectares)
120
115
110
105
FY67
FY69
FY71
FY73
FY75
FY77
FY79
FY81
FY83
FY85
FY87
FY89
FY91
FY93
FY95
FY97
FY99
FY01
FY03
FY05
FY07
FY09
FY11
FY13
FY15
Low per hectare usage of crop protection chemicals in India

The usage of agri inputs is lower in India than most of the countries. Considering rising
awareness among farmers, usage of pesticides for improving productivity as well as
insurance, we expect the usage of pesticides per hectare to expand ahead.
Chart 27: Per hectare usage of Crop protection chemicals in India

18
16
14
12
(kg/hectare)
10
0
Taiwan China Japan USA France UK India
18
Benefits to farmers by using agri inputs
Usage of crop protection chemicals results in higher farm produce. For every rupee
invested in crop protection chemicals, the farmer generates Rs2+ depending on the
crop. We reckon this indicates strong growth potential of the agri inputs segment.
Chart 28: Benefits to farmers by usage of Crop Table 9: Losses that can be avoided with use of
protection chemicals Crop protection chemicals
10% Loss Cost of Agrochemicals Crop Avoidable losses (%) Cost: benefit ratio
Cotton 49-90 1:07
25,000
Rice 21-51 1:07
20,000 Mustard 35-75 1:12

Sunflower 36-51 1:08
(Rs/hectare)
15,000 Groundnut 29-42 1:28

Maize 20-25 1:03
10,000
Sugarcane 08-23 1:13
Pulses 40-88 1:04
5,000
Vegetables 30-60 1:07
0 Fruits 20-35 1:04

Paddy Wheat Cotton
Source: Company data, I-Sec research Source: Company data, I-Sec research
Rising labour costs to result in higher usage of herbicides

Insecticides are a larger segment in India compared to global standards. We believe
1) higher usage of genetically modified (GM) seeds, and 2) higher labour charges
result in higher share of herbicides globally. With rising labour costs in India, the usage
of herbicides is on the rise.
Chart 29: Global consumption of herbicides, insecticides and fungicides vis-à-vis that in India
Global Others India

Others
5%
4%
Herbicides
20%
Fungicides Fungicides
26% 21%
Herbicides
45%
Insecticides Insecticides
25% 54%
Table 10: Benefits to farmers due to usage of herbicides (Per acre)

Particulars Labour Herbicides
Man-days required 20 3
Cost per man-day (Rs) 180 180
Total labour cost (Rs) 3,600 540
Cost of herbicide (Rs) NA 700
Total cost (Rs) 3,600 1,240
19
Growing crop protection industry in India
With rising usage of pesticides, the industry has clocked CAGR of 9% over FY13 to
FY17. The herbicides and fungicides segments are expected to drive growth in the
industry. Lower share of cotton insecticides will result in lower growth of insecticides
industry.
Chart 30: Growing crop protection industry in India
250
Domestic crop protection industry
200
150
(Rs bn)
100
50
0
FY13 FY14 FY15 FY16 FY17 FY18P FY19E FY20E
Segments of crop protection chemicals

We reckon paddy, wheat and cotton account for more than 60% share of the
pesticides. With rising usage of BT cotton seeds, the need of insecticides for cotton
may reduce. However, usage of herbicides will be on the rise due to rising labour
costs. Fungicides are also growing at faster pace than insecticides with horticulture
production growing ahead of food grains.
Chart 31: Segments of crop protection chemicals
Insecticides Fungicides Herbicides Others
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
20
Distribution a key growth driver for Godrej Agrovet
The distribution network plays a key role in agro chemicals. There are ~100,000 retail
outlets in India selling agro chemicals. Godrej distributes through ~25,000 retail
outlets. Steady growth in distribution can also drive the growth of Godrej Agrovet.
We also note the company’s sales per outlet is comparable with other crop protection
companies.
Chart 32: Strong scope to expand no. of outlets Chart 33: Comparable sales per outlet for peers#
Number of outlets 200,000

90,000
180,000
80,000
70,000 160,000
60,000 140,000
(Sales/Outlet - Rs)
50,000
120,000
40,000
100,000
30,000
20,000 80,000
10,000 60,000
0 40,000
Dhanuka
Insecticides
PI
Godrej
20,000
-
PI Godrej Insecticide Dhanuka
Source: Company data, I-Sec research * Outlets of Insecticides India #Considered only domestic revenues
Astec to focus on exports market

GAVL acquired Astec Life Sciences in FY16 to focus on export opportunity as well as
leverage strengths developed by Astec in domestic markets. As of now, Astec is
focusing on exports market and some global players such Nufarm, Syngenta, Adama,
Dupont account for more than 50% of sales.
Table 11: Key financials of Astec Chart 34: Growth of exports market
Particulars FY13 FY14 FY15 FY16 FY17
160
Net sales 1,748 2,070 2,669 2,330 2,987
140
EBITDA 270 348 372 284 523
120
Export market (Rsbn)
Net profit 62 91 261 62 263

100
EBITDA margin
15.5 16.8 13.9 12.2 17.5
(%) 80
PAT margin (%) 3.5 4.4 9.8 2.7 8.8
60
RoE (%) 1.5 2.1 5.2 1.2 5.1 40
RoCE (%) 7.6 9.2 10.0 7.1 15.1 20
Net debt/Equity (x) 0.6 0.7 0.6 1.0 0.9
0
Working capital FY13 FY14 FY15 FY16 FY17
131 137 129 158 155
days
21
Product portfolio of the company
The company is present in all 5 segments of agri chemicals. It sells multiple generic
products. Major brands of the company include Double, Vipul, Combine and Hitweed.
Godrej Agrovet has also introduced 6 new products in past 3 years. It recently
introduced Oryzostar brand (bispyribac sodium) which can take market share from the
market leader Nominee Gold of PI Inds.
Table 12: Product portfolio of the company

Segments Brand Target crop Technicals
Vipul Multiple crops
Plant growth regulators Double Multiple crops
Combine Grapes
Hitweed Cotton Pyrithiobac sodium
Herbicide
Weednash Multiple crops 2,4-D Dichlorophenoxy Acetic acid
Imediate Cotton, Rice Imidacloprid
Insecticides Elpida Pulses Emamection Benzonate
Harina Rice Fipronil
Mancozvip Multiple crops Mancozeb
Fungicides
Siltor Multiple crops Sulpher
Organic manure Vikas Multiple crops Neem based products
Launch of Orzyzostar (Bispyribac sodium)

Considering the land under cultivation of rice and irrigation facilities, we note the
addressable market for products like Oryzostar is ~25.9mn hectares. The current
penetration of existing products is less than 10% which indicates healthy growth
opportunity for most of the products with Bispyribac sodium. We expect GAVL to see
healthy revenue growth from Oryzostar in FY18 as well as FY19.
Table 13: Strong growth potential of bispyribac sodium

Particulars FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Area under cultivation (mn hectares) 41.9 43.7 43.8 43.9 45.5 41.9 42.9 44.0 42.8 44.1 44.1 43.4
Irrigation levels (%) 55.2 56.8 58.0 57.7 58.8 57.7 58.8 58.6 58.5 59.6 59.6 59.6
Area under irrigation (mn hectares) 23.1 24.8 25.4 25.3 26.8 24.2 25.2 25.8 25.0 26.3 26.3 25.9
Bispyribac sodium usage per hectare (ml) 400

Total market size in FY17 (mn litres) 10.3
Current market size (mn litres) 1.0
Penetration ~10%
22
Comparison with other Crop protection companies
Table 14: Comparison with key Crop protection players
EBIT margin (%)
Godrej# 22.5 21.4 25.1 19.1 22.1
PI 12.9 14.7 15.5 18.1 21.2
Dhanuka 13.3 15.7 16.0 16.2 17.6
Insecticides 10.3 8.7 10.0 7.6 8.9
RoCE (%)
Godrej 57.9 82.7 55.6 30.1 33.9
PI 23.8 32.4 34.8 31.8 30.7
Dhanuka 26.5 33.2 30.2 28.0 28.9
Insecticides 16.2 15.6 16.8 11.9 14.3
Revenue growth (%)

Godrej 37.4 10.3 47.9* 54.2
PI 30.2 41.3 19.0 0.0 8.6
Dhanuka 10.0 26.8 6.3 5.6 5.4
Insecticides 18.2 40.1 11.6 2.5 12.1
Source: Company data, I-Sec research *partially led by Astec acquisition #Crop protection segment
Table 15: Financials of crop protection segment

Revenues 4,959 7,647 8,412 9,719 11,237
Growth (%) 54.2 10.0 15.5 15.6
EBIT 949 1,692 1,590 2,100 2,417
Margin (%) 19.1 22.1 18.9 21.6 21.5
23
Palm oil plantations

Overview of palm oil segment
Palm oil is largely imported in India from South East Asian countries and in order to
control the imports of palm oil, government has initiated the oil palm development
program (OPDP). This initiative encourages cultivation of palm oil trees in India.
Instead of investing on its own, government has roped-in corporates to invest in palm
oil business while protecting the interest of farmers. Under this program, the
production of palm oil fresh fruit bunches has increased from 0.3mn tonnes in FY07 to
1.3mn tonnes in FY16 at CAGR of 19.5%.
Chart 35: Production of oil palm fresh fruit bunches in India

1,400,000
1,200,000
1,000,000
800,000
(te)
600,000
400,000
200,000
0
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
How does the palm oil plantation program work?

The details of the program are as follows.
 The company will discuss and convince a farmer to cultivate palm oil trees in his
farm. The farm and the trees belong to the farmer.
 If the farmer agrees, he will plant palm oil trees. The company will provide the
initial as well as technical support.
 The palm trees start giving fruits 3rd year onwards till 25th year. These fruits will be
sold to the company at a pre-determined formula by state government. This
formula has linkage with global palm oil prices as well as rupee-dollar conversion
rates.
 The company needs to pay the farmer in 15 days after receipt of the fruits.
 The company extracts palm oil from these fruits and sells it in open market. It can
also sell the remaining oil cakes for various purposes such as raw material for
animal feed, slurry required for bio gas plant.
 The benefits as well as risks associated with palm oil price volatility are thus borne
by both farmers and companies.
24
Target area in India for palm oil plantations
Palm oil gives oil yield of 4-6 tonnes per hectare to the farmers, higher than any other
type of oil. Palm oil being a major source of consumption (edible oil), raw material for
soaps as well as fuel ensures healthy demand prospects. Thus, the cultivation of palm
oil trees is expected to grow at steady pace in India. The major production area for
palm oil plantation is Andhra Pradesh. However, there is potential to grow palm oil
trees in other parts of India as follows.
Chart 36: Target area for palm oil plantations in India

500,000
450,000
400,000
350,000
(Hecatres)
300,000
250,000
200,000
150,000
100,000
50,000
0
Orissa
Kerala
Tamil Nadu
Andhra Pradesh
Arunachal Pradesh
Assam
Chattisgarh
Goa
Karnataka
Tripura
Gujarat
Maharashtra
Meghalaya
Mizoram
Bihar
Nagaland
West Bengal
Key players and market shares in palm oil business in India

Godrej Agrovet is the market leader in palm oil plantations in India with market share
of 35%. The other major players operating in this segment are Ruchi Soya with market
share of 30%, Nava Bharat Agro (11%), and 3F (8%).
Chart 37: Market shares of key players in palm oil business in India
Others
16%
Godrej Agrovet
35%
3F
8%
Nava Bharat Agro

11%
Ruchi Soya
30%
25
Hectares under cultivation for Godrej Agrovet
Godrej Agrovet has 61,700 hectares under cultivation for palm oil at the end of FY17.
This number has increased from 30,000 hectares in FY09, clocking CAGR of 9.3%
over FY09-17. The company wants to steadily expand the area under cultivation of
palm oil going forward at a CAGR of 5-6%.
Chart 38: Hectares under cultivation for Godrej Agrovet

70,000
60,000
50,000
(Hecatres)
40,000
30,000
20,000
10,000
0
FY09 FY10 FY11 FY13 FY16 FY17
Expect steady growth in per hectare yield for Godrej Agrovet

Apart from growth in hectares under cultivation, we reckon GAVL will benefit from
steady increase in yield per hectare. A palm oil tree gives almost no oil for first three
years. Its yield increases to 3 tonnes of fresh fruit bunches per hectare over 3-8 years,
and 8th year onwards, its yield rises to 8 tonnes fresh fruits per annum per hectare.
With ~30% palm oil trees still in 0-3-year timeframe and another 25% trees in 3-8-year
timeframe, we believe there is potential for higher yield with every passing year for
next 4-5 years.
Table 16: Steady growth in yield per hectare with maturity of trees
Tree age Hectares %
0-3 20,005 30
3-8 21,349 25
8-25 20,346 45
Total 61,700 100
Key factors for driving profitability

Apart from volume growth, another important factor to drive profitability is palm oil
price. The company’s gross contribution margin is almost fixed as the purchase and
selling prices are directly linked to global palm oil prices. Hence, any increase in palm
oil prices leads to higher gross profit. With fixed cost remaining stable, the company
benefits from operating leverage and enjoys better EBIT margin.
26
Chart 39: Palm oil prices have major bearing on EBIT margin
Palm oil price (Rs/Kg) EBIT margins (%)
60
50
40
30
20
10
0
FY13 FY14 FY15 FY16 FY17 FY18E
Key customers of the company

Essentially, palm oil is a B2B business. GAVL sells palm oil to multiple large
institutions as well as local palm oil vendors. The major customers of the company
include HUL and Bunge. The company also sells palm oil cakes to manufacturers of
animal feed as well as organic manures.
Beneficiary of Godrej group’s understanding of palm oil

GAVL’s palm oil segment benefits from the understanding of palm oil business of
Godrej group. Godrej group is a major global trader in palm oil. It also sells palm oil in
India for consumption and industrial usage in India. Godrej Consumer procures palm
oil for manufacturing soaps whereas Godrej Agrovet’s animal feed division uses palm
oil cakes in its animal feed.
We reckon the understanding of palm oil offers GAVL strong competitive advantage
over other players.
Expected growth rates and margins of palm oil plantation segment

Table 17: Expected growth rates and margins of palm oil plantation segment
Revenues 4,042 5,066 5,725 6,584 7,571
Growth (%) 25.3 13.0 15.0 15.0
EBIT 616 1,026 964 1,274 1,466
Margin (%) 15.2 20.3 16.8 19.3 19.4
27
Dairy segment
Growing bovine population and productivity of bovines
The bovine population has grown at CAGR of 1.2% per annum over 1951-2012.
However, the growth slowed to 0.1% CAGR over 1997-2012. Though India has one of
the largest populations of bovines as well as highest milk production in the world, the
milk production per bovine is one of the lowest in the world.
Chart 40: Growing bovine population in India Chart 41: Rising milk production per bovine
1.2
140
120 1.0
100
0.8
(Per te/Bovine)
(Mn)
80
0.6
60
40 0.4
20
0.2
0
1956
1961
1966
1972
1977
1982
1987
1992
1997
2003
2007
2012
0.0
Source: Company, I-Sec research
Milk production in India and per capita milk availability

Given no sizeable exports and/or imports of milk products in India, we believe the milk
produced is largely consumed in India. The milk production has clocked CAGR of
4.4% CAGR over FY1992-2016. The per capita availability of milk has increased at
CAGR of 2.5% over the same timeframe.
Chart 42: Growing milk production in India… Chart 43: …and rising per capita availability
180 400
160 350
140 300
120
250
(GMS/day)
(mn te)
100
200
80
150
60
40 100
20 50
0 0
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
28
Co-operatives dominate the milk collection & distribution in India
Out of total production of milk, 54% of milk in India is consumed by farmers and their
families. The rest of the milk is sold to consumers/institutions. Out of the marketable
milk, 30% is sold directly to consumers by local milkmen. Only 70% of marketable milk
is purchased either by the private players and/or co-operatives.
Chart 44: Co-operatives dominate the milk collection and distribution
Milk Consumption
Self consumption Marketable surplus

(54%) (46%)
(70%) (30%)
Private companies Co-operative

(45%) (55%)
We believe there is limited scope for any penetration-led growth for dairy companies
as entire population consumes milk in some format. However, the growth opportunity
can generate from:
 Improving affordability of milk and higher per capita consumption

 Shift of milk consumption from raw milk/co-operative companies to private dairy
products
 Higher usage of premium milk such as Pride of cows by Parag Milk foods
 Increase in consumption of value added products
Improving affordability of milk and increase in per capita consumption
The milk production has increased at CAGR of 4.3% over past 2 decades whereas the
population in growing at CAGR of ~1.6%. As large part of Indian milk is buffalo milk
and milk in India is also expensive compared to the milk outside India, exports of milk
products are limited. We reckon steep growth in milk production and stable inflation in
milk prices is leading to better affordability of milk.
29
Chart 45:Per capita consumption of milk remains Chart 46: Cost of consumption of milk is lower
lower in India than nominal GDP growth
300 500 Cost of consumption of milk Nominal GDP
450
250
400
350
200
Average 300
(Ltrs/yr)
150 250
200
100 150
100
50
50
0
0
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
USA Europe Russia Brazil India China
Fed
Chart 47:CAGR in milk production of major Chart 48: Rising share of India in global milk
economies production
14% CAGR 2000-2013 Average 20%

12%
18%
10%
16%
8%
14%
6%
4% 12%
2% 10%
0% 8%
-2% 6%
Poland
India
Finland
New Zealand
Pakistan
Romania
Russia
Sri Lanka
Swizertland
Thailand
United Kingdom
USA
Brazil
Germany
Norway
South Africa
Mauritiania
Afganistan
Bangladesh
Chile
China
Indonesia
Mexico
Ireland
Sweden
Vietnam
Denmark
Nepal
Netherlands
Argentina
Australia
Canada
France
4%
2%
0%
1970 1975 1980 1985 1990 1995 2000 2005 2010 2013
Shift from unorganised to organised milk suppliers

Rising acceptance of value added milk is resulting in consumers shifting from
consumption of unorganised milk to organised milk. The share of organised players in
milk distribution has expanded from 16% in 2010 to 26%+ in 2016.
30
Chart 49: Private players have smaller share of the Chart 50: Rising share of organised players
milk distribution
Supply by Organised Unorganised

private Self
companies, consumptio 100%
14% n, 54% 90%
80%
Supply by 70%
co- 60%
operatives,
50%
18%
40%
30%
20%
Supply by
unorganised 10%
players, 0%
14% 2010 2011 2012 2013 2014 2015 2016
What are the ‘key rights to win’ in dairy sector?

We believe the performance of any dairy depends on 5 crucial factors:
 Direct milk procurement of milk from farmers as selling prices are capped by co-
operatives.
 Right product mix to reduce investments in working capital and fixed assets, and
expand return ratios.
 Branding of the products to introduce extensions, drive premiumisation and enjoy
better realisations.
 Distribution expansion for all types of products such as frozen, chilled, shelf stable
and fresh milk, and
 Large number of manufacturing units since milk products can be distributed within
a limited reach in a region due to its perishable nature.
What is Creamline doing?

Creamline, 53% subsidiary of Godrej Agrovet, is a ~1mn litre per day milk processing
company focused in Andhra Pradesh. The company’s major markets are Andhra
Pradesh, Telangana, Karnataka, Kerala and Maharashtra. The company sells its
products under the brand Jersey. It has distribution network of 1,000+ Jersey ice
cream and milk parlors.
31
Chart 51: Geographical revenue breakup of the company
Maharashtra
Kerala
3%
1%
Tamil Nadu
23%
Telangana
40%
Andhra Pradesh
Karnataka 27%
6%
Focus on ‘high RoE’ segment: The Company has strong focus on generating high
return on investments. It primarily sells milk and fresh milk products which enjoy higher
margins and lower investments in working capital. We reckon the company does not
intend to enter segments such as cheese which have low return ratios.
Chart 52: Product portfolio of Creamline dairy
Ice cream
1%
Ghee & Butter
12%
Fresh milk
products
17%
Milk
70%
Healthy scope to grow in Andhra Pradesh: We believe for any organised player, it
is easier to grow at more than 10% considering growth in market as well as shift from
unorganised to organised. We also note the milk production growth in key market of
Creamline i.e. Andhra Pradesh is upwards of 7% over past 10 years.
32
Chart 53: Milk production in Andhra Pradesh* clocking 7% CAGR
18,000 Andhra Pradesh
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0 FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Source: Company, I-Sec research *includes Andhra Pradesh & Telangana
Strong business model focusing on milk business: Creamline focusses only on

the high RoE milk and fresh milk-based value-added products. We note peers such as
Hatsun and Heritage focus on milk and fresh milk products and enjoy stronger return
ratios and players such as Parag and Prabhat focus on value added products as well
as B2B segments and hence, their return ratios are depressed.
Chart 54:EBIT margins of peers Chart 55: Return ratios of peers

7% 60%
6% 50%
5%
40%
4%
30%
3%
20%
2%
1% 10%
0% 0%
Heritage Prabhat Hatsun Godrej Parag Heritage Hatsun Prabhat Godrej Parag
EBIT margins to improve ahead: The drought in South India resulted in higher milk
prices over past 2 years and most of the milk companies were not able to pass on the
entire increase in raw material prices to end consumers. This resulted in low
profitability margins for most of the dairy companies. We expect the situation to
improve going forward and note the milk prices have already corrected by 7-8% now
from peak prices in May-June 2017. Thus we expect all dairy companies including
Creamline to enjoy steady improvement in margins over next 2 years.
33
Chart 56: EBIT margins of dairy companies were lower in FY17 than average*
FY17 Average
8
(%)
4
0
Godrej Hatsun Heritage Parag Prabhat
Source: Company, I-Sec research *Average EBIT margin over FY13-17
Table 18: Expected growth rates of dairy Segment

Particulars FY17 FY18E FY19E FY20E
Revenues 10,099 11,235 12,700 14,358
Growth (%) 11.3 13.0 13.1
EBIT 375 430 512 589
Margin (%) 3.7 3.8 4.0 4.1
34
Other businesses
Besides the above mentioned four segments, Godrej Agrovet has two major business
investments as
1) ACI Godrej Bangladesh – animal feed company in Bangladesh, and
2) Godrej Tyson – company focused on selling poultry meat and value-added poultry
meat Products Company in India.
Table 19: Key details of Joint ventures and associates
Godrej
Agrovet Revenues*
Associates/JV Partner stake (%) Business (Rsmn)
ACI Godrej Bangladesh ACI 50% Animal feed in Bangladesh 6,040
Godrej Tyson Tyson Inc 49% Chicken & value-added meat products 4,459
Source: Company data, I-Sec research *Stake of Godrej Agrovet (FY17)
ACI Godrej Bangladesh

This is GAVL’s 50:50 joint venture with ACI Bangladesh. The JV is engaged in animal
feed business in Bangladesh. We reckon the dynamics of animal feed industry in India
and Bangladesh are almost similar. The JV is selling cattle feed, poultry feed and aqua
feed.
Chart 57: Revenues and growth rates of ACI Bangladesh*

3,500
3,000
2,500
(Rs mn)
2,000
1,500
1,000
500
0
FY15 FY16 FY17
Source: Company data, I-Sec research *GAVL share
Godrej Tyson
Godrej Agrovet and Tysons Foods, USA have a 49:51 JV for producing and selling
poultry meat and value-added products of poultry meet. The major brands of this
company are Real Good chicken, Tyson and Yummiez.
35
Chart 58: Revenue and growth rates of Godrej Tyson*
2,250
2,200
2,150
2,100
2,050
(Rs mn)
2,000
1,950
1,900
1,850
1,800
1,750
FY15 FY16 FY17
Source: Company data, I-Sec research *GAVL share
Healthy growth prospects for poultry meat in India

The per capita poultry meat consumption is just 3.7kg per annum in India compared to
world average of 17kg. Though the lower consumption is partially attributable to
cultural and religious issues, we reckon it is moving upwards with improving
affordability. Also, the share of organised trade is just 30%. Similar to other food
products, rising income levels, higher number of nuclear families and working women
and, growth of modern trade and e-commerce, the organised meat industry will grow
at faster pace than unorganised industry.
Chart 59: Lower meat consumption in India Chart 60: Unorganised players have 30% share
18
16
14 Unorganised
30%
12
10
(kg)
4
Organised
2 70%
0
India World
36
Improving affordability of meat products
The WPI index points that the prices of food products are growing at a faster rate
compared to egg, meat and fish prices over the past 6 years. If prices of major protein-
rich pulses and other food products rise at higher rate than meat, it may result in some
consumers shifting to cheaper non-vegetarian protein foods.
Chart 61: Lower inflation improving affordability of meat products
160 Food Eggs, Fish & Meat
150
140
130
120
110
100
90
Jun-12
Aug-12
Dec-12
Jun-13
Aug-13
Dec-13
Jun-14
Aug-14
Dec-14
Jun-15
Aug-15
Dec-15
Jun-16
Aug-16
Dec-16
Jun-17
Aug-17
Feb-12
Apr-12
Oct-12
Feb-13
Apr-13
Oct-13
Feb-14
Apr-14
Oct-14
Feb-15
Apr-15
Oct-15
Feb-16
Apr-16
Oct-16
Feb-17
Apr-17
Oct-17
Source: Company data, I-Sec research *WPI rebased to 100
37
Financial performance
Expect revenue CAGR of 11.4% over FY17-FY20
GAVL has reported healthy revenue CAGR of 15.5% over FY13-FY17 on the back of
new product launches and acquisition of Astec and Creamline. Segment-wise CAGR
over FY13-17 are as follows: Animal feed 4%, crop protection 36.3%, palm oil 16.5%.
Dairy segment was consolidated FY16 onwards. The company’s revenue is expected
to clock CAGR of 11.4% over FY17-20.
Chart 62: Healthy revenue growth ahead
Revenues Growth (%) - RHS
80,000 35
70,000 30
60,000
25
50,000
(Rs mn)
20
40,000
15
30,000
10
20,000
10,000 5
0 0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
EBITDA margin to expand 30bps through FY17-FY20

Improving revenue share of milk products is expected to result in gross margin
expansion of 30bps over FY17-20. Also, we note EBITDA margin of 8.9% in FY17 was
muted due to lower profitability of dairy business. Hence, we expect EBITDA margin to
expand to 9.2% in FY20 from 8.9% in FY17.
Chart 63: 30bps expansion in EBITDA margin over FY17-FY20
EBITDA Margin (%) - RHS
7,000 10
9
6,000
8
5,000 7
(Rs mn)
4,000 6
5
3,000 4
2,000 3
2
1,000
1
0 0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
38
Expect net profit to clock 20.6% CAGR
With reducing interest cost after repayment of debt post IPO and healthy operating
performance, we expect net profit to clock CAGR of 20.6% over FY17-20. We expect
the company’s effective income tax rate to be 30%.
Chart 64: Net profit CAGR of 20.6% over FY17-20 Chart 65: Net profit margin to improve
PAT Growth (%) - RHS PAT margin (%)

7
4,500 70
6
4,000 60
3,500 5
50
3,000 4
40
(%)
(Rs mn)
2,500
30 3
2,000
20
1,500 2
1,000 10
0 1
500
0 (10) 0
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY20E
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY20E
Healthy return ratios ahead

While the sudden increase in net worth after IPO in FY18 is expected to dampen
return ratios in FY18-FY19, we expect the company’s return ratios to be upwards of
cost of capital over FY17-20 with better operating performance, utilisation of IPO
proceeds, and improvement in capacity utilisation.
Chart 66: Improving return ratios ahead
RoE RoCE
40.0
35.0
30.0
25.0
(%)
20.0
15.0
10.0
5.0
0.0
FY14 FY15 FY16 FY17 FY18E FY19E FY20E
39
Working capital analysis
Though the working capital days are generally higher in agri industry, we note the
company has been able to reduce the net working capital days from FY16 to FY17.
We expect some improvement in working capital days going forward due to improving
agri growth prospects and brand power.
Chart 67: Net working capital days
Net WC days
80
70
60
50
(days)
40
30
20
10
0
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY20E
FCF generation
The acquisition of Astec and Creamline resulted in negative FCF generation in FY16.
However, with limited capex and net cash balance sheet, we expect FCF generation to
remain strong.
Chart 68: Operating cash flow to EBITDA Chart 69: Free cash flow to PAT
OCF/EBITDA FCF/PAT
400
200
300
150 200
100
100
(%)
(%)
50 (100)
(200)
0
(300)
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY20E
(50)
FY13 FY14 FY15 FY16 FY17 FY18EFY19EFY20E
40
Key assumptions
Table 20: Key assumptions
(Rs mn)
FY16 FY17 FY18E FY19E FY20E
Segmental revenues
Animal feed 25,442 26,208 26,520 30,214 34,432
Agri inputs 4,959 7,647 8,412 9,719 11,237
Palm oil plantations 4,042 5,066 5,725 6,584 7,571
Dairy 2,729 10,099 11,235 12,700 14,358
Others 377 243 262 289 318
Net Revenues 37,502 49,111 52,155 59,505 67,916
Growth (%) 13.2 31.0 6.2 14.1 14.1
Gross profit 8,050 11,149 11,474 13,686 15,621
Gross margin (%) 21.5 22.7 22.0 23.0 23.0
EBITDA 2,965 4,380 4,277 5,474 6,248
EBITDA margin (%) 7.9 8.9 8.2 9.2 9.2
PBT 2,092 3,339 3,547 4,906 5,846
PBT Margin (%) 5.6 6.8 6.8 8.2 8.6
Tax rate (%) 36.1 29.7 30.0 30.0 30.0
PAT 1,692 2,291 2,421 3,366 4,017
PAT Margin (%) 3.6 4.8 4.8 5.8 6.0
PAT Growth (%) (2.5) 35.4 5.7 39.0 19.3
Capex (1,223) (1,949) (1,500) (1,600) (1,600)
Net working capital days 72.2 21.6 17.6 14.9 14.1
Operating cash flow 350 8,259 3,671 4,414 4,870
Free cash flow (3,887) 6,310 2,171 2,814 3,270
OCF/EBITDA (%) 11.8 188.5 85.8 80.6 77.9
41
Valuation
We have valued Godrej Agrovet on DCF basis. Our DCF valuation indicates value per
share of Rs723. Implied PE multiple at our target price and FY20E EPS works out to
34x.
DCF-based valuation
Valuing Godrej Agrovet on the DCF methodology involves three stages.
 Stage 1 (FY17-20): During this period, we expect the company to grow its
revenues and PAT at CAGRs of 11.4% and 20.6% respectively. We also expect
the RoCE to remain above 16% over FY17-20.
 Stage 2 (FY20-30): During this period, we expect the company to post revenue
and PAT CAGRs of 15.8% and 19.7%, respectively till FY28.
 Stage 3 (FY30 onwards): We assume a perpetual growth rate of 5%.
To arrive at the cost of equity of 11.8%, we have assumed risk free rate of 8% and
market rate of return at 14%. Based on these assumptions, we arrive at a valuation of
Rs723/share.
Table 21: DCF valuation

Particulars
Risk-free rate 8%
Cost of Equity 11.8%
Terminal growth rate 5.0%
Discounted interim cash flows 48,115
Discounted terminal value 90,379
Total equity value 138,494
Value per share (Rs) 723
Source: Company, I-sec research
Key risks
 Weaker than expected monsoon
 Steep increase in competitive pressures
 Increase in raw material prices
42
About the promoters and management team

Godrej Agrovet was promoted by Godrej group focussing on agricultural market.
Initially the company was focussed on animal feed and agri chemicals. Over a period,
the company has diversified in palm oil plantations and dairy. The company has also
formed joint venture with ACI Bangladesh to sell animal feed in Bangladesh and with
Tyson Inc to sell ‘Ready to cook’ meat products in India. The key brands of the
company are Godrej, Milkmore, Bypro, Bovino, Superstar, Vipul, Hitweed, Creamline
Jersey, Real good, Tyson and Yummiez.
Management team
Godrej group owns 68.8% stake in the company and Adi Godrej, Nadir Godrej,
Jamshyd Godrej, Nisaba Godrej and Tanya Dubhash are the directors of the
company. The business is managed by a professional team led by Balram Yadav. S
Varadaraj is the CFO of the company. The company has inducted many senior
professional in various sales, product management, HR and finance roles to steer the
growth plans.
Table 22: Key management personnel

Person Designation Role
Adi Godrej Group Chairman Overall group strategy
Nadir Godrej Chairman Strategy of the company
Balram Yadav Managing director Overall administration
S Varadaraj Head- Finance, Systems & Legal Finance
Praful Bhat Head of Manufacturing Manufacturing function
Salil Chinchore Head of Human relations Human relations
Pitambar
Narkhede Head of Animal feed Animal feed segment
Rakesh Dogra Head of Crop protection Crop protection business
Nasim Ali Head of Oil palm plantations Palm oil segment head
Raj Kanwar CEO - Creamline dairy Dairy business head
43
Financials
Table 23: Profit & Loss statement
(Rs mn, year ending March 31)
FY15 FY16 FY17 FY18E FY19E FY20E
Gross Sales 33,118 37,550 49,264 52,155 59,505 67,916
Less: Excise Duty - 48 153 - - -
Net Sales 33,118 37,502 49,111 52,155 59,505 67,916
Growth (%) 13.2 31.0 6.2 14.1 14.1
Expenditure
Cost of Goods Sold 26,157 29,451 37,961 40,681 45,819 52,295
Staff Cost 1,334 1,557 2,327 2,451 2,797 3,192
Power & Fuel 429 641 769 834 952 1,087
Carriage & Freight 67 253 273 313 357 407
Advt & Sales Promotion 387 622 758 782 893 1,019
Other Expenses 1,010 1,345 1,753 1,878 2,142 2,445
EBITDA 3,059 2,965 4,380 4,277 5,474 6,248
EBITDA margin (%) 9.2 7.9 8.9 8.2 9.2 9.2
Depreciation 370 524 747 861 964 1,055
EBIT 2,690 2,441 3,634 3,415 4,510 5,193
Interest Expense & Bank Exps 655 977 863 433 198 131
Other Income 137 627 569 565 593 783
Profit Before Tax 2,172 2,092 3,339 3,547 4,906 5,846
Income Taxes 605 754 991 1,064 1,472 1,754
Income tax rate (%) 27.9 36.1 29.7 30.0 30.0 30.0
Profit After Tax 1,566 1,337 2,348 2,483 3,434 4,092
Growth (%) (14.6) 75.6 5.8 38.3 19.2
Share of Profit From Associates 170 327 187 206 227 250
Pref. Dividends/Minority Interest - (29) 244 268 295 325
Profit Before X/O 1,736 1,692 2,291 2,421 3,366 4,017
Extraordinary Items 340 924 194 - - -
Profit for Shareholders 2,076 2,617 2,485 2,421 3,366 4,017
Table 24: Balance sheet analysis

Sources of Funds
Share Capital 926 926 1,851 1,917 1,917 1,917
Reserves and Surplus 5,476 6,903 8,237 12,583 14,827 17,499
Deferred Tax Liability 454 1,339 1,596 1,596 1,596 1,596
Net Worth 6,855 9,167 11,683 16,095 18,340 21,011
Net Worth Net of Rev. Reserve 6,855 9,167 11,683 16,095 18,340 21,011
Pref.Capital/Minority Interest - 2,323 2,541 2,541 2,541 2,541
Secured Loans 6,843 12,813 6,598 2,598 998 998
Unsecured Loans 133 565 556 556 556 556
Total Loans 6,975 13,378 7,154 3,154 1,554 1,554
Total 13,830 24,868 21,378 21,790 22,434 25,105
Application of Funds
Fixed Assets
Gross Block 6,417 12,140 14,109 16,113 17,713 19,313
Less: Depreciation 975 564 1,329 2,191 3,155 4,210
Net Block 5,443 11,576 12,779 13,922 14,558 15,103
Capital WIP 1,380 638 504 - - -
Gross Block-Brand value 6,417 12,140 14,109 16,113 17,713 19,313
Goodwill - 1,949 1,949 1,949 1,949 1,949
Liquid Investments 366 593 0 0 0 2,000
Other Investments 2,027 2,274 2,623 2,623 2,623 2,623
Current Assets 8,200 14,083 14,221 14,692 16,306 18,270
Inventories 3,888 6,665 7,381 7,562 8,480 9,678
Sundry Debtors 2,692 4,545 5,220 5,346 5,951 6,792
Cash & Bank Balances 175 420 623 785 878 803
Loans & Advances 1,445 2,453 998 998 998 998
Current Liabilities 3,586 6,245 10,699 11,396 13,002 14,840
Liabilities 2,143 3,353 8,408 8,918 10,175 11,614
Provisions 120 173 215 261 298 340
Net Current Assets 4,614 7,839 3,523 3,296 3,304 3,431
Total 13,830 24,868 21,378 21,790 22,434 25,105
44
Table 25: Cash flow statement
OCF before W/C changes 2,018 1,374 3,114 3,282 4,330 5,072
W/c Changes (1,552) (1,024) 5,145 389 84 (202)
OCF After W/C Changes 466 350 8,259 3,671 4,414 4,870
Cash Flow from Investing - - - - - -
Capital Expenditure (1,113) (1,302) (2,049) (1,500) (1,600) (1,600)
Disposal 20 79 100 - - -
Investments (241) (134) 934 - - (2,000)
Acquisitions - (3,014) - - - -
Net Cash used in Investing (1,334) (4,371) (1,015) (1,500) (1,600) (3,600)
Cash Flow from Financing - - - - - -
Changes in Share Capital - 39 8 3,000 - -
Changes in Loans 686 4,713 (7,027) (4,000) (1,600) -
Dividends (826) (541) - (1,009) (1,121) (1,345)
Net Cash used in Financing (140) 4,210 (7,019) (2,009) (2,721) (1,345)
ExtraOrdinary Items - - - - - -
Changes in Cash & Equivalents (1,008) 189 224 162 93 (75)
Opening Cash & Equivalents 1,139 125 314 623 785 878
Closing Cash & Equivalents 130 314 538 785 878 803
Free Cash Flow (628) (3,887) 6,310 2,171 2,814 3,270
45
Table 26: Ratio analysis
Profitability Ratios
Gross margin 21.0 21.5 22.7 22.0 23.0 23.0
EBITDA Margin 9.2 7.9 8.9 8.2 9.2 9.2
EBIT Margin 8.1 6.5 7.4 6.5 7.6 7.6
PBT Margin 6.6 5.6 6.8 6.8 8.2 8.6
PAT Margin 4.7 3.6 4.8 4.8 5.8 6.0
Income Tax Rate 27.9 36.1 29.7 30.0 30.0 30.0
RoE 33.4 32.7 23.8 17.4 19.5 20.4
RoCE 20.9 12.6 15.7 15.8 20.4 21.8
Major Costs as % of Net Sales

Cost of Goods Sold 79.0 78.5 77.3 78.0 77.0 77.0
Staff Cost 4.0 4.2 4.7 4.7 4.7 4.7
Power & Fuel 1.3 1.7 1.6 1.6 1.6 1.6
Carriage & Freight 0.2 0.7 0.6 0.6 0.6 0.6
Advt & Sales Promotion 1.2 1.7 1.5 1.5 1.5 1.5
Other Expenses 3.0 3.6 3.6 3.6 3.6 3.6
Per Share Data

Earnings Per Share 9.4 9.1 12.4 12.6 17.6 21.0
Increase in % 10.9 (2.5) 35.4 2.1 39.0 19.3
Book Value per Share 37.0 49.5 63.1 84.0 95.7 109.6
Increase in % 22.6 33.7 27.4 33.1 13.9 14.6
Dividend Per Share 25.9 4.4 4.5 5.0 6.0 6.0
Increase in % 840.4 (82.9) 1.6 11.1 20.0 -
Turnover Ratios
Debtors Turnover ratio 8.1 12.1 10.6 10.3 10.0 10.0
Current Liabilities Turnover Ratio 6.5 8.9 17.1 17.1 17.1 17.1
Inventory Turnover Ratio 11.7 17.8 15.0 14.5 14.3 14.3
Fixed Assets Turnover Ratio 20.6 32.6 27.0 26.7 24.5 22.2
Valuation Ratios
Price Earnings 66.6 68.3 50.4 49.4 35.5 29.8
Price/Book Value 16.9 12.6 9.9 7.4 6.5 5.7
EV/Sales 3.8 3.3 2.5 2.5 2.2 1.9
EV/EBITDA 40.7 42.0 28.4 30.2 23.6 20.6
Dividend Yield 4.1 0.7 0.7 0.8 1.0 1.0
Other Ratios
Net debt/Equity 0.9 1.6 0.8 0.3 0.2 0.1
FCF/EPS (40.1) (65.3) 268.7 87.4 81.9 79.9
OCF/Sales 1.4 0.9 16.8 7.0 7.4 7.2
Div Payout Ratio 275.8 48.5 36.4 39.6 34.2 28.6
46
Index of tables and charts

Tables
Table 1: Multiple brands of the company .............................................................................. 5
Table 2: Strong return ratios (RoCE) across segments ........................................................ 6
Table 3: EBIT margins in low single digits reduce pricing threats by peers ......................... 7
Table 4: Benefits to farmers by using organised animal feed............................................... 9
Table 5: Benefits* to farmers due to usage of organised cattle feed .................................. 12
Table 6: Strategic advantages for the company ................................................................. 16
Table 7: Comparison with key players in the industry ........................................................ 17
Table 8: Revenues growth and margins over FY17-20 ...................................................... 17
Table 9: Losses that can be avoided with use of Crop protection chemicals ..................... 19
Table 10: Benefits to farmers due to usage of herbicides (Per acre) ................................. 19
Table 11: Key financials of Astec ........................................................................................ 21
Table 12: Product portfolio of the company ........................................................................ 22
Table 13: Strong growth potential of bispyribac sodium ..................................................... 22
Table 14: Comparison with key Crop protection players .................................................... 23
Table 15: Financials of crop protection segment ................................................................ 23
Table 16: Steady growth in yield per hectare with maturity of trees ................................... 26
Table 17: Expected growth rates and margins of palm oil plantation segment .................. 27
Table 18: Expected growth rates of dairy Segment ............................................................ 34
Table 19: Key details of Joint ventures and associates ...................................................... 35
Table 20: Key assumptions................................................................................................. 41
Table 21: DCF valuation ..................................................................................................... 42
Table 22: Key management personnel ............................................................................... 43
Table 23: Profit & Loss statement ....................................................................................... 44
Table 24: Balance sheet analysis ....................................................................................... 44
Table 25: Cash flow statement ........................................................................................... 45
Table 26: Ratio analysis...................................................................................................... 46
Charts
Chart 1: RoE and growth dynamics ...................................................................................... 3
Chart 2: Godrej Agrovet’s business segments ..................................................................... 4
Chart 3: Revenue breakup of GAVL ..................................................................................... 4
Chart 4: EBIT breakup of GAVL ........................................................................................... 4
Chart 5: Established distribution network across segments ................................................. 6
Chart 6: Presence in several unorganised markets .............................................................. 7
Chart 7: Animal feed: Global industry ................................................................................... 8
Chart 8: Animal feed: Indian industry .................................................................................... 8
Chart 9: Animal feed: Godrej Agrovet ................................................................................... 8
Chart 10: Breakup of poultry feed industry in India .............................................................. 8
Chart 11: Breakup of poultry feed industry in India (As per players) .................................... 9
Chart 12: Rising per capita consumption of chicken in India ................................................ 9
Chart 13: Steady growth of poultry feed market in India .................................................... 10
Chart 14: Breakup of cattle feed industry in India ............................................................... 11
Chart 15: Low milk productivity of cows in India ................................................................. 11
Chart 16: Steady growth of cattle feed market in India ....................................................... 12
Chart 17: Breakup of aqua feed industry in India ............................................................... 13
Chart 18: Growth of seafood industry in India .................................................................... 13
Chart 19: Steady growth of fish feed market ...................................................................... 14
Chart 20: Growing shrimp feed market in India .................................................................. 14
Chart 21: Correlation in monsoon deficit and usage of animal feed ................................... 14
Chart 22: Rural wages growth rising at faster pace than maize inflation ........................... 15
Chart 23: How the value chain works in the industry? ........................................................ 15
Chart 24: EBIT margin of animal feed segment in mid-single digits ................................... 16
47
Chart 25: Sub-segmentation strategy of the company ....................................................... 17
Chart 26: Land under cultivation in India growing at meager rate of 0.1% p.a................... 18
Chart 27: Per hectare usage of Crop protection chemicals in India ................................... 18
Chart 28: Benefits to farmers by usage of Crop protection chemicals ............................... 19
Chart 29: Global consumption of herbicides, insecticides and fungicides vis-à-vis that in
India............................................................................................................................... 19
Chart 30: Growing crop protection industry in India ........................................................... 20
Chart 31: Segments of crop protection chemicals .............................................................. 20
Chart 32: Strong scope to expand no. of outlets ................................................................ 21
Chart 33: Comparable sales per outlet for peers# .............................................................. 21
Chart 34: Growth of exports market .................................................................................... 21
Chart 35: Production of oil palm fresh fruit bunches in India .............................................. 24
Chart 36: Target area for palm oil plantations in India ........................................................ 25
Chart 37: Market shares of key players in palm oil business in India ................................. 25
Chart 38: Hectares under cultivation for Godrej Agrovet .................................................... 26
Chart 39: Palm oil prices have major bearing on EBIT margin........................................... 27
Chart 40: Growing bovine population in India ..................................................................... 28
Chart 41: Rising milk production per bovine ....................................................................... 28
Chart 42: Growing milk production in India… ..................................................................... 28
Chart 43: …and rising per capita availability ...................................................................... 28
Chart 44: Co-operatives dominate the milk collection and distribution ............................... 29
Chart 45:Per capita consumption of milk remains lower in India ........................................ 30
Chart 46: Cost of consumption of milk is lower than nominal GDP growth ........................ 30
Chart 47:CAGR in milk production of major economies ..................................................... 30
Chart 48: Rising share of India in global milk production ................................................... 30
Chart 49: Private players have smaller share of the milk distribution ................................. 31
Chart 50: Rising share of organised players....................................................................... 31
Chart 51: Geographical revenue breakup of the company ................................................. 32
Chart 52: Product portfolio of Creamline dairy.................................................................... 32
Chart 53: Milk production in Andhra Pradesh* clocking 7% CAGR .................................... 33
Chart 54:EBIT margins of peers ......................................................................................... 33
Chart 55: Return ratios of peers.......................................................................................... 33
Chart 56: EBIT margins of dairy companies were lower in FY17 than average* ............... 34
Chart 57: Revenues and growth rates of ACI Bangladesh* ............................................... 35
Chart 58: Revenue and growth rates of Godrej Tyson* ...................................................... 36
Chart 59: Lower meat consumption in India ....................................................................... 36
Chart 60: Unorganised players have 30% share ................................................................ 36
Chart 61: Lower inflation improving affordability of meat products ..................................... 37
Chart 62: Healthy revenue growth ahead ........................................................................... 38
Chart 63: 30bps expansion in EBITDA margin over FY17-FY20 ....................................... 38
Chart 64: Net profit CAGR of 20.6% over FY17-20 ............................................................ 39
Chart 65: Net profit margin to improve ................................................................................ 39
Chart 66: Improving return ratios ahead ............................................................................. 39
Chart 67: Net working capital days ..................................................................................... 40
Chart 68: Operating cash flow to EBITDA .......................................................................... 40
Chart 69: Free cash flow to PAT ......................................................................................... 40
48
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Godrej Agrovet IC Jan18

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Equity Research

January 16, 2018 INDIA

ICICI Securities Limited

Godrej Agrovet: High quality play .................................................................................. 3

Godrej Agrovet: High quality play

Nominal GDP (~10%)

No investment zone Dividend Plays

Decoding Godrej Agrovet’s business model

(53%) (16%) (10%) (21%)

Palm oil Associates and

Cattle Astec Godrej

Poultry Value ACI Godrej

Source: Company data, I-Sec research

Chart 3: Revenue breakup of GAVL Chart 4: EBIT breakup of GAVL

Key moats and ‘rights to win’ for Godrej Agrovet

Focus on high RoI segments

Focus on large unorganised segments which will move to organised

EBIT margins in single digits help to ease competitive threat

Healthy growth potential across segments

Pig feed Poultry

Source: Company data, I-Sec research

Poultry feed market in India

(30%) (70%) (90%) (10%)

Organised Unorganised Organised Unorganised

Source: Company data, I-Sec research

Poultry feed industry

Integrators Specialist feed Individual

Source: Company data, I-Sec research

Rising per capita consumption of chicken and eggs in India

Per capita consumption of Chicken

Benefits for farmers by using organised animal feed

Chart 13: Steady growth of poultry feed market in India

Source: Company data, I-Sec research

Milk productivity per animal amongst lowest in India

Source: Company data, I-Sec research

Table 5: Benefits* to farmers due to usage of organised cattle feed

Expect steady growth of ~10% in coming years

Chart 16: Steady growth of cattle feed market in India

Chart 17: Breakup of aqua feed industry in India

Fish feed Shrimp feed

(~50%) (~50%) (~80%) (~20%)

Organised Unorganised Organised Unorganised

Source: Company data, I-Sec research

Usage of shrimp feed to comply with international standards

Chart 18: Growth of seafood industry in India

Source: Company data, I-Sec research

Expect growth of ~10% in coming years

Salient features of animal feed business

 Strong correlation between monsoon and animal feed business

Chart 21: Correlation in monsoon deficit and usage of animal feed

Monsoon deficiency Animal feed growth

Integration in the animal feed industry

Chart 23: How the value chain works in the industry?

Farmer Milk Company

Godrej Agrovet enjoys multiple moats in animal feed business

Strategy of single-digit margins to shield from competitive pressures

Chart 24: EBIT margin of animal feed segment in mid-single digits

EBIT margin Average

Chart 25: Sub-segmentation strategy of the company