Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Akella from Kotak Securities. Thank you, and over to you, sir.
Thank you, Darwin. Good afternoon, everyone, and thank you for joining us on the Godrej Agrovet Q4 and FY 2024 earnings conference call. From the company, we have with us Mr. Nadir Godrej, Chairman of the company; Mr. Balram S. Yadav, Managing Director; Mr. S. Varadaraj, Chief Financial Officer; and Mr. Anurag Roy, Chief Executive Officer of Astec LifeSciences. We'd like to begin the call with brief opening remarks from the management, following which we will have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. Participants are requested to note that this is earnings call in respect of performance of Godrej Agrovet Limited.
We would like to request all participants to limit their question to the performance of the company and refrain from asking questions with respect to the Godrej family settlement, which the company believes does not impact Godrej Agrovet. I would now like to invite Mr. Nadir Godrej to make the initial remarks. Thank you, and over to you, sir.
Good afternoon, everyone. I welcome you all to the Godrej Agrovet earnings call. Godrej Agrovet recorded consolidated revenue from operations of INR 9,561 crore rupees in fiscal year 2024 as against INR 9,374 crore rupees in fiscal year 2023. While the revenues were flat, fiscal year 2024 augured well in terms of a strong resurgence in profitability. Profit before tax improved by 55% to INR 434 crore as compared to INR 280 crore in fiscal year 2023. This growth in profitability was primarily driven by exceptional performance of the domestic crop protection business, structural turnaround of the dairy business, market share gains in animal feed, and robust volumes in margin growth in branded products in the poultry business. During the year, Godrej Agrovet also focused on achieving the long-term sustainability targets guided by the Godrej Group's Good and Green Vision.
We are one of the two companies in the Indian agricultural sector to be included in the CDP A-List. Here, the CDP scores are ahead of the global averages. We made good progress towards achieving 2025 sustainable targets led by A, 77% of energy consumption from clean renewable energy sources as against a target of 90%, and B, being water-positive, company already conserving 20 x more water than our consumption. Coming to the key financial and business highlights of each of our business segments. In animal feed, while volumes remained flat, segment margins improved significantly in quarter four due to favorable commodity positions and higher realizations in the cattle feed category.
For fiscal year 2024, sustained volume growth in cattle feed and fish feed of 11% and 19% respectively over fiscal year 2023 was partly offset by lower poultry feed sales, resulting in volume growth of 3%. Segment margins improved sharply as compared to fiscal year 2023 on account of softening commodity prices and higher realizations in cattle feed and fish feed categories. Our vegetable oil segment margins in quarter four were adversely impacted by lower fresh fruit bunch arrivals and lower sales volumes on account of lower inventory of palm kernel oil brought forward from the previous quarter as compared to quarter four fiscal year 2023. The oil extraction ratio, however, improved sequentially as well as versus quarter four fiscal year 2023.
For fiscal year 2024, fresh fruit bunch volume growth of 6% was more than offset by lower crude palm oil and palm kernel oil prices, which came off the highs of fiscal year 2023 and normalized in fiscal year 2024. The CPO and PKO prices were lower by 20% and 28% respectively compared to fiscal year 2023. This resulted in segment margins being lower. Standalone Crop Protection segment results witnessed strong growth in quarter four as well. Stellar performance throughout the year, driven by higher sales of in-house and in-license portfolio and lower sales returns as compared to fiscal year 2023, has resulted in top-line growth of 37%. The segment margin of 31% in fiscal year 2024 was 3.4 x that of fiscal year 2023. For Astec LifeSciences, quarter four top-line and margin profile improved on account of higher salience of contract manufacturing and new products.
The full-year top-line and segment margin was severely impacted by sluggish demand for key enterprise products and a sharp drop in realizations due to the demand-supply imbalance. The poultry segment recorded strong growth in profitability in quarter four, driven by higher live bird prices and an increase in volumes of branded products. Segment revenues declined primarily due to lower volumes in the live bird business. In terms of fiscal year 2024, this segment delivered excellent growth in profitability led by higher live bird prices, consistent improvement in volumes, and margins of branded products and operational efficiencies. For the dairy segment, fiscal year 2024 was a year of structural turnaround as a result of significant improvement in operational efficiencies and improved milk spread. Salience of value-added products has improved to 36% of total sales from 32% a year ago.
Quarter four fiscal year 2024 also witnessed a robust improvement in segment margin led by operational efficiencies and lower procurement costs as compared to quarter four fiscal year 2023. GAVL's joint venture in Bangladesh, ACI Godrej, recorded revenue growth of 8% year-on-year in fiscal year 2024. Profitability improved remarkably and was higher by 117% over fiscal year 2023 on account of lower input costs. That concludes our business and financial performance update for the quarter. With this, I close my opening remarks. We will be now happy to answer your questions. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. The first question is from the line of Nitin Awasthi from InCred Equities. Please go ahead.
Hello, sir. So the first question which I had was regarding the fish meal prices, which have been, I mean, quite high, astronomically high in India because of the international dynamics, if I'm not wrong. How are they panning out right now? Is there any relief on that side, and how does it affect us given that our fish feed business is growing rapidly?
You're absolutely right that the fish meal prices were very high, but what we are seeing now is some kind of softening has started happening. The good thing is that we don't have too much of stock either in Bangladesh or India. My sense is that we are reasonably well-placed in case the price falls.
Okay, sir. And the fish feed formulation that we use, is it heavily dominated by fish meal, or are we using alternatives? I don't know whether you can disclose that or not. What specifically I'm asking is, are we anywhere close to using insect meal in our feed?
Can you say that again?
Insect meal, sir.
No, insect meal we don't use. The only animal protein we use is the fish meal. I'm sorry, I won't be able to give you what percentage we add in our formulation because there are, I think, almost a dozen SKUs in fish feed and almost an equal number in shrimp feed, if I remember. I think formulation-wise, SKU-wise, it differs.
Understood, sir. Understood. That works. So the second question was predominantly regarding the use of DDGS, which is maize DDGS, within our animal feed segment. And are we currently tying up with distilleries around India who have an excess DDGS production happening because of the maize ethanol program right now?
Yeah. So because of ethanol, bad news was the corn prices went up because almost 6 million tons out of 35 million tons was taken by ethanol. The good thing which happened is that we have substantial DDGS availability. So if the energy prices because of corn have gone up, the protein prices because of DDGS have come down, which has helped neutralize the cost increase in our feed segment.
Understood, sir. Thank you, sir. That was.
We are producing good quality DDGS in India.
Okay.
Nitin, does that answer your question, or do you have any further questions?
Yes. Yes. That answers all my questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. The next question is from the line of Sarvan Vora, an individual investor. Please go ahead.
Hi. Thanks for the opportunity. My first question is on Godrej Agrovet. Could I get a view how does the management see palm oil prices going ahead in FY 2025?
Sir, would you like to take this question?
Yes. Palm oil prices have dropped somewhat, but they seem to be stabilizing now. Of course, they could rise a little bit. We don't expect that palm oil prices will go very high, but Indian prices also depend on the import duties. Since we have a bumper Red Gram crop and farmers have to be kept satisfied, it is likely that after the elections, import duties on imported oil could be raised.
Got it. Got it, sir. Thank you. My second question is, sir, we were discussed in the previous call also that you had highlighted that you are looking at maybe different corporate structure or other restructuring kind of things for Godrej Agrovet to enhance shareholder value. So any updates that you can share on that point?
We have no update on that. I think in case we are thinking something like that, at the right time, we will let you know also.
Okay. And my third question is on Astec LifeSciences. So, in the previous quarter, Mr. Roy had highlighted that you had launched some new products, and we see it in the press release this time also. So, we just wanted to get a color on how those products are doing in the current quarter and how do we see FY 2025 for those products.
Yes. So we mentioned about the new products. Last three or four quarters with our new R&D center, we have been actively focused on putting some of the new products, CDMO products, in the pipeline. Our target, considering enterprise business was under stress, our target was to get those products commercialized as soon as possible. So happy to say that some of it is even factored into the Q4 numbers, financial performance as well, that some of those new products we have been working on are almost getting commercialized. So as we move forward in FY 2025, say from July, August onward, we'll start seeing the financial performance kick in from some of these new products which we have been working on.
Got it. Just finally, sir, any outlook you can share for CDMO business for FY 2025? You've highlighted in the past that we're looking to grow top-line by 50%-100%. And also for enterprise business, if you're hearing anything from your clients, when do we see some recovery? Just both businesses separately.
Great. So on CDMO, if you would have seen from last two years or so, we have been almost doubling our revenues. This year, we have grown by almost 67% from last year. And we have a very good confidence that we'll continue to maintain that run rate as we get into FY 2025. Now, our base for the CDMO and new products have also crossed INR 250 crore. So getting to almost similar kind of run rate means significant revenue generation as we get into FY 2025. And that's where our energies or our new R&D developments are focused on. On the enterprise side, we haven't seen any green shoots in the market. But internally, I would hate to give any forecasts on when the market should revive fast.
In turn, what we are focusing on are the things which are in our hand, which are the CDMO and the new product development. Our entire goal and ambition is that as we get into FY 2025, we completely deliver ourselves from enterprise profits. The CDMO and new products itself can take care of the majority of financial performance. If the market turns back, that will be a big plus-plus on the enterprise side.
Yeah. So just to follow up on that because you talked about margins and profitability. So CDMO margins are significantly higher than our traditional enterprise margins. But even with increasing share, that doesn't seem to show in the numbers. So any highlight you can give there on that part?
So clearly, the CDMO numbers are at much higher margins. But on the enterprise portfolio, the deterioration has been significant. If you see the contributions generated on the enterprise portfolio, it's barely nil or, in fact, negative. That's one factor. And the second important thing which you have to look at the numbers closely is below the contribution margin. If you see over the last two years, we have also taken a lot of investment for future growth, be it the new herbicide plant, be it the new R&D center. So if you are looking at the profitability or the PBT levels, clearly, you see a lot more negative. But if you dig a little bit deeper, we would have been even much more negative if CDMO and the new products have not kicked off at this fast pace.
There's been a lot of investment which has been put up in the last two years. The revenue generation from those new investments for the CDMO and new products will kick in in the coming year.
Got it, sir. Thank you. Thank you.
Thank you. The next question is from the line of Dhananjai Bagrodia from ASK. Please go ahead.
Hi, sir. Congratulations on a very good set of numbers given the current environment. My question is more on the dairy business. What are we doing exactly to change it structurally because now we are showing good numbers in this kind of business, and we have increased our VAP percentages?
So, I think multiple initiatives were taken. And we also had consultants who worked with our team to bring in a lot of efficiencies in the business. And I think one of the things which I can highlight is that we shrunk the business a little just to get rid of products where we were not making money and the regions where we were bleeding. So, I must say that major improvement has come from our cost structure in our procurement system. From over 100 chilling centers where we procured milk, now we procure milk from less than 50 chilling centers. The closer we are, the nearer we are, the cheaper we are. So that added to the margin. Apart from that, several other experiments in procurement have been concluded, and they will be rolled out this year, which will further make our procurement efficient.
Rationalization of SKUs and certain geographies, we closed down. So, I think a whole lot of things have happened. That is why our gross margins are at par with the industry leaders in the private sector in Q4. And we are very sure because the benefits have not been fully realized on annualized basis because most of these projects started yielding results in Q2 and Q3. I believe this progress will continue this year, and we will see those benefits. Apart from that, our continued focus on value-added products is also yielding results that from 32% salience, we became 36% salience. And we hope that this year, we will grow the salience by another 4% or 5%. So, I think it's a combination of things.
We are very confident that in case the milk prices remain benign, which they are following a regular pattern of a normal year rather than the shortages which we saw in calendar year 2023 and 2024, which ate into our margins, in case the margins or the cost of milk remains at a normal level, I'm very sure we will up the margins further in this year.
Okay. And how are we now, just to have an idea, are we looking at now for this volume growth? Are we looking at more VAP percentage growth? Because now we've done all the hard work in terms of stabilizing the company. I mean, sorry, the division. Any thoughts on that? And how's competitive intensity been now in this segment? Because more and more players are trying to get into protein and other things in this milk product.
I must tell you very honestly that the competitive intensity in liquid milk is very high. In all parts of the country, where cooperatives are also big, in south, there are a lot of private players. So that will always be highly competitive, and that will also be price-sensitive also. But I think last few quarters, I have conveyed that our focus is on branded value-added products. That will be the focus area. Whatever growth we will get this year or we are getting this year since April is gone, I think most of the growth is coming from the value-added segment, which we also like because it has higher contribution margins than liquid milk and less price-sensitive. So I think that will be the course of action. However, for liquid milk, we also have a strategy.
We are not represented in all geographies in these five southern Indian states we operate. We plan to actually saturate these geographies in next two years and grow to a level where our plant utilization from currently 60% comes to about 75%-80%, which is the ideal. But yes, focus will definitely be value-added products, premiumization, new product development, and branding.
Okay. Fantastic. So congratulations on doing such an incredible job in turning around a division like this, which has historically been tough for other players. Thank you so much.
Thank you. Participants who wish to ask questions, may please press star and one. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Yeah. Thank you. Sir, a few questions from my side. First, on the animal feed segment, while cattle and fish have been growing strongly in terms of volumes, poultry lagged behind a little bit last year. How do you see that shaping up in the year ahead? And can we expect cattle and fish to sustain double-digit volume growth going forward? Also, any comments on the margins that you would like to make for animal feed?
So I must say that cattle feed and fish feed, the game is wide open. There is no integration likely to happen because cattle feed market is huge. Category conversion is at 20% level. And we believe cattle feed and fish feed can both grow in double digits for next at least foreseeable future. Poultry is integrated, particularly broiler. As more and more companies integrate and feed becomes part of the input for producing broiler, the market is shrinking. But we believe that we will have a dominant share in the shrinking market, and we will be in this segment maybe at a very small improvement in volume, but definitely, we will be able to maintain volume in this segment. Layer feed suffered because of very high egg prices.
The replacement of chicks was not very high because people continued with the flock, which was late to realize the benefit of high egg prices. And now that replacement has started, we believe layer feed, which was a growing segment for us barring last year, will start growing again. So, in all in all, I think this year, I believe that the growth in animal feed will be driven by fish feed, cattle feed, and layer feed. On the market, I must tell you that steadily, we have been improving the margins. And I can definitely yeah. So, I'll give you some color quarter and quarter. Yeah. So, I must say that, like you see, Q4 of last year, we had dropped to about INR 1,223 per ton EBIT margin. Then Q1, we went to INR 1,442. Q2, INR 1,531.
Q3 is always a tough year in the animal feed business because new crops start coming, and players start dropping prices even though the crop is not usable because of high moisture. So that has always been a poor quarter for us in EBIT per ton. But a very good quarter for us for volume. And Q4, we have gone to INR 1,874. So, my sense is that the upward trend will continue. And I am very sure whatever on the year-on-year basis, I'm saying, that we will be able to maintain close to Q4 numbers in this quarter also.
Okay. So 1,800-plus for FY 2025 is what we are looking at.
No, I'm talking about quarter-on-quarter. Our average last year was about 1,500-something.
1,551.
1,531. And I can definitely, FY 2024 was INR 1,531. The only thing I can say is that FY 2025 will be better than that.
Understood, sir. There is also a comment in your presentation about increasing realizations in both cattle feed and fish feed. Is this primarily driven by the new product launches? Then there's also a lot of mention of new products launched in Q4 in cattle feed. Any specific features or attributes that we are targeting here to continue to gain market share?
Yeah. All these products, there are only two segments where we are launching products: new geographies to compete with the existing competitors, and new products to cater to very high-yielding animals.
Got it, sir. On the oil palm business, you seem to have started some trading revenues, which contributed quite significantly. So if you could please just elaborate on the strategy behind what's happening there.
Yeah. So in oil palm, as you know, we have commissioned our refinery. And for the purpose of refinery, we sort of to ensure that the refinery completes their terms, we do sort of get into buying crude palm oil and refining and further selling it in 15 months. So that is what the trading fees is there. So Abhijit, I want to specify that normally, the refinery and solvent extraction capacities are higher than our in-house production of palm kernel cake for solvent extraction and CPO for refinery. And just to utilize the refinery, I think marginal contribution is very, very important. So we buy oil and refine it and sell oil in stearin and PFAD. I am very sure that we will have to do it for a year or two. But my sense is that all our capacities will match with our production in two years' time.
Understood, sir. And then just on the Godrej Tyson business, if you could please just help us with a breakdown of the revenues between the branded business and live bird. And also, what sort of growth rates are we seeing in the branded business going forward?
Let's see a question. Yeah. Yes. Just give me a minute. I'll tell you. Yeah. So, we are defocusing on commodity. So, we are defocusing on commodity. So, the live bird has started degrowing from last year onwards, which has continued to degrow because more and more birds are going into the processing plant. Yummiez grew about 13%, and Real Good Chicken grew about 15.6%. And if we take the blended number, then the branded volumes grew by about 15% in FY 2024 over FY 2023. And that is the focus for this year also.
You mentioned in the past that the target is to, by FY 2028, take this branded share to maybe 80%+.
So I think this will happen much earlier because we are getting very good traction in our processed chicken business. And a good thing we did is that about two years ago, we enhanced capacity marginally. So my sense is that it will happen earlier because our growth rate in Real Good Chicken is pretty good.
What would be the margin differential approximately between the brands and the commodity business here?
Live bird can be -25% to +25%. You can choose whichever number you want. Okay? Yummiez's contribution margin, which is margin after variable, is about 35%+. Real Good Chicken is close to 15%. I must tell you that a large portion of Real Good Chicken is B2B to QSR and e-com and direct-to- company.
Got it. Just one last thing from my side. The unallocable expenses within the segment financials, those seem to have increased quite meaningfully this quarter. If you could please just help us understand that.
Abhijit, when we compared it with last year's same quarter, there was sale of land which was booked in India unallocated expenses. That is the reason why we are seeing a big jump.
Okay. Okay. So this INR 50 crore number that we are seeing for this quarter in unallocated, that's a sustainable number, is it, going forward?
Yes. Yes. Yes. That is a sustainable number. Last year was because of the netting off of the income.
Okay. Fine. Thank you so much for taking all my questions. All the best.
Thank you. Ladies and gentlemen, if you wish to ask questions, you may please press star and one on your touchtone phones. Participants, to ask a question, you may press star and one at this time. The next question is from the line of Sarvan Vora, an individual investor. Please go ahead.
Hi. Thanks for giving me the opportunity again. I just wanted to understand from you in our Godrej Agrovet business what kind of cross-business knowledge because it's all related. Some businesses are related. So what kind of cross-business knowledge or functionalities do you share among businesses?
So I think one thing which we share very well is talent. So I think most of our business, either totally or at least in the supply chain, are human-fixing businesses. So I think talent flexibility is very high in our businesses. The second thing is that if you take, there are several businesses where we buy commodities. ACI Godrej is a feed company in Bangladesh. Our feed businesses, both aqua feed and normal animal feed, plus Godrej Tyson Foods feed requirements, all this is bought by a central buying organization. And when we combine these volumes, the volume purchased in India for Bangladesh, including for Bangladesh, is close to 1.8 million tons, which is a substantial quantity. So this is another thing, plus all good practices, etc., which is a standard exercise. So I'm saying that there are a lot of synergies which we capitalize on.
Got it. Sir, like you mentioned about the dairy business, how we have increased the share of the value-added products. Also in Tyson, we are adding more of decommoditized products. Can you just share it for the other businesses also, just a brief on how we are trying to make our margins less commodity-driven?
So I'll give you 3, 4 examples. So in oil palm plantation business, earlier, we were sellers of only crude palm oil and palm kernel oil. And volatility will affect us significantly. By setting up a solvent extraction plant, other wealth from waste projects, plus refinery, now we are less impacted by volatility of CPO and PKO because we are selling only in PFAD, stearin, palm kernel extraction, which is one level of valuation. So I'm saying that I'll give you an example of this year. We had a target of INR 184 crore EBIT. And there was a significant drop in CPO prices. There was almost a 12%-13% drop in crude palm oil price and 20% drop. So if we were only in crude palm oil and palm kernel oil, our profits should have fallen by 40%. But because of these profits came down only by about 20%.
Now, this is the way to go in this business. We will not stop here. We will start going into further value addition, including refining other oil also, which is PKO, and probably doing something with the product. So that journey started. As we learn, I think in three years' time, my sense is that oil palm plantation business will be less dependent on CPO prices. Of course, we cannot totally, I would say, disconnect from that. But the impact will become insignificant on the long-term basis. Similarly, you know the story of Godrej Tyson Foods Limited I've talked about. I've talked about Creamline Dairy Products Limited also. So similarly, all areas, we are moving towards either value-added products or down the value chain where margins are better. CDMO was another example in Astec LifeSciences.
Great. And sir, what would be our CapEx guidance for FY 2025 for Godrej Agrovet standalone as well as for Astec LifeSciences separately?
I think on average, we keep on investing about INR 250 crore-INR 300 crore. I think we will maintain that INR 100 . But the investment will come. We just have to enhance some capacities in our dairy business. We have to invest in distribution in our standalone dairy business. I'll tell you how we invest in distribution because wherever we go, we acquire freezers and chillers, which we invest in. And a big chunk of investment goes to our plant to firm up for our refinery expansion in our oil palm business. But that all will be decided sometime around end of Q2.
Great. And so for Astec?
Astec, we have commissioned one herbicide plant and capitalized it in Q1 . So, I think we are in a situation there where we have capacity to fill. But I am very sure that Astec CapEx cycle will come under discussion in Q3 and Q4 because in case contract manufacturing or CDMO business picks up, I think we will require specialized capacity for specialized products for specialized customers.
Right. And sir, because cash flows have fallen significantly for Astec this year, are we looking at any equity raise plans for Astec?
No, we are not looking at any raise because we strongly believe that I think we have industries bottomed out. And now, the journey will be upward. And in this business, I'm saying that debt equity is still about 1.3 or something. So it's not a very big concern. I think we can tide over whatever is their short-term requirement by supporting internally. Yeah.
Got it, sir. Thank you so much, sir. Thank you.
Thank you. Ladies and gentlemen, we have no further questions. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you. I hope we have been able to answer all your questions. If you have any further questions or would like to know more about the company, we will be happy to be of assistance. Stay safe and stay healthy. Thank you once again for taking the time to join us on this call.
Thank you. On behalf of Kotak Securities, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.