BackGodrej Agrovet eyeing buyouts to grow business
The Godrej Group firm is also exploring research and development partnerships with foreign companies
Premium(Pradeep Gaur/Mint)
Mumbai: Buoyed by good rains and a bumper harvest this year, Godrej Agrovet Ltd, the farm business unit of Godrej Industries Ltd, is exploring research and development partnerships with foreign companies, and may consider buying a company to expand its business.
“We will not hesitate to borrow or to raise capital in case there is an exciting M&A (merger and acquisition) opportunity," managing director Balram Yadav said in an interview last week.
Godrej Agrovet has achieved a compounded annual growth rate (CAGR) of 25% for the last three years, and “maintaining this growth rate is challenging with no M&A", Yadav said.
The company is also scouting for a partnership with some global companies “to aid us in research and production".
Good monsoon rainfall and a 6.8% increase in the kharif sowing area could double farm gross domestic product growth from last year’s 1.9% to 4.5%, according to a 11 September report by ratings agency Crisil Ltd.
Godrej Agrovet operates in four business segments—animal feed, oil palm plantations, agri-inputs and poultry.
In the past three years, it has incurred a capital expenditure of nearly ₹ 300 crore, of which around ₹ 200 crore was in the animal feed business, and ₹ 100 crore in oil palm plantations, according to Yadav.
Agrovet’s June quarter sales grew 27% to ₹ 945 crore from ₹ 744 crore a year ago, driven mainly by the animal feed and agro-inputs segments, the company said in a statement.
“Our agribusiness is doing extremely well, supported by the fact that the monsoon season is good," Adi Godrej, chairman of the Godrej Group, had said in a telephone interview after the results were announced on 10 August.
The animal feeds business accounted for 33% of Godrej Industries’ revenues as on 30 June. Godrej Agrovet competes with companies such as Cargill India Pvt. Ltd, SKM Animal Feeds and Foods (India) Ltd and Gujarat Ambuja Exports Ltd in the animal feed segment.
“In the next three years, we will invest about ₹ 250 crore to expand animal feed, oil palm plantation and agri-input business," Yadav added.
Godrej Agrovet, said Yadav, is investing around ₹ 100 crore a year and internal accruals are much more than. The company’s debt-equity ratio is below 0.5, which gives it room to raise additional debt, he said.
In December, Singapore state-owned investment company Temasek Holdings Pte Ltd bought a 19.99% stake in Godrej Agrovet for ₹ 572 crore.
Analysts say such investments are a positive for the company.
“Agribusiness in India is a viable opportunity, and given the good rains this year, foreign investors will definitely consider this as a exciting opportunity," said a Mumbai-based investment banker who did not want to be named.
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