Home >Companies >When will Godrej Agrovet go public?

Mumbai: Adi Godrej, head of his family business Godrej Industries, has been talking of taking his agri business Godrej Agrovet public for a long time.

On Tuesday, in an interview with CNBC TV-18, he said the company is looking at the “possibility of listing their subsidiary Godrej Agrovet" although adding that there were “no immediate plans" to do so.

But a listed Agrovet may be just what parent Godrej Industries Limited (GIL) needs.

Agrovet’s business verticals include agri-inputs, animal feeds, oil palm manufacturing, and consumer brands in dairy and poultry. In the last financial year, Agrovet had revenues of Rs4,400 crore with Rs200 crore in profit after tax, contributing 41% of GIL’s total revenue for the same fiscal year.

This past quarter, the parent company posted 42.31 crore standalone loss, even as its revenue rose 30.34% year on year, Mint reported on February 14. Potential investors look at Agrovet as a solid agri-business bet because it is well diversified and is present in attractive segments.

Managing director Balram Singh Yadav agreed while laying out the company’s diversification strategy. “You’re spot on, we play in all segments of the agri-business except irrigation," he said in a telephone interview to Mint. “We’re in challenging, high growth areas like animal feeds and oil. There will always be demand and opportunity."

In a company report on GIL, published in October 2016, Axis Capital wrote that Agrovet is valuable because it is present in the “under-penetrated" animal feeds business and in “high growth areas" including dairy, poultry, and agri-inputs.

Besides, the report identified the company’s strong financial performance and strong leadership under Yadav. “We have rarely seen companies where all [these] factors align," the report said.

Agrovet has had 40% compound annual growth rate (CAGR) in its profit after tax for the last seven years, and has had a 30% increase in return on capital employed, even during a downturn. In its annual report last fiscal year, Godrej Industries observed Agrovet posted a 14% increase in revenue year-on-year despite two consecutive poor monsoons and depressed commodities prices.

Agrovet’s largest source of revenue is from its animal feeds business, which contributes 72% of total earnings.

However, Singh said the under the new IND-AS accounting standards, this business contributes around 50% of the company’s total revenues. “We will see a 30% growth in revenue under the new standards, and will have revenues of over 5,000 crore in FY17," he added.

The company leads the organized market for animal feeds that makes up 10% of the total 90 million tonnes of the animal feeds market in India. Agrovet sold 1.1 million tons of animal feed in the 12 million tons market in India last fiscal year.

Agrovet also acquired controlling stake in two companies last financial year—Astec LifeSciences Ltd and Creamline Dairy Products Ltd. “GAVL intends to build an entire cattle feed to high quality milk/milk product value proposition", the company said in its annual report.

Astec LifeSciences brings more strength to the company’s agrochemicals manufacturing capacity, boosting its agri-inputs business. The company makes a list of 10 agrochemicals and 4 chemical intermediaries, and owns 2 manufacturing units near Mumbai. The company went public in 2009 and has a market cap of Rs1,162 crore with a price-earnings ratio of 113.50.

South India-focused Creamline Dairy sells consumer milk and milk products, including ice-creams, under the “Jersey" brand name. In Creamline’s latest annual report for FY2014-15, the company reported annual revenue of Rs861.23 crore with Rs91 crore in profit after tax.

With these acquisitions, Agrovet is now diversified even more and present at every step of the agri and dairy business value chain.

“No other agri related company has that portfolio", an analyst with an equity brokerage firm said, requesting anonymity. India’s largest agri-related firms tend to focus on one kind of product or segment, like edible oils (Ruchi Soya), fertilizers (Zuari Agro Chemicals) or only deal with packaged consumer food products.

In its report, Axis Capital estimated Godrej Agrovet will be worth $2 billion by 2020, approximately 3,396 crore, at 6.98 to a dollar. It predicted that with high growth in dairy and poultry brands, coupled with steady growth in the animal feeds and palm oil business, Agrovet’s revenues would grow to 1,000 crore by financial year 2021 at 20% CAGR, with 600 crore in profit after tax by the same year.

It’s not just strong financials and growth prospects. Agrovet’s appeal lies in the fact that the latent value it creates for the parent company GIL is yet to be unlocked.

GIL holds 60.8% of Godrej Agrovet, along with 23.8% in Godrej Consumer Products Limited, and 56.7% in Godrej Properties Limited, both listed entities. Besides, it owns retail chain Nature’s Basket as a wholly owned subsidiary.

However, at Rs14,900 crore, GIL’s market cap equals that of the shares it holds in just the listed businesses —consumer and properties.

Together, Godrej Consumer and Godrej Properties contribute Rs14,300 crore to GIL’s total valuation, according to the report by Axis Capital.

“This implies other businesses (Agrovet, Chemicals, Nature’s Basket and investments) are available virtually free", the report said. “Of these, Agrovet is the fastest growing segment for GIL and we believe its value will be almost equal to current market cap of GIL in next 4-5 years."

That means a bump in value not just for Agrovet’s potential shareholders, but also for investors in GIL, whose shares will price in a listed company. Right now, GIL’s shares and m-cap barely reflect this value.

“We have valued Agrovet at 30 times its estimated profit after tax in financial year 2017-18", the analyst said. “This prices in the Astec LifeSciences and Creamline acquisitions."

The question now remains: when will this listing happen? Adi Godrej has spoken of listing plans several times over the years, but has declined to share a clear timeline. “Even if they kickstart the process now, it would take at least six months for the listing", the analyst said. “This means our valuation estimates will roll over to financial year 2019."

Potential investors are in for a wait.

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