Rationale

 The reaffirmation of ratings continues to take into account the diverse presence of Godrej Agrovet Limited (GAVL) in agrifocused businesses such as animal feed, vegetable oil (palm oil), crop protection (agri inputs), dairy and poultry, which insulates the company from downturns in any particular business sector. Among the various sectors in which it operates, GAVL enjoys a strong position in the domestic organised animal feed segment, which accounts for ~50% of its consolidated revenues. Moreover, GAVL has gained further market share in this segment in the recent quarters. The ratings also factor in the company’s comfortable capitalisation metrics, as reflected in a gearing (total debt/net worth) of 0.5 times and TOL/TNW (total outside liabilities/net worth) of 0.9 times as on March 31, 2024. The company also continued to demonstrate a comfortable interest coverage at 6.7 times in FY2024, aided by steady profitability and containment of finance costs. It further draws comfort from GAVL’s strong parentage (it is a part of the Godrej Group), which imparts financial flexibility. ICRA also notes that GAVL has been gradually increasing its stake in its subsidiary companies such as Astec LifeSciences Limited (Astec). GAVL’s operational performance in FY2024 largely remained steady. While the company reported a recovery in margins in dairy and poultry & processed food segments on the back of favourable input costs and increasing salience of value-added / branded products in the overall revenue mix, muted demand in the enterprise segment impacted the business performance of Astec in FY2024. Nevertheless, the standalone crop protection business reported a substantial improvement in its business performance at the top line and bottom line as the division benefitted from the increasing share of in-house, in-licensed products and lower sales returns. The animal feed division, the largest in terms of revenue generation, continued to report a steady increase in volume offtake, although the same was offset to an extent by moderation in realisation as input costs softened over the fiscal. The edible oil division, on the other hand, reported a marginal YoY revenue decline on account of a steep correction in crude palm oil and palm kernel oil prices, leading to a moderation in margins as well, although the same continued to remain comfortable. GAVL’s cost structure and profitability remain susceptible to raw material price fluctuations due to its exposure to a pricesensitive consumer segment, which limits its ability to fully pass on any increase in input prices. In this context, GAVL’s ability to pass on the input cost fluctuations to end-consumers either through strengthening market position or increasing salience of value-added / differentiated products for protecting its margins, remains a key rating monitorable. The company’s presence in diverse agri-businesses provides comfort to the overall business model of GAVL. Nonetheless, the agri-focused business portfolio of GAVL remains vulnerable to factors such as adverse weather conditions and Government regulations. The company also faces intense competition in the agro-chemicals business from the domestic as well as external players, which may influence the profitability in this segment. The ratings also factor in GAVL’s capex outlay of Rs. 300-350 crore per annum over the near term, which would be funded through a mix of internal accruals and external borrowings. Though such debt-funded capex is likely to have some influence over the capital structure in the near-to-medium term, the same is expected to remain fairly comfortable because of the company’s robust net worth position and healthy accruals generation. The Stable outlook reflects ICRA’s opinion that GAVL will continue to benefit from its strong business profile, healthy financial risk profile and strong parentage.