Godrej Agrovet Shares: A Compelling Investment Opportunity
Godrej Agrovet Ltd. has been one of the notable performers in the Indian stock market, with its shares having a significant upside potential of 42% as per ICICI Securities. Despite the company’s stronger performance over FY24-25, with 16% and 19% PAT growth seen in FY24 and FY25 respectively, its stock price has not reflected this growth, with a ~11% dip in the stock price seen in the last 12 months.
Robust Earnings Growth
The company’s earnings trajectory over FY20-24 slowed down to 3.4% (EPS CAGR) compared to a robust 11.7% over FY14-19, amid Covid-19, volatile rainfall patterns, and the larger base due to the Astec acquisition in 2015 driving slower growth. However, FY25 has seen a welcome return to growth, with a 16% YoY jump in Ebitda and a 19% jump in net earnings, driven by a sharp improvement in realisations/margins and marginal improvements in revenues.
Valuation Analysis
At current levels, the stock trades at the lower end of the five-year PER and EV/Ebitda bands. This suggests that the robust 26% EPS growth over FY26-28E, coupled with the 600/700 bps boost in RoE/ROCE (FY28E vs FY26E), has not fully reflected in valuations. This presents a compelling investment opportunity for investors, with the potential for significant upside in the stock price.
Initiating ‘Buy’ Call
ICICI Securities has initiated a ‘buy’ call on Godrej Agrovet, citing the company’s robust earnings growth, improvements in realisations and margins, and attractive valuations. The brokerage firm believes that the company’s strong performance over FY24-25 has not been fully reflected in its stock price, presenting a buying opportunity for investors.
Investment Rationale
The investment rationale for Godrej Agrovet is strong, with the company’s diversified business model, robust earnings growth, and attractive valuations making it an attractive investment opportunity. The company’s strong presence in the animal feed and agricultural inputs segments, combined with its expanding footprint in the dairy and poultry segments, provides a stable and growing revenue stream.
Risks and Challenges
However, there are risks and challenges associated with investing in Godrej Agrovet, including the volatility in commodity prices, intense competition in the animal feed and agricultural inputs segments, and the potential impact of regulatory changes on the company’s business. Investors should carefully consider these risks and challenges before making an investment decision.
Conclusion
In conclusion, Godrej Agrovet shares have a significant upside potential of 42% as per ICICI Securities, driven by robust growth in earnings and improvements in realisations and margins. The company’s diversified business model, strong presence in the animal feed and agricultural inputs segments, and attractive valuations make it an attractive investment opportunity for investors. However, investors should carefully consider the risks and challenges associated with investing in the company before making an investment decision.
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