DSIJ Mindshare

Temasek To Pick 20% Stake In Godrej Agrovet

Media reports suggest that, Temasek will acquire a 19.99 per cent stake in Godrej Agrovet (GAVL). Ever since this has come out, Godrej Industries (GIL), which has a 75 per cent shareholding in GAVL, has been doing well on the bourses. GAVL operates in segments like animal feed (contributing around 70 per cent of its business), palm plantations (14 per cent) and other agri-inputs and the poultry business (which contributes to the remaining 16 per cent). The company had clocked a turnover of Rs 2218 crore and a net profit of Rs 81 crore in FY12.

The Temasek Deal

Temasek has agreed to pay Rs 572 crore for buying the proposed stake of 19.99 per cent in GAVL. The current deal values GAVL at Rs 2860 crore. The investment would be a combination of primary and secondary transactions. The primary stake sale will support GAVL in future expansion plans, where it wants to expand its distribution network. GAVL has expanded its rural distribution reach and increased its manufacturing capacities over the last few years. The company has 45 manufacturing facilities with a distribution network of over 10000 dealers.

The company has been a tremendous source of value creation for GIL as GIL holds a 75% stake in it. We feel this deal if it happens, will be directly beneficial for GIL. The Temasek deal is expected to bring about a re-rating of the GIL stock on the valuation front. Also, the promoters may list GAVL on the bourses to unlock the full value of the company. This deal seems to be the first step in that direction.

Financial Snapshot

GAVL has performed very well in both the Q1 and Q2 of FY13. Its revenues for Q2 of FY13 stood at Rs 899 crore (up 40 per cent) and PBIT at Rs 58 crore was up 29 per cent on a YoY basis. All the major segments have reported a strong growth, especially the animal feed business, which grew 55 per cent on a YoY basis to report a turnover of Rs 629 core. Similarly, the scenario for palm plantations and agri-inputs too has been pretty good.

The animal feed business is expected to be a major growth driver for GAVL going forward. It is a high volume-low margin business where the company has added new capacity in the second quarter and more is expected to get commissioned by end of this month, we expect volume growth in this business to continue going ahead. India has the largest livestock industry, and this is evolving as an organised sector and is slated to provide enough growth opportunities going ahead.

In the palm plantations business, around 23000 hectares of land will start yielding fruit in FY14, further boosting the performance of the company. Other segments like agri-inputs and poultry have also seen decent a business growth in the past, and we believe that the company would continue with the same.

The deal values GAVL at good levels and if the company taps the primary market, it would give an added boost to the GIL stock.

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