Faster recovery for business in H2 of current fiscal: Godrej Agrovet MD

The second wave of Covid-19 has significantly impacted economic recovery seen in the preceding quarter, especially in rural India, which had a much stricter lockdown. Further, after a good start to the southwest monsoon, there was a long gap, which resulted in lower Kharif sowing. However, recovery has gained pace from July-21 onwards, with macroeconomic indicators improving month-on-month and rainfall in July-21 covering most parts of India. Godrej Agrovet Limited is confident on normalisation of business activities in the second half of the current fiscal. "We expect recovery to be faster in the second half of the year, as increase in vaccination percentage will lead to normalisation of business activities," Balram Singh Yadav, Managing Director, Godrej Agrovet Limited (GAVL), says in an exclusive interview with Bizz Buzz

The second wave of Covid-19 has significantly impacted economic recovery seen in the preceding quarter, especially in rural India, which had a much stricter lockdown. Further, after a good start to the southwest monsoon, there was a long gap, which resulted in lower Kharif sowing

The company's net was up by around 20 per cent in Q1. What were the factors that contributed for this growth?

Consolidated total income was Rs2,003 crore, registering a growth of 28.2 per cent YoY. Consolidated profit before tax was Rs137 crore, registering a growth of 2.3 per cent YoY. The second wave of Covid-19 has significantly impacted economic recovery seen in the preceding quarter, especially in rural India, which had a much stricter lockdown. Further, after a good start to the southwest monsoon, there was a long gap, which resulted in lower Kharif sowing. However, recovery has gained pace from July-21 onwards, with macroeconomic indicators improving month-on-month and rainfall in July-21 covering most parts of India. We expect recovery to be faster in the second half of the year, as increase in vaccination percentage will lead to the normalisation of business activities.

The 28 per cent topline growth is primarily due to excellent volume growth inflation in the animal feed sector. However, irrespective of commodity inflation, both oil palm plantation and animal feed businesses have performed very well. In terms of sales volume growth, the animal feed business has registered an 18.3 per cent growth. In terms of revenue, it was 33.9 per cent. The profitability in the segment grew 2.5 times. A significant reason for the good performance has been our investment towards strengthening our R&D, as well as good calls on raw materials.

Standalone crop protection business also registered a modest growth of 5.9 per cent. What are your future plans for this segment's growth?

Segment revenues in Q1FY22 are driven by the higher sale of in-house products over the previous year. Sales could have been higher, but as I mentioned, the good and early start of southwest monsoon was followed by a long gap of 25-30 days, which affected the sowing of major crops and, consequently, the demand for agrochemicals, particularly herbicides, in June. The raw material prices increased sharply due to an increase in demand and limited supply from China. However, the entire cost inflation was not passed to the customers resulting in margin pressure. With respect to the second part of the question, we are investing in both brownfield and greenfield expansion for our R&D function. We shall also be expanding our portfolio with new launches in the coming few months.

How do you see the demand for animal feed in the country? Which animal feed is more in demand these days?

Currently, the consumption is low due to Shravan. Coupled with the contraction in the poultry and animal husbandry market - and the rural consumption due to the onslaught of the pandemic -- the demand de-grew to a certain extent. Add to it that feed cost has gone up by 30 per cent in the last three months (from Rs 30/31 per kg to Rs 40/41 per kg); it's almost a 50 per cent increase over last year. Similarly, layer feed has had modest inflation of about 25 per cent. However, we expect this to hit the normalcy cycle by next quarter. Our feed business' profitability has improved dramatically due to good raw material positions. We are planning to launch new products in the animal/cattle feed segment, and if raw material prices reduce, the feed cost will drop, and our margin will see a positive surge.

Astec Lifesciences EBITDA declined by 13.7 per cent due to lower export sales and higher input cost inflation. How do you see the sector going ahead?

With respect to Astec Lifesciences, revenue growth was driven by domestic business as exports declined in Q1FY22. Prices of key products fell in the international markets, which caused sales to be lower despite an increase in volumes. Segment wise, revenue growth was driven by enterprise sales as the contract manufacturing business is typically lower in the first quarter. Across the group, this year, we plan to invest in strengthening our R&D and expanding our portfolio. Around Rs 250 crore worth of investment across businesses is planned. In this, around Rs 180 crore of investment will be in Astec. Our herbicide plant will be operational in the current quarter and will contribute to revenues in FY22. We plan to launch a new agrochemical product this quarter soon.

India imports a significant quantity of palm oil to meet the growing demand for edible oil. So, being among the largest oil palm developers in the country how much are you able to produce and what is your future plan for the same?

Edible oil seeds require a boost in all aspects. Production needs to be at least tripled to meet consumption. This will require technology, government support, and a concerted effort from businesses to improve productivity. Currently, the consumption is around 23 million tonnes, whereas domestic production accounts for only 9-10 million tonnes. Approximately 60-70 per cent of the import is palm oil, and the rest is soya. The 13-14 million tonnes deficit has to be imported every year, putting the economy and market under stress. Palm oil is important as it produces 4 tonnes of oil per hectare, whereas soya and groundnut produce only 400-700 kilos per hectare. Therefore, the palm cannot be replaced.

To increase oilseeds' production and productivity, emphasis should be on increasing the Seed Replacement Ratio (SRR) with a focus on varietal replacement; increasing irrigation coverage under oilseeds; inter-cropping oilseeds with cereals/ pulses/ sugarcane. I strongly believe that this is the 'pulses moment' for the Indian oilseeds industry. Like in pulses in 2015-16, higher prices acted as a catalyst for increasing productivity and the area under cultivation. A similar situation exists in oilseeds because of higher oil prices.

We are seeing the area under oilseeds constantly increasing for the past two years. The good news is, it is eating into wheat and paddy areas, which anyways generates a lot of surpluses. We work with 10,000 farmers and currently have 60 thousand hectares for palm oil cultivation, out of which 37-38 thousand is effectively utilised. Every year, we are adding 3 to 4 thousand hectares. We are working with industry associations, government and policy institutions to create a roadmap to fill the gaps.

The company is also into poultry products. However, this sector was badly hit by a rumour in the beginning of pandemic last year. How did you manage the situation?

The animal protein market has shrunk by 20 per cent over the last year. Poultry was hit twice – once due to Covid and then sure to bird flu rumours. In addition, chicken consumption in the country is heavily dependent on out-of-home consumption. It contributes around 50 per cent to the overall consumption in the country in terms of volume. Consequently, prices have been fluctuating and therefore, demand too has been impacted.

However, consumption seems to be resuming. Performance has been better due to stronger resilience and the ability to stay in the game. Even though the market has shrunk, there is a consolidation in the market that has increased the share of organised players. It is the market share improvement rather than the overall buy which has helped us.

During the pandemic and lockdown, in-home consumption increased by 20-30 per cent, but that still could not recover the loss caused by the decline in out-of-home consumption. But a significant trend that emerged is that consumers are now more open towards direct to home delivery of non-vegetarian foods and snacks. This will give an impetus to the respective segment. We expect a price hike of 25 per cent in ex-farm prices in a few weeks due to shortage post Shravan. In addition, we are expanding our range of offering under Godrej Yummiez. We are launching gravies and tikkas to meet the increased demand in the in-house consumption.

How is the company gearing up to face the forthcoming third wave of Covid-19?

We went back to our drawing board during the pandemic to assess what matters and rejig our strategy a bit. Nearly 88 per cent of our employees have been vaccinated with one dose. We expect to cover the entire workforce shortly (excluding employees with medical conditions). We are extending medical and financial support in emergency situations and also ensuring the mental wellbeing of employees through online sessions. All our manufacturing plants are operational with stringent safety measures in place for employees in all our locations. In the next 6-8 weeks, more than half of India will be vaccinated, and we are hopeful that around Diwali, consumption will surge again. We will be closer to the ground to see global and local commodity trends due to commodity volatility on short notice. Our efforts will be towards ensuring that cost due to commodity volatility is kept at a minimum for a sustainable and scalable business.