The consumption and costs of poultry merchandise declined instantly after outbreak of the epidemic. Consultant Picture
With a number of states dealing with considerations of chicken flu, we consider animal feed and poultry segments of Godrej Agrovet are prone to be impacted in close to time period. Nonetheless, we additionally count on organised gamers equivalent to Godrej Agrovet to realize market share from unorganised gamers as shoppers are prepared to pay premium for hygienic and packaged merchandise. Key learnings from chicken flu epidemics in 2006 and 2008 – there was impression on consumption and costs of hen/eggs for ~12 months publish outbreak of illness however consumption in addition to costs recovered after the illness was managed and the profitability of poultry business was impacted for ~3-4 quarters in 2006 and 2008. We stay assured of worth creation (RoE > Price of Fairness) by Godrej Agrovet and preserve our ‘add’ ranking with a DCF-based revised goal worth of Rs 575 (28x FY22E; earlier TP `560).
Chicken flu in India: A number of states equivalent to Himachal Pradesh, Rajasthan, Madhya Pradesh and Kerala have reported chicken flu (H5N1 or H5N8) instances. As this illness can unfold from birds to poultry, the chicken flu considerations are prone to damage poultry companies throughout India in subsequent 2-3 quarters. Possible impression of chicken flu, we count on the consumption of poultry merchandise (hen/eggs) and the costs of those merchandise could decline. The demand for poultry feed can also decline. The profitability of whole worth chain (poultry firms, poultry feed firms and farmers) is prone to be impacted in Q4FY21 and H1FY22.
Learnings from epidemics in 2006 & 2008: India suffered chicken flu pandemics in 2006 in addition to 2008. The consumption and costs of poultry merchandise declined instantly after outbreak of the epidemic. Nonetheless, the consumption and costs each recovered after the illness was managed. We consider the impression on profitability of poultry firms was lower than one yr.
Worth migration in direction of organised gamers in medium time period: Because the shoppers are prepared to pay for hygienic and packaged merchandise, the organised gamers have a tendency to realize market share throughout such epidemic. We count on some near-term impression on animal feed and poultry phase of Godrej Agrovet but in addition consider it may well achieve market share in medium-long time period in addition to get better profitability.
Keep ‘add: We count on the corporate to report income and PAT CAGRs of 6.9% and 12.3% respectively, over FY20-FY22E. We stay assured of worth creation with RoE > Price of Fairness and preserve our ‘add’ ranking with a DCF-based goal worth of `575 (28x FY22E P/E).
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