Kotak Institutional Equities has issued a BUY call on Godrej Agrovet (GOAGRO), with a revised fair value target of Rs930 against the current market price of Rs812 as of August 7, 2025. The research highlights a robust performance in the quarter ended June 2025, driven primarily by a strong surge in the vegetable oil segment, which helped counterbalance pricing pressures in other business segments. Investors are advised to consider this stock for its attractive upside potential, supported by a healthy earnings growth trajectory and positive strategic developments.

Resilient Earnings Amid Sector Challenges

Godrej Agrovet delivered an encouraging 1QFY26, with revenues climbing 11.2% year-over-year, surpassing estimates by nearly 3%. The standout performer was the vegetable oil division, which posted a remarkable 92% revenue growth, fueled by higher fresh fruit bunch volumes and improved crude palm oil realizations. Despite headwinds in crop protection and animal feed segments due to pricing softness and increased input costs, the company maintained EBITDA growth of 19% and net profits up 19% as well, affirming the resilience of its diversified portfolio. Although annual revenue growth guidance has been moderated to the low teens, profit forecasts remain optimistic, underscoring confidence in sustained earnings momentum.

Vegetable Oil Segment: The Earnings Powerhouse

The vegetable oil business emerged as the key earnings driver, with EBIT soaring 260% year-on-year. This surge stemmed from a 52% rise in fresh fruit bunch volumes off a favorable base and a 35-78% increase in oil product prices. The strategic pivot to palm oil refining, which now composes 80% of segment sales, enhanced profitability, particularly aided by import duty adjustments. Upcoming capacity expansions with a palm kernel oil refinery and advanced refining capabilities slated for late FY2026 further bolster growth prospects. This segment's strength is expected to anchor Godrej Agrovet’s earnings through FY2026 and beyond.

Animal Feed Segment: Volume Gains Offset by Cost Pressures

Animal feed volumes grew by 8% year-over-year, notably in broiler (+13%), cattle (+11%), and layer feed (+4%) categories. However, segment profitability was restrained by elevated input costs linked to increased vendor invoice discounting, dampening margins despite volume gains. Adjusting for this factor, the EBITDA could have been approximately 4% higher. The company continues to optimize this segment with an emphasis on cost control and volume expansion, aiming for margin recovery and sustained contribution to profitability.

Crop Protection and Astec Lifesciences: Recovery with Caution

The crop protection division recorded a 10.4% revenue increase, though domestic growth guidance was withdrawn due to erratic weather affecting the Kharif season and inventory buildup. Margins are expected to normalize to 28-30% from previously higher levels. A highlight is the launch of 'Ashitaka', a maize herbicide poised to achieve Rs2 billion in revenues over 3-4 years, benefiting from rising corn acreage driven by ethanol demand. Astec Lifesciences is targeting Rs5 billion in revenues with anticipated EBITDA breakeven in FY2026, supported by positive volume trends in enterprise and CDMO segments and a promising pipeline of molecules for commercialization post-FY2027.

Dairy and Poultry Segments: Margin Pressure and Strategic Focus

The dairy operations experienced a 47% EBITDA decline attributed to heightened procurement costs and margin compression in key value-added products like curd and flavored milk. Nevertheless, value-added product salience remains stable, with management targeting margin improvement via increased product mix enhancement. In poultry, the focus is on scaling branded solutions under 'Yummiez' and 'RGC', while live bird business exposure diminishes to 15% of segment sales. This shift aims to enhance profitability despite flat branded segment revenues in the recent quarter.

Revised Estimates and Valuation: Optimism with Cautious Revenue Forecasts

Kotak Institutional Equities has upgraded FY2026-28 EPS estimates by 3-6%, led predominantly by stronger outlooks for vegetable oil and animal feed, despite trimming expectations in crop protection and dairy. The firm values Godrej Agrovet using a sum-of-the-parts methodology, raising the fair value to Rs930 from Rs870. This valuation implies a price-to-earnings multiple of 25 times the estimated September 2027 EPS, reflecting a compelling 21% EPS compound annual growth rate over FY2025-28. Management’s move to simplify the holding structure is anticipated to unlock additional shareholder value.

Stock Performance and Investment Outlook

Currently trading at Rs812, Godrej Agrovet’s stock has shown resilience with a 3-month price appreciation of 17% and a one-month absolute gain of 3%, outperforming benchmarks like the Nifty 50 and MSCI India indices in relative terms. The stock’s forward price-to-earnings ratios of 28.1 for FY2026 and 23.3 for FY2027 remain reasonable against its growth outlook. With a dividend yield projected to rise from 1.4% to 2.1% over the next two years, and consistent free cash flow generation, the stock presents a favorable risk-reward profile for investors seeking exposure to agribusiness and related sectors.

Key Financial Metrics at a Glance

Bottomline

Kotak Institutional Equities’ upgraded BUY rating on Godrej Agrovet is underpinned by strong earnings visibility from the vegetable oil segment, steady growth in animal feed, and strategic initiatives within crop protection and dairy. While revenue growth guidance has been tempered due to external challenges, profit guidance remains intact, supported by operational efficiencies and market expansions. For investors, Godrej Agrovet offers a compelling mix of growth potential, margin improvement, and value unlocking, backed by a diversified agribusiness portfolio well-positioned to capitalize on market opportunities.