We expect palm oil prices to be fairly steady: Nadir Godrej, Godrej Agrovet
21/06/2023 (Economic Times) - We are quite hopeful of this year. We are doing better than the previous years. Some of our businesses have been challenged like Astec LifeSciences has been challenged, but we have our new R&D centre and there is a lot of interest for the new products that will come out of our R&D centre," says Nadir Godrej, Godrej Agrovet.
Well, just to begin with, I wanted you to put the cap of the industry doyen and talk to us about what has been the progress of rainfall, telling you at this point of time, because it looks like it is going to be below normal monsoon. It has been very erratic. What does it mean for the prospects of sowing and your business?
So far, the monsoon has been slow both because of the El Nino and the Cyclone Biparjoy. The Cyclone Biparjoy did bring a lot of rain to the north-western parts of India, and that has filled quite a few of the reservoirs. So the reservoir levels are not all that bad and this El Nino is not very severe. And if we get good August rains, the Kharif crops will be reasonable.
And there is no reason to believe that the August rains would not be good. So although it is a late start, it is not a very bad situation. Also we are likely to have rains late in the season, as we have been in the last few years and that is going to be very good for the Rabi crops.
Okay. So you are saying that once the monsoon catches up, you are pretty much on target for that Rs 1000 crore revenue mark for FY24?
We are quite hopeful of this year. We are doing better than the previous years. Some of our businesses have been challenged like Astec LifeSciences has been challenged, but we have our new R&D centre and there is a lot of interest for the new products that will come out of our R&D centre. A lot of companies want to partner with us so that situation is good. The crop protection business will depend a little bit on how the monsoon develops. The dairy business is turning around and the poultry business is currently doing very well. And the oil palm is always a very steady business for us.
50% of your business is animal feed. Now this is a business where a lot of moving parts are there. First, what happens to raw material, then what happens to monsoon and sea, then what happens to the underlying moot when it comes to the farmer. Connect the dots for us. 50% of your business has got a lot of moving parts, and how will that evolve?
The animal feed business is actually a very good business for us. We have done a lot of R&D and improvements in cattle feed. We also have a new breed of cattle that we have developed with Israeli technology and we think that the future in this business will be very bright. Plus, the animal feed business has links with our poultry business our dairy business, and we plan to capitalise on those links in the future.
But actually, a lot of our profits do come from our oil palm business, which is steadily growing. The government's new policy on oil palm is very beneficial. We are getting new allocations in the Northeast and in Telangana which are very promising for the oil palm business. And these two businesses are complementary. They work on different cycles, and therefore, overall, we think that Godrej Agrovet has a very interesting portfolio.
Whatever you lost last year because of this extraordinary spike in commodity prices, the margins came down, profits came down. Are you likely to make it up this year?
Yes, we are. It looks like this year is developing much better than last year.
What is the good news and what is the bad news let us discuss that. When you say things are developing what is developing better and what is not developing better?
As I said, the cattle feed business, the dairy business is doing much better. And the oil palm we have actually very beneficial prices towards the beginning of last year, those prices are not so good, but we have made a lot of improvements in efficiency.
We are closely working with our farmers to improve their yield. We are using fertiliser strategies to improve the oil content. And all these technical improvements are very promising for the oil palm business. Our nursery expansion is at a fast pace.
There is this general view that the agrarian economy/the rural economy is under pressure. How much of that is reality and how much of that is myth?
Some of it is reality and climate change affects the agrarian economy more than other parts of the economy. But the good news is that technology is steadily improving on the farm. And with technology improvement, yields can improve. The bad news of Indian agriculture is poor yields. The good news is that there is room for improvement.
With respect to the pricing of palm itself, it has been fairly volatile over the last couple of years what is the expectations going forward there?
We expect palm oil prices to be fairly steady. When crude oil prices are high, palm oil prices rise because of the connection through biodiesel. Now crude oil prices are at a much more reasonable level and we expect palm oil prices to stay at that level. We certainly do not expect them to fall a lot.
I have a very simple question Godrej Group needs no introduction when it comes to the consumer appeal. Some of your businesses are unique in nature. You got the best in terms of the product and availability and network. But your margins, sir, they are not very impressive. I was hoping that for a company like yours, the margin, should they be north of 10% plus rather than south of 10%?
If you are talking about Godrej Consumer Products, I would not like to comment on that. But actually we are doing quite well. Our growth has been steady and we continue to make progress. We have made a new acquisition which we hope will add to our bottom line because there is a lot of synergy with the new acquisition.
And I do not see Godrej Consumer Products being in a bad place at all. It is growing steadily and it will continue to grow steadily.
You are confident of growth but are you growing because you are gaining market share or this is because the market itself is increasing?
Well, in places like oil palm market share is rather irrelevant because market share is determined by your allocations. What is exciting is thatoil palm is growing very, very rapidly in India.
Do you see the dynamics of the entire oil palm industry changing? One is allocation. Second, we understand that the government is seriously looking at increasing the total land under cultivation when it comes to the palm oil cultivation. Up until now, sir, this industry has been dependent on imports. But do you see that dramatically changing in three to five years?
It is very difficult to say as three to five years is an extremely short time in the oil palm industry because the tree takes five years to grow. So if you tell me in 20 years, I say the Indian production could be higher than imports in 20 or 25 years but certainly not in five years.
Do you certainly feel that right now there is nothing to worry about and all is well. Can I say all is well for you?
Already there has been a little bit of damage, but I do not think this monsoon is particularly bad. It is going to be a a reasonable monsoon, slightly below normal, and a lot can be retrieved. And if we get good rains in August, we will certainly, Indian agriculture will do reasonably well. And as usual, the rabi crop will be very good.