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Venkys (India) Ltd
| Q2 FY26 Earnings Conference Call
Summary : Venky's Q2 FY'26 performance was severely impacted by poultry losses, though Animal Health and Oilseed segments showed resilience, with management anticipating a poultry recovery in H2 due to seasonal demand and lower raw material costs.
Management Perspective neutral : Management acknowledges significant Q2 losses in poultry but expresses confidence in H2 recovery due to seasonal factors and declining raw material prices. They also highlight consistent growth in Animal Health and Oilseed segments, indicating a balanced outlook.
Concall Report Analysis & Insights
Business Overview
- Q2 FY'26 financial performance was significantly impacted by unexpected fall in poultry segment profit margins.
- Lower realization in day-old broiler chicks, CBF birds, and broiler hatching eggs affected top and bottom lines.
- Festival season, abnormal rains, and flooding in northern regions contributed to poor poultry performance.
- Animal Health Products segment registered satisfactory performance and consistent growth.
- Oilseed segment performance continued to improve, with visible realization improvement recently.
Future Growth Prospects
- Animal Health business is expected to grow consistently, targeting INR370-380 crores this year.
- New product lines in Animal Health, focusing on natural solutions, are expected to provide a competitive edge.
- Poultry segment is expected to see better realization and operating profitability in H2 FY'26.
- Declining raw material prices (maize, soya) are anticipated to benefit the poultry segment.
- Capacity utilization in broiler (67%), layer (75%), feed mill (52%), and SPF (50%) allows for future growth.
Management Insights
- Q2 poultry losses were primarily due to lower realization, not production costs, exacerbated by festivals and weather.
- Animal Health segment is stable, growing, and expected to cross INR370-380 crores this year.
- Raw material prices for maize and soya have declined, which should positively impact costs in Q3.
- Management expects poultry segment to recover losses and become profitable in H2 FY'26.
- The company has significant unused capacity across broiler, layer, feed mill, and SPF segments.
Signs of Skepticism
- An individual investor criticized the company for being the 'worst performer' and eroding shareholder wealth.
- Investor questioned why management doesn't demerge the Animal Health business from the struggling poultry segment.
- Analyst questioned if the current poultry cycle is the longest seen, implying structural issues beyond seasonality.
- Analyst noted record EBIT losses in poultry, suggesting issues beyond just the early festive season.
- Analyst questioned why Godrej Agrovet's poultry segment is breaking even comfortably while Venky's is not.
Risk Factors
- Unexpected and prolonged fall in poultry segment profit margins due to lower realization.
- Demand-supply imbalance in poultry, leading to lower prices and postponed purchases.
- Raw material price volatility, especially if soybean prices do not move favorably.
- Competitive intensity in the poultry segment impacting profitability.
- QSR segment is still struggling to reach breakeven due to low demand.
Good To Know
- The poultry segment's capital tied up is INR814 crores for the quarter.
- Current broiler chick prices range from INR38-39 per chick across 12 states.
- Broiler bird prices currently range from INR98-106 per kg.
- Cost of production for broiler chicks is INR28-30 per chick, and for layer chicks, INR36-37.
- GST reduction in the QSR segment has not impacted realization but is expected to boost demand.
Key Drivers
- Poultry segment expected to recover in H2.
- Animal Health business shows consistent growth.
- Declining raw material prices to boost margins.
- Existing capacity allows for increased production.
Key Analyst Discussions
Competitive Environment
- Questions about the competitive intensity in the poultry segment.
- Inquiries about why Godrej Agrovet's poultry segment is breaking even while Venky's is not.
- Questions on the demand-supply equation based on parent bird placements.
Market Trends & Consumer Behavior
- Questions on the length of the current poultry cycle and if it's longer due to hygiene standards.
- Inquiries about price improvements post-Diwali and into mid-November.
- Questions on the impact of festivals, abnormal rains, and flooding on demand.
- Queries on whether declining raw material prices reflect in realizations.
- Questions about the demand-supply situation in the poultry segment.
Financial Highlights
- Questions on Q2 realization and cost of production for broiler DOC, broiler per kg.
- Inquiries about the impact of declining raw material prices on realizations and spreads.
- Questions regarding the capital tied up in the poultry segment and commercial farm revenue.
- Queries on current broiler and chick prices and October realization.
- Questions about the breakeven status and expansion plans for the QSR segment.
Product Composition
- Questions on the progress and accelerating revenue growth of the Animal Health segment.
- Inquiries about the captive versus non-captive revenue split in Animal Health.
- Questions on factors preventing the Oilseed business from reaching previous EBIT margins of 4.5%-5.5%.
- Questions about the company's long-term goal of equal revenue contribution from each segment.
- Inquiries about capacity utilization across broiler, layer, feed mill, and SPF segments.
Strategic Considerations
- Suggestions for management to demerge the Animal Health business from poultry.
- Suggestions for management to return money to shareholders via buyback to increase promoter holding.
- Questions on whether the industry's down cycle will lead to capacity reduction.
- Inquiries about the impact of potential GM corn imports for ethanol blending on the poultry industry.
- Questions about the impact of potential US soya imports on Indian soya bean farmers.