Avanti Feeds

hitesh bhai,

Are those 45 days in Q2 or has some of the days out of 45 days spread in to Q3…

Does this production holiday happened during monsoon period ? If yes then is this trend every year during monsoon ?

From what I understood, its spread between q2 and q3. Around 20-25 days in each quarter.

Hitesh bhai,

This trend is not impacting Waterbase…

Disc : Invested in both Avanti and Waterbase

Will these series of cyclones on the east coast impact production ? @hitesh2710 - if you could ask your contact on it pls and about general trends in shrimp pricing and volumes.

AP Fisheries Policy 2015-2020 ordained through GO (Govt Order)

http://apfisheries.gov.in/open_record_view.php?ID=206

Highlighting the important points for reference:

The Government of Andhra Pradesh accords top priority to Fisheries Development
and its intervention for marine, brackish water, Inland fisheries, reservoirs development and
ornamental fishery trade, with a view to enhance the fish production to 42 lakh tones in the
next five years from the present level of 19.64 lakh tones and to double the exports value
from the present level of about Rs.16000 Crores.

Government with a view to make Andhra Pradesh a hub of Fisheries, hereby
introduce the Fisheries Policy 2015-2020.

4.1.0. Processing Units
4.1.1. For shrimp processing units including cold chain maintenance, Capital subsidy of
50% inclusive of land cost with upper ceiling limit of Rs.5 crores, will be provided.
The cost of land should not exceed 15% of the total project cost on sub–registrar
value.
4.1.3. Interest subvention of 6% will be provided on bank loan subject to maximum of
Rs.2.5 Crores for 5 year period to aqua processing units, ice plants and cold
storages
4.1.4. Reefer vans: For purchase of Reefer vans, a subsidy of 50% with maximum of
Rs. 10.00 Lakhs per vehicle will be provided from 2016-17 onwards
4.1.5 Cold storage at ports/ Fishing harbours with subsidy will be permitted on par with
industrial policy.
4.1.5. Aquaculture processing units will be incentivized by providing 100% stamp duty
exemption in land registration/lease of land/, mortgage deed/Bank documentation/
Hypothecation etc.
4.1.7. Power subsidy will also be permitted to fish/prawn/shrimp processing unit and ice
plants from the date of commencement of commercial production and will be on par
with industrial policy from 2016-17.

4.2.0. Aquaculture Pond /Farms
4.2.1. Financial assistance will be extended for farm mechanization like pumps and
aerators with 50% subsidy. Solar pumps, solar lights and solar based aerators will
be given on 60% subsidy to the prawn and shrimp farms up to maximum of 2 ha
per farmer per annum .
4.2.2. Scale of finance by banks will be as per reasonable requirement for pond culture.
4.2.3. All subsidy schemes of Government of India/ Government of Andhra Pradesh/
NFDB/ MPEDA will also be accessed appropriately.
4.2.4. Power will be supplied to Shrimp and Prawn culture farms at Rs.3.75 ps/ unit for a
maximum of 2 hectares per aqua-farmers/ shrimp farmers from the year 2016-17.

4.3.0 Feed Manufacturing units / fishery related Equipment Manufacturing
4.3.1. Incentives will be provided to feed manufacturing units, aerator manufacturing, fish
processing equipment on par with industrial policy.
4.3.2. Interest subvention of 6% per annum up to a maximum of Rs.2.00 Crores will be
provided to the Fish Feed Manufacturing units only for Five Years. This policy will
be reviewed after one year.

4.4.0. Aqua labs / Disease diagnostic labs Promotion
4.4.1 All private labs in the State will be graded under technical supervision of State
Institute of Fisheries technology (SIFT), Kakinada. SIFT will act as State referral lab
for all private labs. The technicians of these labs will be continuously monitored to
upgrade their skills as per the technical requirements of Aquaculture sector.
4.4.2 Water and soil analysis labs will be promoted in all major aquaculture districts for
conducive water management. One lab for every 500 ha area is proposed with a unit
cost of maximum of Rs.10.00 lakhs. The financial assistance of 50 % on the unit
cost will be extended by Government and the balance of 50% to be borne by
the concerned entrepreneur/ stakeholder.
4.4.3 Quality control / Antibiotic residue testing labs will be promoted through private
sector in the districts of East Godavari, Krishna and Prakasam to overcome the
problem of rejection of exported shrimp due to presence of antibiotic residues. The
unit cost of the lab will be Rs. 2.00 Crores of which the Government assistance will
be 40%.

  1. Insurance Facility: Suitable modalities will be worked out for Insurance to
    Aquaculture crops, boats and nets in consultation with insurance companies.

  2. Ease of Doing Business – Single Desk System: In respect of processing
    industry, Ice Plants, feed manufacturing plants, and fishery related equipments, boat
    building yards, aerators manufacturing units etc there will be a single desk system for
    giving clearances through the e-platform of Industries department.

9.2. Aqua clusters with cold chain, processing & value addition will be established with
the active participation of Private sectors like WalMart / Spencers /More/ Bigbazar
etc., extending benefits as in the case of SEZ for 100% export promotion.

10. Export Promotion:
10.1. Linkage with MPEDA will be developed for storage/ refrigeration/Harbour Facilities/
Fiscal Incentives.
10.2. Mega Food Parks will be established in suitable places by tapping the incentive from
the Government of India.
10.3. Effort will be made to develop fisheries infrastructure for promotion of fish and fish
products exports in Bhimavaram and Visakhapanam which are recognized as the
towns of export excellence (marine Sector) in trade policy of Government of
India,2015-2020

11.2. „Polluter Pays Principle‟ will be applied in the fisheries sector and the CSR funds
thus collected from coastal establishments will be routed for welfare of fishermen.
11.4. Government will issue biometric identification to all fishermen

Additional points mentioned in the below link -
http://www.shrimpnews.com/FreeReportsFolder/NewsReportsFolder/IndiaAndhraPradeshFisheriesPolicy20152020.html

• Research in new technology such as indoor high-density sustainable shrimp culture and bio-floc technology will be promoted in consultation with national and international experts.

• Unauthorized and substandard hatcheries will be closed by invoking the provisions of the AP Seed Act, with the assistance of Coastal Aquaculture Authority (CAA) and the Marine Products Export Development Authority (MPEDA).

• An assessment of seedstock requirements will be made and the establishment of hatcheries will be encouraged.

Disc: Invested, but reduced holdings(in Oct) due to personal needs.

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Affected areas were Nellore-Chennai region and Avanti has not been affected.

However, Waterbase which has its plants located in Nellore has been seriously affected, which may turn out to be a positive for Avanti.

As expected, the streams and rivulets like the Swarnamukhi, Kalangi, Kaivalya and Pambaleru were in spate with the flood levels increasing considerably overnight under the impact of heavy rains especially in Venkatagiri, Balayapalli, Guduru, Sullurupeta, Tada and nearby areas.

BSE Notification

Waterbase Ltd has informed BSE that the operations at the Company’s factory located at Ananthapuram Village, Nellore has been disrupted due to flooding of the factory premises caused by incessant rains. For safety reasons, the factory has been shut down from on November 19, 2015. Due to heavy water logging and continuous down pour the damage could not be ascertained as of now. The factory is covered by insurance.

The management is taking adequate steps to restore normalcy and shall share further updates in due course.

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FDA Requires USA Importers to Certify the Safety of Food Imports

http://www.shrimpnews.com/FreeReportsFolder/NewsReportsFolder/USAdcFDArequiresImportersToCheckSafety.html

On November 13, 205, five years after Congress passed a landmark law meant to prevent the importation of contaminated food, the USA Food and Drug Administration made final new rules that for the first time put the main responsibility on USA companies for policing the food they import.

The new rules require importers to show that the food they bring into the United States meets American safety standards. They would do that by hiring third-party auditors to check the safety of the food in foreign facilities, a system that some consumer advocates had cautioned might give companies too much discretion but that federal officials argue is the standard for the food industry and will be brought under the spotlight of federal oversight.

“This the first time food importers have fallen directly under FDA regulation,” said Michael R. Taylor, the agency’s deputy commissioner for foods and veterinary medicine.

The safety of the food supply—foreign and domestic—is a critical public health issue. One in every six Americans becomes ill from eating contaminated food each year, according to the FDA. About 128,000 are hospitalized and 3,000 die.

The FDA tries to keep tabs on imports, but it inspects only 1 to 2 percent of imports at American ports and borders.

“These rules represent a lot of compromises,” said David Plunkett, a senior staff lawyer at the Center for Science in the Public Interest’s food safety program. “But imported food will at least now have someone who is responsible for assuring its safety. The bottom line is the food supply will be safer.”

FDA cannot regulate what happens on foreign farms, but it can require that food importers verify that their foreign suppliers are making and growing food that meets American safety standards. The rules establish a system of third-party auditors, which an importer would hire to inspect a supplier’s facility, for example, or sample or test food made there.

“Under the new rules, importers will have the obligation to verify they are meeting USA standards,” Taylor said. “This is a fundamental paradigm shift from the FDA detecting and responding to problems with imported foods to industry being responsible for preventing them.”


With the importers now having additional liability, they will be driven to a standard certification practice which complies with FDA standards.

Global certifications such as BAP by GAA should provide a ready-made solution to cover their immediate needs.

There are total 11 4-star listed processing plants from India and 3 feed-mills from India.
Avanti is present in both lists.

Remaining plants/farms/hatcheries are either not-rated or 1-star.

http://bap.gaalliance.org/find-certified-facilities/

http://gaalliance.org/mag/2015/Jul-Aug/offline/download.pdf

Also, recommend to go through 2 articles related to high-density stocking shrimp production.

  1. Use Caution When Predicting Profitability With Feed Cost/Unit Gain Metrics - Page 23
  2. Stocking Density Affects Super-Intensive Biofloc Nursery Shrimp Production - Page 35

Bottom-line is high-density stocking is 13x more profitable than low-density, and biofloc technology managed to produce high survival rates and increase final biomass values.

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My guess is Avanti would also be affected from floods in Nellore,AP

The heavy rains have wiped out fish and prawn ponds over about 8,000 hectares. With tank bunds getting washed away across the district, shrimp farms have been obliterated, causing steep losses to farmers.The ponds cannot be cultivated again till the sand layer is removed, new roads are laid and power supply is restored.

Andhra Pradesh exported 2.79 lakh metric tonnes of shrimp in 2014-15. To this, Nellore contributed 32,000 metric tonnes. Vennamei shrimp was raised in about 8,000 hectares situated on either sides of the creek were washed away in floods and the loss would be around Rs. 250 crore, he said.

Each farmer had spent about Rs. 3 lakh on each hectare for seed, feed, power, labour and other infrastructure. But, the equipment was totally destroyed and in some ponds the machinery was washed away in floods,

Apart from this as shared by Hitesh, if 20-25 days planned shutdown will be in Q3 as well like Q2, then Q3 revenue may be also flat like Q2 results unless there is some new capacity coming up in Q3.

Impact if any should be minimal.

All its plants/mills are located in East/West Godavari districts - Kovvur and Ravulapalem, which were not affected by the floods.

Assuming Nellore was one of the primary sourcing centers for their processing plant, then this could be impacted but mitigated by temporarily sourcing it from other regions such as Bhimavaram.

Believe Kakinada/Visakapatnam are the primary ports for export atleast for Avanti.
Krishnapatnam port also does not seem to have been affected.

The potential loss of Avanti-loyal farmers could be offset by gain of Waterbase-loyal farmers.

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Hi Vishnu,

Nellore has been a major area for shrimp farming and based on the severity of the floods, there has to be negative impact on the sector for next 2-3 months. Though Avanti was not having its plants in this area but they may see slower/lower sales till the time the cultivation comes back again in this area.

Regards,
Ayush

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Hello Ayush,

Not doubting the negative impact and lower sales.
I believe impact should be less relative to peers because -

  1. Waterbase plant shutdown could offset the lower sales.
  2. This could be an opportunity for Godavari districts to increase their acreage and thus their share in the export markets.

Nellore’s unfortunate losses could be a gain for other shrimp-farming regions.

I guess we need to keep monitoring.

Regards

1 Like

Nellore district contributes 25-30% of total AP production.
Nellore district is also probably the only one which has a 3rd crop during the year ( Temp being suitable between 25-35 degrees). So loss of Nellore contribution may not get compensated form other parts of the country during this time (winter months).

From our enquiries we are told South Nellore was heavily impacted, though North Nellore is okay. Don’t know the breakups (we are trying to assess more) but its safe to assume there will be impact on Avanti Sales in Q3. Folks based in Nellore/arounds please try to gather more, and report.

While there seems likely some impact in Q3 as mentioned by Ayush, industry folks are not too worried, as they expect things should resume from normal in Q4, and the bumper Summer Crop. Financially strong farmers may be able to resume immediately (and may be a good thing that crop moratorium, ponds drying up/cleaning/disinfecting will get enforced and will augur well for subsequent crops), but what about others - it may be hard to recoup immediately?

At the same time, we must mention that longer term outlook on the sector seems favourable. Farmers, dealer distributors, processors, feed players are all looking forward to next summer crop and the year to be good
a) crop area and productivity going up (Orissa, doing very well)
b) some big corporate farms shifting to Vannamei from Black Tiger
c) AP government incentives/focus towards helping this sector perform well

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A dedicated page for those who want to keep track of upcoming VP BizQuests.

As we mature at this format/medium, we will try to make available preparatory documents like the data points/structured analysis, in advance. Right now, we are updating the final set of documents for Avanti VP Bizquest. Watch the VP Bizquest page for updates.

Struggling with the right presentation format for additionally, an Avanti Risk Perceptions document. :slight_smile: That’s a tough do, but gotta persist in making that happen. Some businesses like Avanti, we need to be extra careful to examine from a “balanced” perspective - especially as risk/reward gets magnified with every bump up/down in Valuations. Just where is the Margin of Safety, everyone must be nudged to think again??

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Here’s a look at Sep 2015 USA Shrimp Imports data (volume).

Source: http://ers.usda.gov/datafiles/Aquaculture/Trade/AquacultureTradeRecent.xls

Let’s zoom-in CY15/FY16 data.

At a quick glance Sep 15 data conveys pause in volume growth (compared to this period a year ago). Reason could be EHP or high base data. Time will tell. Need to keep monitoring.

Here’s a look at a mild cautionary note by Waterbase management in Q2FY16 results.

Source: http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/3251521E_7ECA_42D5_AD4E_292923A51811_183431.pdf

Nellore flood and the above points indicate it would be a bumpy ride for the next qtr or two (market may have factored this already; stock price is down 35% from peak). However long term good days for the Indian shrimp processor/feed companies and Avanti in particular are here to stay.

Queries for VP BizQuest Event (must say - fantastic new initiative, as always) -

  1. Considering rising Shrimp Feed price/kg (from ~43 in FY12 to ~68 in FY16; a little more than INR depreciation rate) and stable/falling shrimp pricing, how close/far we’re from shrimp becoming unviable for the Indian Farmer?
  2. What explains relatively big swing in Shrimp Processing % Margin (e.g. 20% in Q2FY13, 3% in Q4FY15, 9% in Q1FY16, 5% in Q2FY16)? What is a typical margin % Avanti strives for?

Discl: Invested in Avanti; trimmed in last one month to bring down weight under 10%. Not invested in Waterbase.

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Hello Donald,

Thanks for the correction.
I stand corrected and apologies for unintentional misinterpretation.

For upcoming Avanti VP BizQuest, found an online presentation made by MD of Mayank Aquaculture Pvt Ltd., who is claimed to be the pioneer of shrimp farming in Surat in 2005.
(Started out as consultant, evolved into a farmer, and planning his own processing plant in future)

http://www.aquaprofessional.org/2015-presentation/Shrimp%20farming%20in%20Gujarat-Manoj.pdf

Summarizing points mentioned in his ppt.

  1. Pond water preparation (Day by day steps incl. prebiotic preparation)
  2. Aeration parameters
  3. Water quality parameters such as temp, salinity etc.
  4. Feeding mgmt strategy which gives him 80% survival rates.
  5. Use of auto-feeders
  6. His Lessons learnt and creation of a Surat-based aqua farmers union.
  7. His belief that targeting the bigger size with a single crop is the adavntageous/sustainable growth path.

Also, found a slightly outdated ppt (Oct 2014 data) with detailed breakup of data like below among the top importers to US.

http://www.intrafish.com/incoming/article1404952.ece/binary/Shrimp%20Panel_GSMC2015.pdf

PS: @pratyushmittal would be useful to have a strikethrough option to imply a correction, but still preserve the original comment.

Regards,
Vishnu

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Guys,

Enclosed is the Avanti_Risk_Perceptions.pdf (530.6 KB)
The objective is to use this presentation to inform on the different perspectives on RISKS in a business like Avanti. At the same time, we think it should certainly be possible to step back (from our stakes) :slight_smile: and examine issues with more clarity?

This should make us all THINK, again. More importantly it should be able to set the stage for an animated, naturally flowing (hopefully balanced) discussion/q&a on RISK MITIGATION for the Avanti VP Bizquest session that will follow, soon.

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Happy to present AVANTI_FIELD_INSIGHTS.pdf (2.9 MB) document.

This is the culmination of extensive leg-work contribution from lot of guys (not all can ever be mentioned, or pictured :smile:

We enjoyed going back through all our copious notes/striving hard to capture multiple interactions with multiple stakeholders in the Shrimp Aquaculture Industry in India in the last few years - to tell a story back to you - just as it was shared with us/unfolded before us.

Enjoy an unbiased view for now! We have strived to retained the purity of interactions with each stakeholder - without adding any of our biases in, hopefully. So at times you may find conflicting perspectives emerging from different stakeholders i.e. exactly how it is, and that is the context in which to make sense of the whole puzzle :wink:

Tomorrow, it may be time to present the Avanti BQ & MQ Templates (which are coloured from individual experiences/biases, one could say).

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Ayush will be uploading Avanti Peer Comparison Insights document and the Avanti MQ Insights document, shortly. Thanks to him, we have great insights on why Avanti Management should be given due credit for executing brilliantly in an environment, where other more “storyed” competitors have been perhaps guilty of playing second or third fiddle.

Please find the Avanti_BQ_Insights.pdf (2.1 MB) for your perusal and information base.
Please remember BQ & MQ documents can have subjective bias built-in, though we try to make the case based on gathered/documented facts. These are on best-effort, as-is basis, and subject to change as new facts come to light, and as our understanding of the business/complexity improves.

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