Avanti Feeds

Please find attached the MQ Insights and Peer comparison documents Avanti_MQ_Insights.pdf (1.4 MB) Avanti_Peer_Comparison_Insights.pdf (829.0 KB)

This is an attempt to think through and share the thoughts and learnings in a structured format. I would like to thank Donald for continuously pushing us to adopt these templates and helping in refining them. These exercises really help!

Look forward to feedback and additions/thoughts from members.

Regards,
Ayush

18 Likes

(post withdrawn by author, will be automatically deleted in 24 hours unless flagged)

Avanti is a very complex business to get to grips on, especially for Newbies.

Its not easy to collect your thoughts together on the pros and cons, especially when there are dark clouds on the horizon.

Senior Members like @Vivek_6954 Vivek Gautam
Please note just providing Disclosures(s) does not absolve you of higher responsibility. Please realise you have an added responsibility to bring objectivity to the discussion by bringing out new facts, developments.

Merely re-stating hitherto KNOWN facts about the business does zero value-addition. It’s actually frowned upon by VP Core Team - as it only serves a self-serving bias.

We will be increasingly strict on such defaults. Posts may be automatically deleted.
Newbies please learn to take everything with a pinch of salt - no matter who it comes from - please learn to observe how sometimes superlatives/hyperbole is also quietly sliipped in…in between points.

8 Likes

First of all thanks Ayush and Donald for giving me an opportunity to attend the concall

According to me, risks mentioned in slides are mostly out of one’s control. Disease (at most you can take precautionary measures) and weather based risk (nothing can be done) will always there with this sector like government risk for tobacco/alcohol industry.

According to me Two key things that should be carefully monitored are:-

  1. Shrimp prices rate remain significantly above cost of production. Although your fieldwork suggest that Farmers can continue to do business at current prices as Cost/Kg not more than Rs. 180 - 200/kg (30 Count) but the ppt posted by Sandeep Patel on Gujarat shrimp farming says cost is around Rs 260-280. Considering the market price is around Rs 280-300 this could make lot of difference to sustainability of farmers as I think that current shrimp prices are much more closer to the long term average price and some farmers are saying that they are able to still sustain at these levels only because they have profits from previous years but what if the lower price is the new norm. The difference in remuneration would be much lower compared to Rs 5 lakh vs Rs 25000 for other crops as shown in slides

  2. Whether Avanti’s success in AP can be replicated in other states (Is the product actually better or growth mainly because good relationship between farmers and promoter and fcr better because they know AP water/soil requirements better than any other players). Yes for near term (2-3 years) they might not be required to venture outside AP as demand is still good but in long term success in other regions will ensure that model is replicable elsewhere.

Other things to ponder over (May be others can throw some lights on them):-

  1. Realization increasing 13% per year (Does it mean 13% per year price hike) vs waterbase only 5% increase in realization.Does it indicate pricing power? But isn’t the feed rate around Rs 70 same for all feed players…
  2. Your fieldwork indicates that for Farmer crop to survive - 60% depends on Seed; 20% on Feed; 20% Farm Management best practice (Water, soil, climate) but the ppt uploaded by Sandeep says that feeding is more important and Feeding management is the paramount factor in success of shrimp farming- 65% of COP. • Wrong feeding is the mother of all problems in shrimp ponds.If the latter is the case the stickiness is way more than my own estimates.
  3. No major disease because of MPEDA measures or because (what I have read in many reports) probability of disease increases drastically only after 4-5 years of continuous farming. Here greed of farmers to do more than 1 crop /year may also be at play.
3 Likes

We are trying to schedule another Concall, hopefully soon
Too much time was spent away in the presentations, leaving not enough time for an extensive Q&A.
As we experiment with the format a few more times, we will get wiser to the best use of air-time :smile:

Since base issues are already highlighted (this Concall), we can work on making the follow-up Q&A
a) more broad-based covering important insights
b) focus on the primary investigation areas as identified

3 new folks got invited to the Avanti Concall @crazymama Vishnu Ch, @Rokrdude Aman Viz, @lustkills Sandeep Patel - in recognition of their increasing value-add to VP Community (not necessarily Avanti thread) and adherence to basic VP Ethos of sharing great data-points without expectations, openness to contrary viewpoints, backed up with humility.

4 Likes

Wonderful work by team VP as usual.I should have gone in depth before posting.

However Its mentioned in the notes that the prices of shrimps have fallen to 280 Rs per Kg for size 30 but as per my checking with industry people only a few days back it has increased from October onwards to Rs 450 per kg for size 30 & 400 for other sizes.

Also same sources tell me there is not much impact of EHP disease as feared earlier in several postings by. specialist sites as Undercurrent .I also checked the same with CIFA & CMFRI . These instts senior persons were also praising Avanti company.

Vannamei usage is increasing rapidly best exemplified by conversion of last bastion of Black Tiger West Bengal which is now 70% Vannamei. Hence opp size increasing nicely within India itself

Only hitch in the story seems to be delay in commissioning of expended capacity by April 2016 as then it may miss out the peak season which starts from April to June. Hence full impact of substantial expansion may reflect only in FY 18 .

Looks to be a factually incorrect statement.
MPEDA data seems to suggest very low Vannamei Area under Culture (AUC)/Estimated Production (EP). Vannamei:Black Tiger 326 Ha:48848 Ha

Folks please make sure to double-check any data points before making sweeping statements, as above. Also its a good practice to inculcate the discipline to link/point to authoritative sources when quoting industry figures (especially when they are readily available)
http://164.100.150.120/mpeda/cms.php?id=eWVhci13aXNlLXNwZWNpZXMtd2lzZS1zdGF0ZS13aXNl#

1 Like

Following data-points submitted to Team VP by @OM_1417
Let’s see if senior members like Vivek, would like to work harder on data points and catch what is the crucial data-point that’s missing in this picture/and can change this picture significantly?

Though in that too there is a catch !!

Avanti Risk Perceptions document had some factual error in Currency Risk Table.
40% drop in Volumes for Vietnam in 2015 was inadvertently quoted as 40% depreciation in currency.
Corrected document has been uploaded in original post. Also being uploaded again, here.
Avanti_Risk_Perceptions.pdf (530.6 KB)
We regret the oversight.

To add to the ongoing perspective from Nellore: As I was there at home for Diwali, was able to see the situation on ground - but am late, as got severely sick:

Prawn and Fish lakes have in general lost heavily. Some clever farmers like my uncle have forecasted the weather and moved to place safety nets combined with high power pumping machines in place (though the idea is not new, but its about execution and timing) have not faced the wrath. But they are very few of them. The loss is estimated to be in higher double digit crore rupees. This effect will be visible both on the immediate demand, due to financial capability of the farmers and continuing rains that hinder the preparation of farms for the next round of corp.

3 Likes

Hi Vamsi,

Thanks for the the heads up on the field situation at Nellore . Just had one question regarding your last statement. Considering October-November months are the time for harvesting 2nd crop and preparing for third crop in Nellore do you foresee the preparation of next crop be hindered only for 3rd crop of this financial year or also impact will be on 1st crop next year preparation of which normally starts around February. I am not talking about financial stress because of loss of 2nd crop of this season (I think most of the regular farmers would have savings/reserves from last few years bumper sales) but more about clearing the fields of flood waters.

1 Like

Aman,

There is a third cyclone now and is heavily raining even today and is the forecast for next 48 hours. So the preparations for the 3rd crop looks significantly impacted and more curtailed. However, Dec and Jan are historically dry patches and should provide room for preparation.

On the financial front, most invest the savings in acquiring further land for farms and Nellore real estate is not so far away from Bangalore, so it might depend also on case to case basis.

1 Like

While the weather is still continuing to play havoc, the silver lining has been that price has been continuously rising as reported by @Vivek_6954 earlier as well (Most of the price hike seem to causal in nature due to short supply caused by rains)

Several executives at these firms agreed that prices were only likely to rise from levels seen at the end of November.

Currently export markets are stable, and buying at the prices that have been established,said one. Limited production means exporters and packers are competing to secure raw material; they`re trying to pay more and so losing on each shipment through the factory, but importantly, keeping those factories going.

A second Visak-based source said he does not expect raw material prices to dip below levels seen at the end of October for the first few months of 2016.

These levels were INR 450 for 30 count, INR 410 for 40 count, and down to INR 210 for 100 count. October was the bottom for prices; in 2016 I think they`ll be on a par or higher than they were throughout 2015, in general.

And a third exporter in the city stated that December and January prices would dictate the picture for 2016: rising prices could see farmers returning to healthier stocking, if they “trust in the new prices”.

“Prices were low in the first half of 2015, and that’s why production is low now. Shrimp are also having their size limited by a white gill problem at the moment, too.”

Source: https://www.undercurrentnews.com/2015/12/01/indian-shrimp-prices-set-for-continued-increases-on-short-harvests/

On damages caused by incessant rains

Shrimp exporters and buyers have already told Undercurrent News that the flooding has likely washed away vannamei crops, contributing to a picture in which low raw material is already driving up prices.

During a visit to Chennai and Visakhapatnam last week, several exporters warned that flooding has likely damaged infrastructure in place in the farming areas, as well as damaging crops in the short term.

One estimated that in the first week of rains, perhaps 5% of the country`s overall shrimp production had been affected, while another said that for the comparatively small number of farms hit so far, the impact was serious.

Source: https://www.undercurrentnews.com/2015/12/02/indian-shrimp-region-braces-for-worse-rains-flooding/

3 Likes

Disc: I remain invested. Avanti forms a significant portion of my portfolio

Below are known data-points, and should serve as caution points for Newbies. Do not be tempted to jump in (say, at lower levels) - unless you have made a decent attempt to understand the ODDs.

My Key Takeaways from the Avanti BizQuest Concall

  1. There is tangible damage to Nellore Crop. Investors in Avanti should be prepared to see impact of same in Q3 Results.
  2. Short term pain may extend for a couple of months more - we will need to assess afresh
  3. Main stakeholders remain optimistic and very hopeful of Summer Crop remaining unaffected, and therefore medium term prospects of industry for 2016 and 2017 look good to them
  4. Crop area going up, States like Orissa and Gujarat showing rapid uptake of Vannamei, some Corporate Firms shifting to Vannamei from Black Tiger, AP Govt. Policy incentives to Aquaculture - are reasons cited for the confidence
  5. Avanti Management Quality/Execution track record is seen as Exemplary. Not only farmers but the whole trade readily testifies to that including Competition.

Top-of-Mind Focus area for further investigation (those invested/tracking)

  1. Whereas industry/stakeholders seem very confident of at least 2 good years ahead in 2016 & 2017, it is certainly not clear why India will continue to prosper and grow at a brisk rate (as envisaged by Industry)
  2. Given that most of the competing supplier nations - Vietnam, Mexico, Indonesia, Equador, India and Thailand (almost there) are almost at similar production levels and there is now a demand-supply equilibrium of sorts, what makes us confident that India will continue to grow faster by snatching away more marketshare (from others, which countries?)
  3. Is it possible to work out a cost-competitiveness model among the various competing countries e.g. Om was pointing out that Thailand wages are 20% higher today despite the devaluation (?)

Others participating in the Concall, may please add your key focus areas/takeways - perspectives that I may have missed.

Let’s take the data collection/investigation work forward

12 Likes

Hello Donald, when do you plan to upload concall recording ?

Disc: Invested from much lower levels and one of the top holdings of my portfolio.

Uploading will take time.
Recording is huge - we need to find a way of compressing.
Besides (you may not have realised/noticed in MPS) there is a lot of painstaking work in syncing speaker voice-over minute by minute to BQ MQ data points or say the Field insights or Risk Perception slides - as slideshare video comes too small to be effective.

With festive season underway, we are not promising anything about schedule :frowning:
Folks have to bear with us till we find some serious audio/video talent/passion amongst us.

2 Likes

Board Meeting on Dec 18, 2015 08 Dec 2015 17:52
Avanti Feeds Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on December 18, 2015, inter alia, to consider the following:

  1. Approval of Business Transfer Agreement (BTA), in connection with transfer of Shrimp Processing Business to Avanti Frozen Foods Private Limited (a wholly owned subsidiary of Avanti Feeds Limited), to be effective from November 01, 2015, at a slump sale value of Rs. 128.00 crores.
    (the Members of the Company approved the transfer of Shrimp Business of the Company to Avanti Frozen Foods Private Limited by way of slump sale which shall not be lower than the net book value of assets and liabilities by a Special Resolution through Postal Ballot, the results of which were declared on October 26, 2015).

  2. To consider subscription of 60,00,000 equity shares of Rs. 10/- each a premium of Rs. 131/- per equity share, aggregating to Rs. 84.60 crores in connection with the Rights Issue made by Avanti Frozen Foods Private Limited.
    http://www.bseindia.com/corporates/anndet_new.aspx?newsid=afa2953e-2efe-440d-a215-efeaa25960f7

Seafood imports from Thailand may be banned after shrimp products were traced to slave labor

Disc: Invested. >10% of PF

Avanti MD Mr kumar came on ET now few mins back. On asking about blue revolution package of 3000 cr by modi govt he said its +ve for long run. Also said they are venturing into value added frozen foods in international mkts through this new subsidiary. On numbers he said they would do 50% more PAT than last year…which would be anywhere between 170-180 cr in FY16. This reaffirms that there would not be any material impact in q3 results since they did almost 89-90 cr in H1 Fy16. I think people are discounting a very bad second half which would not the case be from waht Mr. Kumar said…

8 Likes

Do someone has access to the latest interview of Indra Kumar with ET Now? If yes, please paste a link on this forum.