I was interested in Avanti and started doing a bit of reading on Shrimp farming. Basically, I was looking into their expansion into hatcheries and was trying to gather some information on that and found the below:
World-
renowned shrimp expert, Dr Addison Lawrence, developed the technology
covered under the patent and contends that the super-intensive raceway
system can produce 1,000,000 lbs. of shrimp/acre of water during a year.
The initial concept was done by Dr. Lawrence in 2011 and later the patent was acquired by Ralco. And now they are building a first commercial prototype. Although there is a good year or two to fully scale it, I’m thinking if this could be a hit to Avanti?
This system also requires special feed, which was also patented by Dr. Lawrence.
Very informative thread, special thanks to the VP team for compiling and sharing such useful information
I was trying to assess the volume and price trends for shrimp exports to the US.
I have pulled the following numbers from the USDA website. I have attached the excel incase aybody want to verify the numbers AquacultureTradeFull_USDA.xlsx (425.9 KB). The volume is per 1,000 pounds, so as per this data, the average realization of shrimp imports from India was $4.3 per pound of shrimp in 2015. That is $9.6 per kg of shrimp. As per the management Q&A on 2013 the cost of production is a$2.75-$3 per kg of shrimp.
This implies that the current realization is much higher than the cost of production. This seems misleading as in discussion on the thread and the management Q&A it says that at the peak the price had gone to $8 per kg. I hope I am not making some obvious mistake.
As per this data, the realization of $4.3/pound is similar to realization level back in 2007. Which means even then the realization is much higher than the cost of production. This seems inconsistent with the narrative.
~$9.6 is the price realized by shrimp processors not farmers. So the gap is not as wide as I had previously calculated but there still seems to be some gap.
Processing is a commodity type of business with low margins. The gross margin for feed producers is ~25%. Even if you assume processors have a gross margin of 20%, price realized by farmers would be 9.6/1.2 = $8. This is significantly above the cost of production for farmers. If the gross margin for producers is about 55-60% then the price realized by farmers comes to ~$6/kg of shrimp, which is still significantly higher than the cost of production for farmers.
Does anybody have an idea as to what the gross margin for shrimp processing would be? even if we assume gross margin for shrimp processing is >=60%, there seems to be a reasonable spread between the cost of production and the realization for farmers.
Again, I may be making a mistake, any feedback would be much appreciated.
Avanti has sold off its Shrimp processing business to a JV company with Thai Union. Going forward, my understanding is Shrimp processing is likely to show significant growth. How will that benefit roll down to individual share holders? Any idea on it?
You have been doing fantastic work! The way you have been tabulating the data on monthly basis and presenting it, its becoming very useful.
Its very interesting to see consistent growth of export of shrimps from India despite so many odds and some un-favorable circumstances. What does this data point to? - greater adoption of shrimp farming in India (expansion in area)? Why has the sourcing from India increased from just 8% in 2011 to to 23% in 2015? What benefits do they see while sourcing from India and what can cause this trend to reverse?
Hopefully this Q&A will help some new investors. Nothing new for Avanti veterans.
What does this data point to? - greater adoption of shrimp farming in India (expansion in area)?
Seems so. Indicating this is a scalable story.
Only about 10% of the estimated brackish water (i.e. 1.2L of 12L hectares) has been put to use currently. An immense scope for expansion of area exists. Source: http://agritech.tnau.ac.in/fishery/fish_shrimps.html
Also seems there is enough left on the table for farmers, else they will not convert agricultural land to shrimp farming (particularly considering it is almost a one way street).
Why has the sourcing from India increased from just 8% in 2011 to to 23% in 2015?
Timing played key role; intro of new Vannamei culture in India and EMS outbreak in other Asian countries. India enjoyed demand driven pull around 2010. Then grabbed the opportunity with both hands. Probably, hard to dislodge now because of well oiled ecosystem in place. Would not have been possible without
Conducive tropical climate
Huge brackish water area
Cheap labor
Robust regulations
Technical know-how (Knowledge sharing/training by Avanti to farmer – key role)
Risk-reward calculations by early adapters
What can cause this trend to reverse?
Disease outbreak - the single biggest risk factor. Cyclone, Exchange rate, Shrimp price, Anti-dumping duties, etc. though a risk however not big enough to cause reversal, I think.
Read somewhere - When the shrimp become ill with some diseases, they swim on the surface rather than bottom. Seagulls swoop down, consume the diseased shrimp, and then may subsequently defecate on a pond a few miles away, spreading the pathogen.
What benefits do they see while sourcing from India?
Best answered by an industry expert (sorry, am not). Seems economy of scale is working in India’s favor currently. Buyers want i) timely supply, ii) quality product and ii) at right price point. Appears India has been consistently beating others on these points in spite of all odds.
Note: If you are reading this when Avanti is trading at say >20x TTM P/E (in future; P/E is 12.5 odd at the time of writing this), then please please scroll up and read risks highlighted in Avanti_Risk_Perceptions.pdf by Donald and others in the posts above. Everyone must be aware of these risks, should you choose to invest in Avanti at high valuation.
It is heartening to note that for the 5th consecutive year, there is growth of shrimp culture in India on account of increase in stocking density, conversion to Vannamei and increase of culture to some extent
The Indian shrimp industry is in the process of stabilization as all the stakeholders have become aware of do’s and don’ts and mostly adhering to it. The various regulatory agencies like Coastal Aquaculture Authority (CAA) and Marine Products Export Development Authority (MPEDA) have also put in place systems to regulate the industry assuring sustainable growth. Therefore, the future of this industry is attuned to grow at a steady pace of 10-15% and stay for a long time to come
USA continues to be a major export destination for Indian shrimps while new markets are being developed in Middle East, Europe and China.
Great work sandeep. You seem to be the best resource person around on Avanti and write well articulated notes. The last detailed note anwering ayush’s queries was a pleasure to read. Simple and to the point.
thanks and regards
So in total 1 cr shrs issued by Avanti frozen foods. 60 lkh shrs held by avanti ltd at 141 rs/share and 40 lkh shrs held by TUF at Rs 313/share, so its a 60:40 ratio in JV. Total amt invested by Avanti is 84 crs for 60% stake while its 125 crs by TUF for 40% stake. Also Avanti had transferred its own processing plant to Avanti Frozen for 128 crs via slump sale. If i understand correctly they got 128 cr cr via slump sale to Avanti frozen …subscribed to 60 lkh shrs of Avanti frozen for 84 crs …so net net they should get 44 crs in standalone entity via this transaction
I don’t think the standalone co will get any money…as its a fresh issue of shares to Thai Union, to raise money for the expansion plans in the shrimp processing segment.
hi ayush
i was referring to the slump sale of avanti’s existin processin plant to avanti frozen which was for 128 crs and also avanti invested 84 crs in avanti frozen thru 60lkh shrs subscription. …so net net avanti should get 44 crs via this whole transaction…hope m on d right track
I am not clear about the capacity of the company. I have latest information from the Chair letter dated 2-Aug-14, which quite old information. I have not been able to spot any disclosure from the company regarding any expansion whatsoever in FY 15-16.
According to this (64.7 KB) letter the capacities are as follows
Shrimp Feed should be more in range of 2.3-2.4 Lakh MT
Shrimp processing would be around 4500T-5000MT (no processing plant works throughout the year)
Another way to cross check it 3,57,505 MT total exports from India in FY2015 USD 3709 million(Last year USD/INR was 60 so Rs 22254 cr). Avanti Revenue was 266 cr for FY15 so production around 4273 MT So capacity should be around 4500-5000 MT
