The competition in feed has increased a lot this year, apart from BMR and Devi, Growel Feed has also increased its capacity over last 2 years and aggressively priced the feed at 15% lower than market price. The good thing to take from this is that inspite of this Avanti has been able to grow market share. We need to monitor if the pricing and supply pressure continues next year as well
It would be great if someone can translate this as well
Another thing to watch out is ITCâs intent to enter this market. They can put more pressure on the pricing and margins. Although, it will take some time for them to enter. If the Seafood market can grow at the same pace then there is enough business for all.
I am trying to understand the competitive landscape of Avanti Feeds. Most of my comparisons are with Waterbase alone. Please correct me if I am wrong in my assessments here:
Feeds business: According to this article, Charoen Pokphand (Thailand company selling in India) has a 41% market share in fish and prawn feed market (I am assuming this includes shrimp feed), while Avanti Feeds has 39% market share. Waterbase has revenues around 15% of Avanti, so Iâm assuming ~6% market share. I am uncertain about the market share of other listed unlisted players such as Growel, but these three companies alone command 86% of total market. If somebody else can verify my calculations, it will be great.
My contention is whether the runway is long enough for Avanti to grow from here assuming that it already commands so much market share.
Feed production capacity:
Avanti Feeds: Added 40% more capacity and how has total capacity of 437500 MTPA.
Waterbase: Total capacity of 110000 MTPA after amalgamation of Pinnae Foods.
The recent corporate presentation of Waterbase says industry requirement is 700000 MTPA (on page 14).
So for these two listed players, we have total capacity numbers, if somebody can update about other companies in this sector it will be helpful.
As all companies add capacity, average capacity utilisation is likely to decline over time. Till recently, Avanti was using complete capacity, but it will be interesting to check its capacity utilisation once all players have upgraded their facilities.
Hatcheries: All players including Avanti, Waterbase, Growel are speaking about getting vertically integrated. So hatcheries is part of this process. More clarity is required on this:
Avanti Feeds - In AR2016, Avanti said it plans to add capacity of 400 Mn in two phases starting Sep 2016 and completing it my March 2016. Hopefully the next AR will be indicative of how this is adding to revenue and operating margin.
Waterbase - Plans to add 1 hatchery of 500 Mn PL (post-larvae) by Q417.
The industry requirement here is 30 Bn PL (from the presentation linked earlier). So there seems to be a lot of scope here. But my guess is that this business operation will be low margin and the reason for starting hatcheries is to provide good seed to farmers and make relationships so the farmer comes and sells the farmed shrimp to the company directly.
Shrimp processing: This is a growth area for companies in their plan to get vertically integrated.
Avanti Feeds: Expanded capacity to 23 kTPA following JV with Thai Union. This is up from 25 tonnes per day to 75 tonnes per day. In 2016, 13% of total revenue came from processed shrimp exports (or approx 263 crores). Assuming triple capacity now (and same realisation price), this will translate to total of approx 780 crores. With 60% share in JV, Avanti will add 343 crores to top line. So total for Avanti comes to approx 605 crores (263 + 343). This is very rough calculation. @rohanadvant did a calculation of approx 562 crores. But here I am unclear whether he used 60% share in JV only for new capacity addition or of total capacity of 23kTPA.
Waterbase: Has capacity of 4 kTPA.
Waterbaseâs presentation says there are over 400 processing plants in India. But total processing capacity is unknown. Shrimp processing looks to be the next growth driver and understanding the competitive landscape here can be instrumental for projections.
Waterbase also invests in farm care products (probiotics). I am unsure what the scale of this business is and what realisations + operating margins Waterbase has from these products. In terms of value added products, Avanti could expand here, but did not see any mention of it in the AR.
Avantiâs AR mentions how the adoption of Vannamei can be replicated for other exportable fishes such as Seabas, Krouper etc. I am unsure how this can be leveraged. If success of some fish species can be replicated in India the way it was for Vannamei, it could be another big positive.
This is very rough work to begin with. I will try to compile this into a neat table by players in feed manufacture, hatcheries and shrimp processing. Just putting it out to get any additional information from fellow Pickrs.
Disclosure: Invested. Forms less than 1% of portfolio.
As a lot of farmers deal in cash and have been impacted by the demonetization wave I was concerned about the impact of the same on Avantiâs performance (given their client base is farmers). So, I called up Avantiâs IR Team.
As per the investor relationâs team Avanti is not impacted by any such demonetization related implications for 2 reasons (as told by IR team):
Regards,
Yogansh Jeswani
Disclosure: Invested
point 1 (regarding shirmp season) is reasonable. point 2, although Avanti is using cheques with distributors, distributors take cash from farmers so somewhere in the supply chain cash is used which will affect the business. Most likely outcome will be that avanti will extend credit to distributors who will extend it down the supply chain to farmers to protect sales and inventory loss as this is seasonable business although not as bad as fruits and vegetables.
Disc: Invested.
More broad point on businesses like avanti and waterbase, will this business ever get to be rerated on p/e percetion to earnings, bcoz they dont have pricing power, climatic problem , demand from only one market that US,and also disease, so i feel that the headwinds always remain with the business, broaders can come in and put in their inputs
China turning into one of the worlds biggest shrimp consumer.
As much as 270,000 metric tons of shrimp was smuggled across the Vietnam-China border in 2016, Undercurrent News has heard, as smugglers exploited unmet Chinese demand and lax border controls.
The staggering volume of smuggled shrimpâroughly equivalent to Thailandâs entire annual shrimp productionâwould be valued at well over $1 billion annually, and mean that up to four out of every five shrimp imported by China last year was smuggled.
Taken alone it would make China the worldâs second largest importer of shrimp.
Unmet demand
The smuggling route from Vietnamâs northern port Haiphong to the Vietnam-China border is well known, but the huge increase in volume is only recent and largely owing to unmet demand in China.
This is because of increased consumption and problems with disease on Chinese shrimp farms. Tiny-sized shrimp are sold at numerous regional markets, an indication of early harvesting amid outbreaks of disease, while vanamei shrimp output in 2016 was down by 30-40% in top-producing regions.
New Hope Liuhe, a massive fish feed manufacturer, reckons China is experiencing an annual shortfall of 500,000t-700,000t of shrimp. This is according to the firmâs general manager, Li Fangyi, who last month spoke to Fish First, a Chinese trade publication.
While it is difficult to confirm this figure, domestic shrimp prices (80 count, farmgate) hit a record high of CNY 90 per kilo ($13/kg) at markets in Zhanjiang, Guangdong, Chinaâs main production region, in April of 2016. Increased price volatility during this yearâs Chinese New Year could see domestic shrimp prices double.
Though domestic shrimp prices fell last summer and in December were below year-ago levels, this is partly owing to the influx of shrimp imports, an industry source in China who did not want to be quoted by name told Undercurrent.He added that last year 10-20% of shrimp farmers left the sector in Guangdong Province, Chinaâs largest shrimp producing region, because of problems farming shrimp and market pressures stemming from increased imports. Imports hit the market in significant volumes in early 2015, he added.
Where did all the shrimp go?
Like a huge sinkhole, China has begun sucking up shrimp from all over the world. Very little of it, however, appears to come from legitimate sources.
Zhanjiang Guolian Aquatic Products, Chinaâs largest shrimp company, reported total Chinese shrimp imports amounted to 300,000t in 2015. Guolian published this figure in a company filing at the Shenzhen Stock Exchange earlier in 2016.
Yet, Chinese customs stated Chinese shrimp imports (HS Code:030617) were just 59,166t in 2015, according to International Trade Center (ITC), a joint agency of the World Bank and United Nations. Therefore, 240,000t of shrimp would have needed to come through the backdoor route in order to match Guolianâs figure.
To try to confirm this, Undercurrent looked at volumes of shrimp being exported to Vietnam.
In the past few years, shrimp exports to Vietnam have rocketed, according to ITC. In 2013, Vietnam imported 101,967t of shrimp. Just two years later, Vietnam imported 209,067t, an increase of 105% in two years, making Vietnam officially the worldâs second largest importer of shrimp.
Vietnam imports shrimp from all over the world, including such origins as Australia, the US, Canada and Estonia. Saudi Arabia, Hong Kong, Thailand and Indonesia also supplied significant volumes in 2015. Most, however, comes from Ecuador and India, who combined exported 167,217t to Vietnam in 2015.
Vietnam does not provide ITC with complete data regarding the countryâs shrimp exports. However, according Vietnamâs partner countriesâthose countries importing product from VietnamâVietnam exported 152,449t shrimp in 2015.
Therefore, at least 56,618t is required just for there to be a balance of trade in 2015. Moreover, Vietnam is one of the worldâs biggest shrimp producers itself. Furthermore, this is trade that is logged.
The first source said that Ecuadorian exports are often shipped out to Vietnam in white, unmarked boxes. He estimated that 60% of Ecuadorian production in 2016 would go to China via the backdoor.
Thailand has seen shrimp vanish from official figures, too. In 2016, the country was expected to produce 310,000t, according to feed sales, while fisheries report production of 270,000t, leaving around 40,000t unaccounted for.
India, which produces smaller shrimp, had exported 68,000t to Vietnam in the nine months to Sept 30, according to to ITC. The first source estimates full year exports could hit 100,000t for 2016. In 2015, Indiaâs exports to Vietnam were 65,121t, according to ITC.
If just half of those Indian exports are going through the backdoor, Chinese shrimp farming has deteriorated significantly, said the source, given normally China has an abundance of small shrimp.
âThe biggest factor in the worldâs shrimp market today is China; itâs not Europe or the US or anybody else, itâs China,â said the source.
Lessons unlearned
Building an entire industry outside of the law carries significant risks.
In summer of 2015, Chinaâs government unexpectedly closed some of the smuggling routes. Global shrimp prices plummeted as producers and traders tried to offload thousands of tons of product originally destined for China.
âEcuadorian producers were alarmed when the [back]door was closed,â said the first source. The biggest exporters promised they would not use unofficial routes again because of the dangers involved, he said.
But they started up once again a couple of months later, the source added. Official Chinese customs data shows that Ecuadorian shrimp imports jumped in the summer and autumn of 2015, but then fell back to normal levels towards the end of the year.
Smuggling shrimp into China is too attractive. Customs duties of 5-8% for shrimp and sales tax of 13% can be avoided, plus Chinese buyers can get kickbacks by re-exporting smuggled shrimpâsmuggled shrimp is passed off as domestic product to benefit from government subsidies worth 13% of the value of exported goods.
Moreover, smuggling shrimp has become ârelatively easy to doâ, said another source, who did not want to be quoted by name.
Expediting smugglingânot just of shrimp but all manner of goodsâis an army of logistics companies and customs advisers. Locals have built private toll roads solely to ease the passage of smuggled goods across the border, local media report.
When will it come to an end? According to the third source, Beijing has said it will start to clamp down on smuggling trade in mid-2018.
But the truth is very fewâif anyoneâknows for sure. Meanwhile, incentives to find backdoor trade routes into China will increase as Chinaâs consumer boom continues and prices for shrimp (and other meats and grains) continue to rise above those in neighboring countries.
This high-risk trade will likely heat up before it coolsâor crashesâdown
An Undercurrent News analysis of historical shrimp prices from 30 different Chinese regional markets points to the high likelihood of prices doubling in the first half of 2017.
In the past six years, shrimp prices in markets all across China have experienced significant price rises, sometimes up to 145%, in the first few months of the new year, compared with prices during their lowest point during the 12 months prior.
The price hike illustrates the huge impact Chinese New Year demand has on domestic shrimp prices, with supply and demand highly volatile shortly before and after the two-three-week-long holiday.
The annual cycle of price boom and bust backs assertions that the country could play an important role in global markets in H1 of next year, as reported by Undercurrent on Nov. 29.
In addition, findings from the price analysis show that:
Although demand tends to tail off after Chinese New Year, low shrimp stocks can see domestic prices stay well above yearly averages until April, before the arrival of the next shrimp harvest, which usually arrives in late July or August, causes prices to stabilize again.
Regional differences in prices can be significant during the first few months of the year, but tend to converge during the second half of the year amid peak supply.
Chinese domestic shrimp prices in 2013-2016 have been significantly higher compared with 2010-2012 during the peak in seasonal production â from August to November â when processors are doing most of their buying. This points to possible structural changes in supply and demand.
As the worldâs largest shrimp producer, China has a vast number of wholesale markets for shrimp, from Hainan Province in the south to Hebei Province in the north.
Undercurrent analyzed vanamei shrimp prices from 30 different regional markets in six Chinese provinces. The prices were sourced from Chinese trade websites and various industry associations.
Among the most important markets is in Zhanjiang, Guangdong Province. Located near the southern-most point of China, Zhanjiang has been dubbed Chinaâs âshrimp capitalâ.
Chinaâs largest shrimp processor, Zhanjiang Guolian Aquatic Products, takes its name from the area. Although other regions have their own local markets, sometimes shrimp will be transported to Zhanjiang for sale.
Strong accumulation happening in Avanti Feeds today. ET have posted an article summarizing the growth potential going ahead for the stock. Good days coming for the investors in this company. 
Disc. Invested. No activity in last 30 days.
very old one! believe its already reflected in its price.
Excerpt from the ET articleâŚ
âWe are confident of clocking 25% revenue growth and achieving previous yearsâ margin in FY18. Export demand is rising due to our superior quality,â ~Indrakumar, CMD Avanti Feeds
Another excerpt from the article
In the past three months, international shrimp prices have risen by 20% and soya prices have fallen by a similar magintude, which will improve its margins.
I did a quick check using the World Bank data and the claim is largely true. Margins should improve in Q3.
Source: http://pubdocs.worldbank.org/en/245551480717940139/CMO-Historical-Data-Monthly.xlsx
China, SE Asia shrimp imports overtake US
red-lobster-big-festival-of-shrimp
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GSMC shrimp panel predicts slow growth in global production, China to drop
NFI conference: Trump trade stance uncertainty casts shadow over San Francisco event
January 18, 2017, 2:37 am
Tom Seaman
SAN FRANCISCO, US â China and other South East Asian countries now import more shrimp than the US, according to data presented by the shrimp panel at the Global Seafood Market Conference, held this year in San Francisco, California.
According to data from the panel, imports of shrimp by China and South East Asian countries went past the US in 2015, for the first time.
Exports to â and within â Asia have doubled in five years and are closing in on 1 billion metric tons, according to panel data.
China will continue to be the biggest US competitor for shrimp, according to the panel.Screen Shot 2017-01-17 at 15.29.00
The US, however, imported a record amount of 945.7m pounds of shrimp in 2016, up from 915.9m in 2015.Screen Shot 2017-01-17 at 15.29.08
Imports by the US where up from every major point of origin except Ecuador, which is sending more of its shrimp to Vietnam and China.
A strong dollar should help maintain supplies and favorable prices in 2017, according to the presentation.Screen Shot 2017-01-17 at 15.31.06
It will mean US buyers are more competitive versus European and Japanese importers, with China importers facing a currency headwind. Ecuador, which uses the US dollar as its currency, has focused its attention on China and also Vietnam.
But, Ecuadorian packers can gain a currency advantage by selling to the US market in dollars, according to the panel.
âNot only will strong dollar ensure US shrimp supplies, it will also ensure supplies at stable to lower prices,â the panel concluded. In 2017, US imports will continue to depend on India, Ecuador, and Indonesia, supplemented by Thailand, Vietnam, and Mexico, according to the panel.
âDemand from China will impact pricing from all producers," however, the panel noted. Also, Europe and Japan both increased shrimp imports in 2016. The bottom line for the US buyers is more competition.
âAsia demand now driving [the] global shrimp market,â states the shrimp panel presentation.
This can be seen in the way Ecuadorâs shrimp shipments to Vietnam are rocketing, according to January-November data presented by the panel.
The data shows 43% of Ecuadorâs exports for the period where to Vietnam, compared to 32% for the previous year.
Much of Ecuadorâs shipments to Vietnam go to the port of Haiphong, close to the border with China, and are then smuggled across, according to Undercurrent News sources.
Direct sales from Ecuador to China are 3% of the total exports, which where around 350,000t for 2016, compared to 8% in the same period of 2015, according to the shrimp panel data. Screen Shot 2017-01-17 at 15.22.49
Vietnamâs overall shrimp imports in 2016 are up dramatically, according to data from the panel.
For January-September in 2016, imports were 200,000t, compared to around 175,000t in all of 2015.
with so many short term angles here; please find below my two cents on the broad overview:
Market price risk: Typically, avanti passes on the cost of changing raw material prices. At times with a lag, but nothing much to worry here if you are looking at a multi year picture. Also, think of it in terms of competition, with feed composition almost fixed (notice the slight change from fish meal towards soya over last few years) competition and avanti are on the same page and have to pass on the cost, else they wonât survive. Second for their prawns processing, again they buy at going rate and process, add their margin and sell. So these beneficial changes of lower RM and high prawn prices would accrue largely to farmers and not avanti.
China: China is indeed a big consumer and a lot of Vietnam imports you see are actually smuggled to China.
Europe: currently India loses out to European imports of sea food and textiles due to lack of FTA. The situation is unlikely to change, but once FTA is in place; naturally India and thus avanti should benefit. And so should, our large home textile companies.
Lastly, the company has proven their operational expertise in feeds but gaining such market share in processing would likely be difficult especially because prawns need to be processed quickly and closer to the farms. Unlike feeds, prawns are chilled in ice and transported. So having a cluster like feed processing units wonât work out and if they want to grow, they will have to spread their facilities geographically.
Finally, as a story, at avanti you need not look as a prawn player, but an evolving sea food company present across the value chain. Prawns feed will lead the way towards fish feed, which they produced earlier but stoped possibly because of better profits in prawn feeds. Same way, processing of prawns could lead to processing of other sea foods for exports.
The key risk I see here is sudden onslaught of diseases, which spread fast and can damage production very very quickly. So keep your eye open on that.
Q3 results came out, post market hours today.
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/F7CA6AD0_8D96_4DEB_A251_DE77F1F939B8_175248.pdf
At first glance, numbers (esp net profit/EPS looks fine)
Topline growth is very goodâŚbottom line is catching upâŚmay be few more quaters and it will catch upâŚ
We are expanding our shrimp processing business :
Read more at:
For Avanti, monitoring Gross margin is key because of high dependency on raw material price. The rise in Gross Margin over the years (FY13 to FY16), has translated into the rise in EBITDA margins. This trend paused/reversed in Q1 and Q2FY17. And resumed in Q3FY17. Very good set of numbers reported in Q3FY17. Some data to chewâŚ
Avanti Feeds has been covered in the current edition of Dalal Street Investment JournalâŚIt describes the growth plans very wellâŚ
