We had 2 other very insightful meetings around the Avanti AGM in Vizag. First one with Senior Management of a featured processed Shrimp Exporter supplying majorly to the largest food distributor chain in US, also slowly ramping up interest in Feed business. The evening meeting was with another 1200 Cr plus processed Shrimp exporter - over 25 years in this business. Request @pratyushmittal to compile and share his detailed Notes, later. Please allow some time for that.
Meanwhile, let me share the most important takeaways (for me) - from the 3 meetings. These need to be examined critically to understand the RISKS - by everyone continuing to remain invested in Avanti at higher valuations. To properly evaluate RISKS, we realise ONLY 2 key questions need to be answered with integrity. 1. Is the Industry Stable and growing? 2. Is the Competitive Strategy/Position of this business getting stronger or weaker?
A. Is the Industry Stable and Growing?
Here are the inputs we got to chew on
Global demand-supply equation: Currently in India's favour (refer to @spatel posts earlier in the thread), unlikely to change in a hurry. Indian Shrimp Industry is seen as a stable long-term source for quality shrimp. This is a big perception shift towards India and away from other competing producers. Key reasons are good track record at disease management, robust regulatory environment, excellent investments by Top 15 exporters in latest/modern technology, investments in all necessary quality accreditations like BAP, HACCP, and the latest more stringent ACS. US demand seen growing at 6-8% for a number of years as shrimp preference as healthy food is entrenched.
Competing countries ability to ramp up production: Indian production is likely to keep ramping up at 20-25%. Aquaculture has picked up tremendously all along the coastline. India has exploited only 15% of its aquaculture-available coastline so far - if i remember correctly 1.2 million hectares out of 7.5 million hectares. Surprisingly even inland culture (other side of the NH - groundwater salt +brackishness added) has proved feasible and is picking up steam. Unlike India most other competing countries at similar scale - like Indonesia, Equador, Mexico, Vietnam - have already penetrated more than 70% of available aquaculture land. Thailand is unlikely to come back to earlier levels of production
Farmers remaining happy - Key to Industry viability - $4 Pricing Viability line: Currently farmers are able to sell at double of their costing. Now while pricing will always be dynamic, given current supply-demand outlook, it's seen as unlikely that pricing reverts to levels that threaten farmer viability in the foreseeable future
Very healthy demand for small-size shrimp: Demand for small-size shrimp in resteurant/hotel retail chains in US has seen heavy demand. Customers are happy to get healthy food like shrimp but at lower cost levels (premium prices for large shrimps), making retailers happy too. Key parameter that seems like keeping everyone in the food chain happy. Farmers are able to start harvesting within a month (typically 3 month harvesting)- reduces disease/other risks by half, breakeven achieved, faster turnover. Feed guys are happier with higher demand; Processors are happier because of faster turnaround and lower working capital requirement.
This last one was a surprising new insight gained in the last interview of the day. We need to corroborate this further with other industry experts - will revert. Meanwhile requested @spatel to be on the job to establish count/pricing/quantity value mix
Disc: Remain invested, but examining critically. Likely to trim positions on Portfolio Sizing constraints with increasing valuations