Avanti Feeds

Basis my limited affair with DCF, the limitation that I more often than not find is related to being precise with the inputs -rather with all combination of inputs. With multiple variables to be assumed/modeled, the end outcome may culminate into an altogether different shape with every decision being selected/omitted. In short, it becomes an effort to get ‘Objective’ output with the help of ‘subjective’ inputs.

Deepak (@deevee) - Think you have just touched upon an excellent tool/perspective to refine the entire puzzle called DCF based valuation!!!

What I understand/assume is that you are talking about plotting ‘valuation points’ generated out of different possible input/assumption combination to generated Gaussian curve and from thereon deriving a DCF fair value range - say PlusMinus 1 Std Deviation (or some other pre-defined confidence interval).

As said, this looks to be an interesting perspective backed with proven, well-accepted logic. Sort of finding a method in the madness (for lack of a better expression). Will love if you can share more details around this approach. When and how this approach can be applied? Assumptions if any? supporting back testing etc etc.

You can consider utilizing any of the existing threads (link, link2) around DCF or can initate a new one for more engaged discussion.

Thanks in advance,
Tarun

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Avanti has scheduled an Audio Conference Call for Investors on 24th August 2017@ 4:30 pm.
Please click here to see the notification and also the investor presentation for Q1FY18.

Regards,
Yogansh Jeswani

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More media coverage…but nothing new.

Rgds
RR

Thanks a lot Pratyush. Very helpful.

Donald,

Thanks as always for putting your efforts. Just one thing I would like to add here is,

DCF I feel is more suitable for stable companies in relatively developed economies. In country like India where per capita penetration is lower than that of developed nations and in some cases lower than that of world average, I believe it is difficult to use DCF as a tool to make buy or sell decision. It’s more for a sanity check.

I feel almost all the good businesses in India will be overvalued using DCF over a different range of time periods. One very good reason for this phenomenon that Akash Prakash of Amansa Caoital had mentioned in one of the articles is - "In India it is difficult to scale up business quickly because of many reasons that are peculiar to India. Hence any company which is able to scale up and grow at rate faster than the industry, it will always trade at premium." (wordings not exact as per the article, but gist was on similar line)

Hence, as you rightly mentioned not to get obsessed with DCF’s number.

Regards.

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Good point, in the normal course DCF isn’t quite useful except to give us a broad (and hence not so useful) idea about the range of valuations. The utility of DCF (for me) is typically during serious falls. I remember during demonetisation, i ran this on Bajaj Finance, with a discount rate of 9%, the market was pricing in a profit growth rate of 6-8% for next 5 years and 0% post that.

If the DCF shouts value at you, it can be a very useful tool to help you pull the trigger. However during “normal” markets DCF doesn’t help as much.

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A DCF supported by a monte Carlo analysis gives high level of confidence that probability of losing money could be very small or very high in extreme conditions by quantifying valuations with an okaish understanding of business . Just saves from mistakes despite lesser knowledge by helping on not at all lucrative to jump n super worth jumping in with a quantified valued tagged for cash flow based stable type of businesses . Else nothing better than knowing business in deep in and out to arrive hidden intrinsic value range which someone without sound understanding of business may not figure out in fairly valued phase which runs usually for longest of cycles between undervaluation , over valuation n fair valuation ranges.This is how I feel a DCF has personally helped me most over last few years . Need few more years of trial to say with utmost confidence

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Religare research report keeping a target of Rs 2240/-

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Hello

With the current positive news/result/sentiment flow on Avanti I am sort of confident that Apex will list positively. But I am in a dilemma trying to take a call whether to invest in Apex.

The ‘investor’ in me says to look at it skeptically and perhaps avoid and not have many eggs in one basket. But the ‘trader’ in me says go with the flow, its always good to add to a winning bet (here the industry).

Wanted to know if any of the Avanti investors are seriously contemplating buying Apex post listing (apart from lucky allotment).

  • Invested in Avanti & also investing in Apex
  • Invested in Avanti & not investing in Apex
  • Invested in Avanti & trying only for listing gains in Apex
  • Invested in Avanti & want to get out of Avanti itself forget Apex
  • Not invested in Avanti but want to enter this industry in either of the two
0 voters

Thanks.

Regards
Deepak

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Link is not opening. Kindly upload the PDF

Religare Avanti.pdf (696.8 KB)
Hi
Attached.

Rgds
DV

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Thanks@deevee

Also I see Soyabean Price inched a bit but not much, It moved from Rs 24 to 28-29 now. I am sure, Avanti will have a long term contract with its suppliers too. Also all Price increase come with a lag only

http://www.agriwatch.com/oilseeds/soybean/index.php?chart=7&commodity_id=16&commodity_type_id=4&location_id=&cat_id=&rr=Oil%20Seeds

It will be interesting to see Q2 Margin. May be in the tomorrow’s call, we can ask the average Soya Price that they are paying now or say is there any % increase in Soya Price. Management may disclose latter than the former

I think Avanti stocks 60 days of Raw Material - so no margin impact in Q2.

UK importers warn of EU shrimp import ban

Importers in the UK have sought New Delhi’s intervention to stop an imminent ban on Indian seafood exports by the European Union (EU).

The EU is apparently unhappy due to increasing incidences of traces of antibiotics being found in seafood products from India. In 2016-17, the EU accounted for 18 per cent of the $5.78-billion seafood exports from India.

The British Frozen Food Federation (BFFF) — which has importers, exporters, brokers and retailers as members — has in a letter to the commerce ministry stressed that a ban on Indian aquaculture shrimp might be implemented in two-three months. “During a very productive meeting on August 8, 2017, with Sarvesh Rai of the Indian Mission to the EU, we were informed that India has undertaken several steps to satisfy the European Commission. The indications we are receiving from the commission are that these are not enough,” John Hyman, chief executive officer of BFFF, wrote to Commerce and Industry Minister Nirmala Sitharaman.

The federation has urged the minister to redouble efforts to appease the commission and to prevent a ban. It has also asked India to overhaul the aquaculture export safety system. The federation has also offered its expertise and perspective to resolve the issue.

There is a real risk that the US Food and Drug Administration, which will look closely at the outcome of the European Union’s review, might review its own import procedures from India. The EU and the US together account for $1.5 billion of aquaculture shrimp exports from India. “We implore you to take this message very seriously,” the BFFF added.

The European Commission is extremely dissatisfied with continued non-compliance and the lack of progress made by the Indian authorities. Last year, the EU had strengthened its inspection norms for aquaculture products from India. Earlier, the norm was to test samples from at least 10 per cent of the consignments. This was raised to 50 per cent in 2016.

Trade sources said there has been an increase in the number of rejections of Indian shrimps because of the presence of antibiotics. The EU is also believed to be directly banning factories whose products have been rejected.

Source : Business Standard 24th August 2017

I went through the earlier thread where it seems fear of ban and its likely impact may not be significant since most of the exporters are trying to de-risk, still 18% of 5.8 BUSD is close to 1 BUSD

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I am in the same dilemma myself. I got a lot of information from their draft prospectus that makes me feel confident about what they are doing, and how the business prospects are shaping up. However, what’s holding me back is the lack of geographical diversity. That was the reason why Waterbase got stuck and Avanti was able to move forward, when there were issues in one geographical location.

I think the IPO will sail well, but I am not confident about putting my money in for the long term- especially since I am gravitating towards making large but 2-3 bets a year. Its interesting that the retail portion is oversubscribed and QIB is not showing much movement - but I dont know how to interpret this tea leaf for the better or the worser.

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India turns World No. 1 in shrimp exports. 2016 data released now.

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Hi

Thanks for polling. Have closed it now as Apex IPO window is over.

Results:
Invested in Avanti & not investing in Apex: 42%
Invested in Avanti & also investing in Apex: 25%
Not invested in Avanti but want to enter this industry in either of the two: 19%
Invested in Avanti & trying only for listing gains in Apex: 14%
Invested in Avanti & want to get out of Avanti itself forget Apex: 0%

Looks like Avanti investors really love their Avanti holdings, nobody wants to let go :wink:

Regards
Deepak

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Q1FY18 Conference call highlights (my notes - may contain errors/mistakes)

Management Commentary and Financials:
Revenue 998.17 Cr Vs 724.38 YoY growth 38%
PBT 226.46 Cr Vs 74.97 YoY growth 282%
Revenue feed business 881.27 Cr Vs 631.23 with YoY 39.6% growth
Due to increase in volume of sales and decrease in raw material prices
First half – increase in area under culture. Expect to have more conversion from fish culture to shrimp.
Aquaculture expect 10-15% growth.
International shrimp prices are good.
Processing business 15000 MTA capacity
GST implemented on 1st July 2017, no significant impact.
The revenue break up between Shrimp Exports and Shrimp Feed is currently at 13:87, efforts on to improve the ratio to 40:60 In 2-3 years.
Aim to become a Billion Dollar company by 2022

Current feed capacity: 4.25L MTA , going to add 1.75L MTA resulting in total 6L MTA. Feed business margin’s depend on raw material cost and volumesRaw material – soya and fish meal are agri related products – depends heavily on crops. Last year crop was very good. We closely monitor market prices. Raw material prices usually Rs 70-80/Kg. We keep one month of raw material stock inventory. The new crop arrives in Oct-Dec season – prices are usually lower. Then we keep 2-3 months stock. Once crop season is over – we return to 1 month stock level. Feed prices are stable. Govt has increased MSP on Soya by 10%. GST is also levied on Soya seeds.

Processing plant – several approvals are required, may take 6 months
News about EU ban on Indian Shrimp Exports – There is no ban however they are now checking 50% of the consignment as compared to 10% earlier. Govt continue using diplomatic channels.
Thai Union to is a well experienced and reputed shrimp exporter. They are supporting us with:

  1. Technology regarding value added products
  2. Market our Value Added and raw products in global market

There is 20L feed capacity in the market but still we are having leading position and running on full capacity. This is because of our feed quality and technical support to the farmers. The stocking starts in Mid-Feb. Shrimp peak season Mar-Jun – Climatic conditions are good for the growth. Sep-Oct-Nov exports are usually high due to Christmas demand. Dec-Jan period lower.

Why processing business when margins are higher in feed business:
Going for value added products, there margin’s will be good, margins are better than raw products.
First crop has not been good but second crop has been good due to monsoon rains.
Hatchery: purchased land, clearances in one month time, 1 year to implement the project.
International Shrimp prices are stable, on an average $4.5-5 realization
Capacity expansion – expect to have capacity fully utilized by next year – very confident
Export business 30% capacity utilization initial year
Processed Shrimps: margins in raw products 5-7%, Value added products 10%

Capex 50 Cr feed expansion next 4-6 month for 1.5L MTA, expanding capacity in existing plant. If a Greenfield plant – expect to have 75-80 Cr for 1L MTA.
Plan to diversify into fish feed – study ongoing. With 6L MTA feed, expect to have 3500-4000 Cr sales.
The volumes for processing business will come in 3-4 years. 15000 MTA production by first week next month.

Our market is well established because of our quality. We are farmers first choice. We are not selling at premium – on par with other feed manufacturers. We deliver superior quality and technical support. That’s where we have the premium. We are educating farmers not to use antibiotics. Govt has been helpful through different agencies. Checks are conducted before taking shrimp and certificates are issued.

Feed conversion ratio
How is feed consumption related to processed shrimp exports? Depends on multiple factors – not all feed in the pond is consumed by shrimps. FCR usually ranges from 1.5-2.5. Better yield is achieved if FCR 1.5 or lower. Our FCR is 1.2-1.3 as compared to industry average =>2.

Disclosure: Invested, no transactions in last 30 days.

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Good job Amit. You have pretty much covered all the points discussed during the con call.

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Amid growing uncertainties in the seafood trade, exporters now have a reason to cheer as India has emerged as the highest shrimp exporter in 2016. India exported about 438,500 tonnes in 2016, up 14.5 per cent in 2015, according to a report by Globefish, a unit within the Food and Agriculture Organisation (FAO) of the United Nations.

The exports of value-added shrimp from India surged by 130 per cent in 2016 to 23,400 tonnes from 10,100 tonnes in 2015 and were mostly directed to the US market.

According to the report, the top five shrimp exporters to the international market in 2016 were India, Vietnam (425,000 tonnes, up by 18–20 per cent from 2015), Ecuador (372,600 tonnes, up 7.8 per cent), Indonesia (220,000 tonnes, up 21 per cent) and Thailand (209,400, up 22 per cent).

India’s top export markets included the US, Vietnam, the EU and Japan. India exported 1,134,948 tonnes of seafood, worth an all-time high of $5.78 billion (Rs 37, 870.90 crore), in 2016-17 against 9,45,892 tonnes, worth $4.69 billion, a year earlier.

The US Food and Drug Administration (FDA) rejected 133 shrimp consignments due to the existence of prohibited antibiotics, which included 95 from India.

The report has come at a time when Indian exporters are fearing a ban from the EU, their third-largest market.

Stating that imports to the EU declined last year, the report stated, “Beginning in late 2016, the EU Veterinary Authority has increased the mandatory quality checks of Indian farmed shrimp from 10 to 50 per cent, a move that contributed to additional costs for importers and led to diversification of shipments to other markets.”

India largest seafood exporter in 2016: FAO On the global demand, it said that imports increased moderately in the US, EU and Japanese markets in 2016.

In China, strong demand was reported as a result of falling domestic production with foreign supplies increasing both directly and indirectly to this market. International prices remained stable throughout 2016.

“Mixed production trends for farmed shrimp were observed in Asian producing countries during 2016, with a total estimated production of around 2.5 million tonnes. While disease remained a major concern, adverse weather conditions also had an impact on production, particularly during the first half of the year. Fortunately, supplies recovered in India, Indonesia, Vietnam and Thailand during the second half of 2016,” the Globefish report said.

In terms of prices, vannamei shrimp prices increased marginally during 2016. In the single-largest import market, the US, there was a 5.5 per cent rise in import prices compared with 2015. US prices for Indian shrimp and Ecuadorean shrimp increased by 2.7 per cent and 7.8 per cent, respectively, the report said.

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