Further to my post above, I have been able to meet on the ground personnel working in an aqua farm in AP. Following are the details of my discussion:
a) there has been a huge expansion of aqua farms in the region over the last few years. With an initial investment of INR 6 Lakhs per acre and with with min 5 acres of total land, a farmer is able to make INR 10 mln in a year. While he could not share the exact operational expenses incurred by the farmer, final profit margins to the farmer are expected to be in the range of 30% in the first year (could not confirm this estimate). In subsequent years, returns would be much higher as there is no initial investment required and only operational expenses are incurred to run the farm. Returns would come down in a year to the farmer, if there are any adverse climatic conditions due to which one entire batch of shrimp gets wiped out due to some virus attack. And obviously, returns would be higher for a farmer with own land rather than leased land used for farming.
b) in a calendar year, Jan to July/August remains busy months. With the onset of monsoon, output slows down gradually. Climatic conditions are extremely important for the crop (with higher temperatures being quiet favorable) and hence the business in this area is thriving in a big way.
c) farm I visited, was started 3 years ago and has total 40 acres of area dedicated to aqua farming. Owner apparently has other farms as well in other regions and is a very experienced hand. Their godown has been stacked up with Avanti’s feed completely and no other competitor product. When I enquired about other companies product, I was told they have been using Avanti product for many years and they are satisfied with the output. He mentioned, large established farms in the region generally go with Avanti.
d) due to the ongoing monsoon and adverse climatic conditions, 2 crops of shrimp have completely been destroyed by a virus attack in the region (all the farmers in the region have been impacted by this virus attack). In fact, second crop has been washed out after reaching 70 count . Many farms in the region have stalled the culture for a while, as they will undertake cleaning of the pond/tank before putting in new crop (new crop expected to start by end of this month and first batch of shrimp are expected to come out by mid Jan).
e) In a day, feed is provided to the shrimp 4 times initially . As the shrimp grows in size, feed consumption volume rises with a faster turnover of feed inventory. So, farmers stack up at least 2 months of feed inventory at a time. Farmers get a credit period from distributor (though I think, for distributor there is no credit period from Avanti at least during peak season).
f) while going around the area, I have noticed large areas have now been converted to aqua farms. With the rise in demand for Indian shrimp from US, in my opinion, Avanti’s incremental feed capacity is coming at an appropriate time next year.
g) enquired about usage of antibiotics, I have been told it is strictly prohibited. If any farmers gets caught using antibiotics they are black listed and cannot do further business. Hence, large and established farmers do not risk losing complete business and remain highly vigilant. They are also continuously made aware of this risk by Avanti (as they are one of the off takers of final shrimp from the farm).
h) I have been told by few locals that, aqua farming is being taken up in a big way by some of the politically connected personnel and their relatives . And when they are starting this in a new area, they are doing it on a very large scale (like 50+ acres) at one shot. In my opinion, these kind of business men who have the money and muscle power may go with a tried and established brand like Avanti’s feed, while setting up the farm rather than try other brands (though, I may be wrong in my assessment here).
Due to some operational issue in the farm, my contact had to cut short the meeting with me. Hopefully, next time I will try and connect with owner of the farm to get a better picture.
Disc: invested in Avanti and hence biased views. Pls do your own due diligence before investing.