Avanti Feeds


(Yogesh Sane) #1185

To explain it better, I am including chart of growth in gross profits (on a seasonally adjusted rate basis).

image
Source: Capitaline

Posting Sales growth chart from previous post.

image
Source: Capitaline

Comparing sales growth and gross profit growth (on SA basis) shows that finished goods prices started rising in December 2016 quarter (as gross profit was rising faster than sales) and continued until June 2017. In Sept 2017 quarter, sales have dropped marginally and gross profits have dropped along with sales by about same % points indicating prices peaked sometime around June quarter and have remained around those levels in Sept quarter. Operating leverage kicked in March quarter as EBITDA grew much faster than gross profit (again on a SA basis). In Sept EBITA declined along with Sales indicating full impact of operating leverage is already in the accounts at current level of sales.

Combined effect of sales growth and change in margins can be seen in (seasonally adjusted) bottom line shown below

image
Source: Capitaline

Profits peaked in June quarter and moved slightly lower in Sept quarter although still substantially higher than historical levels.


(Yogesh Sane) #1186

When you compare current quarter sales with sales for the same quarter last year you are accounting for seasonal variation in sales (like a seasonal drop in sales in Sept compared to June quarter for Avanti) but you are also taking a data point (denominator) that is one year old and use that for measuring a quarterly result.

e.g. in case of Avanti, y-o-y growth in sales in Sept 2017 quarter reflects changes to capacity, distribution network, prices, number of farmers taking up (or giving up) shrimp farming etc over the course of the year (from Oct 2016 to Sept 2017) and not just over the course of the quarter. Only about 1/4th of the changes would have happened in the most recent quarter. Y-o-Y number only reflect this 1/4th change (other 3/4 will reflect in next 3 quarters) along with 1/4 of the changes in 3 preceding quarters (Dec, Mar and June).

Measuring q-o-q change in reported sales will fully reflect change in quarterly sales but we will not know how much of that change is due to above mentioned factors and how much is due to seasonality. Hence measuring q-o-q changes in seasonally adjusted series is the widely used technique in statistics.

A q-o-q change in seasonally adjusted data will spot a trend as much as 2 quarter before it shows up (partially) in y-o-y number. That’s an edge that will be useful when company is trading at such high valuation.
Here are few more articles that explain seasonal adjustment.

https://www.forbes.com/sites/billconerly/2014/12/17/how-to-adjust-your-business-data-for-seasonality/

Seasonally Adjusting Data

Seasonality In Business And Economics: A Primer


(Gaurav Agarwal) #1187

This is how percentages are calculated.

My understanding is you are trying to say the following

  1. We should look at the progress of the company by comparing this quarter by last quarter called quarter-on-quarter (qoq).

  2. But qoq comparison cannot be effectively done for some business because last quarter was different from this quarter because of certain factors collectively seasonality.

  3. Therefore we should adjust this quarter for certain factors collectively called seasonality and then do the comparison.

  4. Year-on-year comparison are not useful because they take into account change in capacity, prices etc. for full year.

Correct me if I am wrong in understanding your proposition.

What factors have you taken for adjustment for qoq comparison?

Thanks for your time and effort.


(Yogesh Sane) #1188

This is correct but works only for companies without any seasonality in their business. In reality there is always some seasonality in every business. IT has low seasonality while companies like Kaveri Seeds does most of the business in a single quarter. Avanti is somewhere in between but does have a good degree of seasonality.

Seasonality is nothing but predictable changes in business. We know that Avanti sales will drop in Sept compared to June quarter. As investors, we need to separate predictable changes from unpredictable changes to see how business actually performed in a quarter.

Seasonality is predictable. Everything else is generally unpredictable. We do not know how much volume growth will be there, how much pricing pressure exists in the industry etc. An industry insider or expert is in a better position to predict these factors but typical investors have only a vague idea especially when company is posting so unpredictable results.

This is not true. y-o-y results are useful as they take into account seasonality especially for businesses with high level of seasonality. But y-o-y have a recognition lag as underlying changes in business performance shows up late in y-o-y number and this number usually understates actual change. Anyone following y-o-y number will be typically a quarter or two behind anyone who is using correct seasonal adjustments and use a q-o-q number.

Seasonal adjustment is a statistical technique that is applied to any business time series that is seasonal in nature. I have not used any specific factors for Avanti. In fact it’s the other way around. Once you take out seasonality (which is predictable using observed seasonality in previous quarterly results) you can see the combined effect of all other (unpredictable) factors in the seasonally adjusted data which gives a better insight into performance of the business in the given quarter.


(Gaurav Agarwal) #1189

I dis-agree with you. Seasonality means the effect of some seasonal change on the business. For example Effect of Monsoon on Construction business is seasonal change. At the same time Monsoon can be unpredictable and therefore its effect on the business are also unpredictable.

You should provide very solid scientific basis for applying some statistical technique on businesses which are very different. Can you explain in simple words how you are trying to remove seasonality in Avanti’s case?


(Rajarshi) #1190

Well I have been evaluating on basis of YOY results since 2012 June when I first bought and then added subsequently…Invariably the first quarter is invariably the best and frankly this quarter results seem to be better than expected,With the capex for shrimp processing plant already done and commissioned from 31st August on wards the returns would be likely to get better from here along with the feed capacity expansion which will happen by FY18 end…With cash of around 680 crores I feel there is still a lot of steam left in this counter,

Disc: Heavily invested and added some today


(Rohit) #1191

Article says , India exported $5.78 billion (Rs 37,871 crore) worth of marine products in 2016-17 with the US accounting for 30% share marginally ahead of southeast Asia

and it can touch 6 billion this year. So that means only 3-4% rise from FY 2016-17 to FY 2017-18. Am i interpreting this correct. Is 3-4 % growth from 5.78 billion to 6 Billion good ? or this is a saturation ?


(nil_71) #1192

Indian authorities have upped their inspection regimes in the face of possible European Union action against the perceived issue of antibiotic traces in exports of shrimp.

Its Export Inspection Council (EIC) has taken strong steps in a bid to avoid any sort of ban or other sanctions on India shrimp sales to the EU, Derek Golding, chairman and founder of UK importer Seahawk Marine Foods, told Undercurrent News.

“I had a detailed email from our Chennai office advising all the delays to shipment of our many pending shrimp containers; delays ranging from three to six weeks after the contracted dates for shipments,” he said.

Harvesting for these shipments has been complete, but “for more than a month now the Export Inspection Agencies (EIAs) – the local arms of the EIC – have had their own staff drawing samples from the factories and returning those samples to their own laboratories for antibiotic residue testing”.

Private testing by accredited laboratories is no longer sufficient or permitted, he said.

The delays are mainly being caused by a lack of manpower within the local EIAs to deal with the sudden vast increase in workload being brought in-house, he said.

“But that is a natural immediate consequence of such sound and responsible action by the Indian government, and this company has no argument with it – and is happy to live with the delays – if ultimately we are able to see good science and common sense prevailing.”

Golding hopes to see the EU recognize the competence of the Indian EIA laboratories, and an acceptance of their pre-shipment negative test results, negating the need for “any mandatory tests on arrival at EU ports, let alone 50% of all Indian imports [as is the case currently]”.

Any Indian processor that sees product test positive for residues at any EU port of entry will be stripped of his EU export license by the EIA, Golding added. “If there is any other country exercising greater control over its exporters and their product integrity I would like to know of it.”

Meanwhile an EU delegation will be in from Nov. 21- 28, he told Undercurrent.

“The normal procedure would then be for their report to be compiled and issued, with any perceived shortcomings conveyed to the Indian Competent Authority with a timetable to fix any defective or non-EU compliant areas.”

He added he was sure there was no justification for an Indian shrimp import ban, but was also not certain the “right” outcome would be reached.

Source : UnderCurrent News


(aanaruna78) #1194

KOCHI: Indian seafood export is all set to cross $ 6 billion in the current year, backed by rising demand for shrimp in the wake of dwindling supplies from other Asian countries.
The US leads the way for buyers during the Christmas and New Year season. “It is the peak season and there is increased demand. The prices are good too,’’ said Shivam Gupta, director of West Coast Fine Foods India. India is currently the top supplier of shrimps in the world, overtaking Ecuador, according to Globefish, the information and analysis wing on fisheries and aquaculture of the Food and Agriculture Organization (FAO) of the United Nations. The report said Indian farmed shrimp production had reached 5 lakh tonnes last year, with vannamei shrimp, the most preferred variety, touching 4.06 lakh tonnes.
Thailand, which used to be the largest producer of farmed shrimp, is recovering from a viral attack on its farms a few years ago. Globefish said the country is expecting 5% growth from its last year’s output of 2.5 lakh tonnes. But farms in Malaysia and Indonesia are still plagued by diseases.

India exported $5.78 billion (?37,871crore) worth of marine products in 2016-17 with the US accounting for 30% share marginally ahead of southeast Asia. “There is a rising demand for shrimps of small and medium sizes. Unlike Europe, buyers in the US go for bulk purchases. It is possible to ship 100-200 containers,’’ said Tara Ranjan Patnaik, VP of Seafood Exporters Association of India.
Among the Asian countries, China and Vietnam are the major buyers. “Earlier, Vietnam used to re-export a lot of Indian consignments to the US. Though they still import, we now compete with them for selling shrimps to US buyers by offering better quality material,’’ said Patnaik.
Indian production of vannamei shrimp is predicted to go over 5 lakh tonnes in the current fiscal. With the increase in vannamei shrimp output in the past few years, seafood companies are scaling up their production facilities.

From : http://www.ecoti.in/_SrUBZ


(sarmams) #1195

Marine exports from India continue to raise in October 2017 compared to Oct 2016. As per the data, they have gone up last month by 8.5%.

http://pib.nic.in/newsite/PrintRelease.aspx?relid=173499


(Ayush Mittal) #1196

Very interesting developments going on in this sector. When the Q2 results of Avanti came…though they looked good and the processing segment was a big positive surprise, however the revenues from the shrimp feed segment looked lower than my expectations…so i thought of waiting for results of peers…as there could have been seasonal vagaries (season might have started earlier and hence Q1 might have been much higher)

Interestingly, Avanti continues to be a leader in every aspect. The growth has been much higher as compared to any of the peers despite the company having much higher base and market share (must be close to 50% now)…and so have been the margins

If one looks at the balance sheet of Waterbase, it seems the company has been extending easy collection period to its dealer network (Debtor days were earlier at about 90 days for Waterbase but have now jumped up sharply vs almost NIL or negative for Avanti). Yet their growth and margins seem to be lesser to that of Avanti till now.

Smaller players in feed like - Sharat Ind etc weren’t able to grow or expand their margins despite much higher margins in the industry and high growth. http://www.bseindia.com/xml-data/corpfiling/AttachLive/12e40caf-ac34-41b4-817c-b7f374b09ee6.pdf

In the processing side one of the listed player - Coastal Corp saw degrowth - http://www.bseindia.com/xml-data/corpfiling/AttachHis/a3748933-3dde-472e-aa31-5f558cf9af00.pdf

While Apex and Avanti did very well on growth along with substantial expansion in margins. It will be interesting to hear concalls of both.

Good thing is that the industry is doing pretty well and there are lots of tailwinds. Concerns continue to be:

  1. Inherit risks of industry
  2. High valuations and sustenance of high margins

It would be great if people can work more on the peer comparisons and help understand things better.

Regards,
Ayush


(gkg) #1198

wondering if there is something more…today Avanti is down 6+% and waterbase is up 9+% while Apex food is in upper circuit of 5%


(manivannan.g) #1199

To those, who were saying Avanti is expensive, Today Avanti is at PE:29. I think which is decent valuation now (except the high PB).
Disc: This is not an advice to buy, it’s just heads up.


(StockDoc) #1200

The stock is up almost 7 times in the last 1 year compared to the other two which have gone up 2-2.5x. Pretty certain some profit booking is happening and it should resume its journey up again.

Disclosure: Highest holding in my portfolio at ~12%. Looking at this opportunity to add more.


(Vivek Gautam) #1201

Story seems intact.Only threat is from weather.Rest all manageable.


#1202

Last week article:

A month old :

“Europe unlike other countries has zero tolerance limit for antibiotics,” said Kenny Thomas, a seafood exporter and former vice president of Seafood Exporters Association of India (SEAI). “They have raised the scale of sampling from 10% to 50% in the last six months, which could be the reason for more rejections,” he said.

“A ban is not tenable under the WTO laws,” Thomas said. “What we fear is that they may go for 100 % sampling.”


(vinoths) #1203

Hi,

Can anyone post the Avanti Sales or Export % split by geography (US, Europe) for last 3 to 4 financial year?

Regards,
Vinoth


(Rohit) #1204

Stock down 8-9% in morning trade today…though the results were not bad. Is the market pricing in Europe Ban ? How much PAT/Growth will be affected if Europe bans indian shrimp. Can anyone please share your views on it.

Disc : Invested


(hemtan100) #1205

(Rajarshi) #1206

Please do not try to speculate over here without any fundamental reasoning. If Europe Ban might be the issue then markets cannot be selectively partial towards Avanti and look at apex and Waterbase in a different way as all the three are in the same sector? And this Europe Ban news has been in news much before the results have come… i