IPO filled by 3 big shrimp processors in the last few days. Good insights on industry as well as competition
Nekkanti Sea Foods Limited
Devi Seafoods Limited
Sandhya Marines Limited
Am a novice investor and trying to learn the ropes with the help of many experienced and senior members in this wonderful forum. But, will try and reply to your query (though will not be able to do 100% justice).
One, investing in stock market was/is never easy. We all have been lucky to live through one of the most bullish year(2017), where many of us have seen good appreciation in our individual portfolios. Extrapolating the same kind of returns every year will not be sane and we will have to live through some down periods. And, we all tend to extrapolate blue sky scenario and buy stocks expecting that upward movement of stock price continues unabated! We can only learn from such mistakes and wait patiently next time to buy the stock with adequate MoS.
Coming to Avanti, my conviction in the company/management continues to remain strong based on the financial performance of the company and expanding market. To me, promoter is one of the few intelligent fanatics in Indian market and continues to deliver strong financial performance. I am not perturbed by daily price movements of the stock (though still a long way to go, as i keep checking the stock price regularly ). I firmly believe, in the short term market remains voting machine where as in the longer run it turns into a weighing machine. Over the last few years, i learned patience is one of the greatest virtues and it pays rich dividends when you sit tight and do nothing (except to buy the stock when it has fallen to attractive levels compared to your own estimate of Intrinsic Value). To address your specific query on the stock price, I honestly do not know (and I would never believe in any explanation whatsoever w.r.t stock price). Eventually, in the long run stock price will have to reflect underlying business performance and accordingly rerating would happen.
I would recommend that, each one of us should develop our own conviction w.r.t to a company/stock and evaluate on a regular basis, if there has been any change in the story. To sum up, Avanti remains on a strong footing (by way of gaining market share in over supplied feed market and steadily increasing its share in processed segment, well served by strong management ). I believe, Avanti has been delivering strong business performance qoq and would continue to do so aided by market expansion/ strong customer connect. In the long run (over next 3-5 years), I expect Avanti to deliver strong returns to all stakeholders by achieving their target of USD 1 Bn (top line) by 2021-22. I would strongly recommend you to go through some of the earlier posts in this thread by senior members like Ayush/Donald and others. These helped me a lot to learn new concepts and also unlearn few wrong notions w.r.t business evaluation etc !
Please note, this is not a stock recommendation. My views are biased, as I own the stock . Kindly do your own due diligence before making any buy/sell decision.
@Rokrdude - thank you for sharing the links. Agree with you on great insights on industry and competition. Very helpful!
I went through prospectus of Devi Foods and below are few key takeaways based on my first-stab:
They feel their “program” business model (their subsidiary in the US) is their big competitive advantage for shrimp processing segment. Subsidiary provides manged inventory services to their major customers across various locations in the US. It gets bulk orders from their customers in the US and have clear order visibility of one year to three years from some of the large customers. Their major customers are leading food service distributor, a full service restaurant chain, a seafood restaurant chain and a casual dining restaurant chain. They have as old as
Devi is the only Indian company which doesn’t have to pay ADD to the US government. Devi feels this is a big advantage for them.
End-to-end integration; relationship with farmers from seed --> feed --> buying final fresh shrimps back from them --> processing --> selling to their subsidiary --> subsidiary managing procurement for their major US clients --> selling to major US clients.
Devi food does private labels for retail supermarket operators and food service players in the US.
Below table shows their average selling pricing in the market: .
Capacity and 9MFY18 Revenue comparison with Avanti:
So far it looks like (IMHO) Devi has better forward and backward integrated business than Avanti.
Disc: invested in Avanti since 2014.
I am no expert in equities as I recently started investing but I have decent knowledge on aquaculture especially shrimp. I am from AP and have many friends and close relatives into shrimp farming for more than 20 years.
- Avanti feed’s advantage is its feed division. It has got both market share and mind share among the customers (farmers).
- As per my limited knowledge, Devi sea foods has very good expertise in processing and exports. Their customer relationships seems to be their biggest advantage.
Processing is being setup by many small and medium companies and I believe it is the easiest part in all of aquaculture industry. Feed is toughest to enter for a new company. Exports and sales expertise will definitely help when the sector is facing headwinds.
Disc: Not invested in any of the companies (avanti, apex or waterbase). Seriously considering Avanti, apex. Also will surely apply for Devi Sea foods among new IPOs.
Dear all, I’d like to begin by mentioning that the question I’m about to pose may seem naive to most. I’m just a beginner. My understanding of the business is rudimentary.Hence, excuse me if I overstep my bounds.
I noticed that Thai Union holds around 25 percent stake in Avanti Feeds.
A bit further study revealed that Thai Union is a behemoth in the sea food industry with sales exceeding 4 billion USD. It’s present in the ambient, frozen and other value added businesses. However, it’s net profit margins were in the vicinity of 5 percent. Being a leader, in my limited understanding, it has a solid bargaining power. Despite its financial muscle it’s margins don’t exceed 5 percent.
Avanti Feeds, too has had margins hovering in the range of 7-8 percent. But, in the 9 months ending December 2017, it’s margins exceed 16 percent. What exactly led to these massive margin expansion? Is it a one off happening?
Also, Thai Union, despite being the sea food industry leader, has traded at an earnings multiple of 14-15.
Does that suggest Avanti is probably overvalued because of the raging bull run.
I reiterate, I, in no way intend to assert that my understanding is correct. Please help.
My submission is, Avanti is consistently showing revenue and profit growth of over 30% year on year…Profit doubles in every 3 years…so obviously trading in higher PE. They hold more than 45% of market share in feed industry which could have demanded better pricing power and better margin. Their frozen food business is also picking up very well.
Margin could be different across geographies due many other reasons…purchase price/business model/volume/targeted customer etc…
A good read on the contribution of Avanti feeds in Thai union’s books.
Thai Union, which is the world’s largest tuna canner and also a major supplier of shrimp, pelagics and other seafood, reported Q4 operating profit of THB 885 million ($28.09m), down 28.3% year-on-year, as high prices pressured margins.
As per above article, Thai Union’s Q4 operating profit is around INR 182 crores. Had assumed Thai Union to be operating at a much larger scale in comparison to Avanti!
One more article:
With the farmed shrimp supply outlook very strong for 2018, Chicken of the Sea Frozen Foods’ (COSFF) CEO is happy to have something different to offer the market, with parent Thai Union Group’s brand new joint venture plant in India with Avanti Feeds.
Thai Union and the Indian company’s plant, Avanti Frozen Foods, are ramping up after opening last year.
“We are very optimistic about the Avanti operation,” Bryan Rosenberg (pictured above), COSFF’s top executive, told Undercurrent News in a recent interview, where he also warned a strong supply picture will put US shrimp importers’ margins under pressure in 2018. “It’s really a state-of-the-art plant, with all the newest technology.”
The plant will produce raw, cooked and value-added shrimp, he said. “We are producing and scaling now, and will be well-positioned when supplies increase again in the spring.”
Thai Union sent over technical experts in shrimp processing from Thailand to India. “So, the learning curve in some technical areas has been much faster.”
It’s the result of pooling “all the best resources” from the two companies, he said.
As Avanti is integrated from the feed, we have a “lot of transparency and traceability in our supply chain because of the partnership”, which is becoming more important for US buyers, Rosenberg said. The operation is four-star Best Aquaculture Practices-certified.
“We are very excited to bring the products from the new operation to our customer-partners,” said Rosenberg.
Thai Union reported sales of 27000 crores for the year ending December,2017 and a profit of around 1400 crores. Obviously, it operates at a much larger scale.
That’s precisely what piqued my interest.
Despite being such a large player margins are not very impressive.
Few members are comparing the Thai union overall profits/margins with Avanti feeds. I think its really not wise to form any conclusion on these numbers. Some subsidiaries of many large conglomerates may perform better or worse based on local conditions, management etc… Here are some of best examples across different industries.
- Maruti Suzuki is part of Suzuki but its performing much better than Japanese division or global suzuki division. I attribute this Maruti success to very good local management and growing Indian market.
- General Motors (Chevrolet) recently closed their Indian division due to lackluster performance while their US and Chinese sales are growing.
- Softbank invested in Snapdeal, Flipkart, Paytm, Alibaba (China). Snapdeal is big loss for Softbank while others are huge gains.
- Many Telecom gaints entered India (Vodafone, Telenor, etc…) but they are struggling and some are sold off.
Aquaculture is facing some headwinds in the countries like Thailand, China for the last few years. Its one of the major reasons why Indian market is growing at good pace for the last 4-5 years. Earlier price of produce (shrimp) used to be less and variations used to be very high throughout year.
As long as the local management is efficient and has the edge over other competitors, we should not bother about these things.
Marine products exports from India continue to show good growth in Feb 2018 compared to Feb 2017 (both in INR & USD terms).
Completely agree with your views. It’s entirely possible that Avanti Feeds will sustain these elevated valuations by registering scorching growth. However, in a dynamic global economy, it’s impossible to forecast with a reasonable accuracy. We could debate the entire day and still not generate concensus. Only time will tell if it can grow at this pace or not.
Let’s hope for the best.
Is this is the sign of start of bear phase in Shrimp market. Usually, when the optimism is peak high and lot of IPOs are filed, that’s the time to worry about the next move of the market.
Sub: AVANTI FEEDS LIMITED - Commencement of commercial production of the additional capacity of 1,75,000 MT of Shrimp feed at Shrimp feed plant Bandapuram, West Godavari District, Andhra Pradesh - Reg.
Ref: Our letter No.AFL/BSE & NSE/2017-18, dated 11th August 2017.
In continuation of our letter cited, we are pleased to inform that commercial production of the additional capacity of 1,75,000 MT of shrimp feed plant at Bandapuram, West Godavari District, Andhra Pradesh was commenced on Monday, the 19th March, 2018.
This is for your information and record.
for Avanti Feeds Limited
C. RAMACHANDRA RAO
JOINT MANAGING DIRECTOR,
COMPANY SECRETARY & CFO
More investments from US shrimp importers are expected in Indian processors and farmers, sources told Undercurrent News, after Aqua Star announced a deal for an unspecified stake in Sagar Grandhi Exports.
“At least” one other US importer is looking at a similar investment in India, where the target is to produce 1 million metric tons of shrimp by 2020, said one source with a packer in the Asian country, who declined to be quoted by name.
It makes sense for US importers to invest in shrimp producing countries such as India, both due to market requirements and also the application of the seafood import monitoring program (SIMP) for shrimp in nine months, sources said.
Shrimp industry divided over India’s 1m-metric-ton target
Investing in countries like India “makes sense now, especially with SIMP”, which will mean importers must comply with the National Marine Fisheries Service’s (NMFS) new record keeping rules, said Kevin Tang, CEO of Sunnyvale Seafood, the US operation of China’s Zhanjiang Guolian Aquatic Products.
This is because it will give the importer more control and influence, in order to meet the NMFS traceability requirements in nine months, he told Undercurrent. By signing a massive $1.3 trillion fiscal 2018 spending bill into law on Friday, US president Donald Trump averted a federal government shutdown and started the clock ticking for NMFS to begin requiring shrimp and abalone importers to comply with its new record-keeping rules.
During the recent Boston seafood show, Tang told Undercurrent Sunnyvale/Guolian is looking at investments in India, as well as other Asian countries. Also, Bryan Rosenberg, the CEO of Thai Union Group-owned importer Tri-Union Frozen Products – which trades as Chicken of the Sea Frozen Foods – recently said its new joint venture plant in India offers something “different” for the US market.
“We are seeing more and more large US buyers moving towards direct supplier/factory purchases through long-term contracts. The pricing through importers, if any are involved, is also being based on a cost-plus model,” the source with an Indian packer Undercurrent.
“I don’t see any advantage and don’t think it [Aqua Star’s investment in India] has anything to do with SIMP,” he said, however.
Seafood’s Top Dealmakers: Cross-border, cross-sector consolidation gathers pace
AUTHOR Undercurrent News
PUBLISHED Jul 14, 2017
"Their [Aqua Star] purchases from this plant would probably be small compared to their overall purchases from India and/or other countries," the Indian source said.
“I think the bigger driver is the trend of retailers and other end users to bypass importers and buy direct,” said a second Asia-based shrimp sector source, who asked not to be quoted by name.
“For Aqua Star, I guess they are looking to the future and concerned about the direction the business is going, especially in terms of direct purchases from end users,” the second source told Undercurrent.
“I wouldn’t be surprised to see other importers look at doing the same. Although it might not be so easy,” he said.
When asked for clarification, he compared the experience of finding a partner to invest in to “tiptoeing though a minefield, barefoot” for a US importer.
According to the source with an Indian packer, Sagar Grandhi has been “packing exclusively for Aqua Star for many years”.
The investment will help Aqua Star “when they offer programs for large customers”, he told Undercurrent.
Aqua Star declined to comment for this story beyond a statement issued Monday.
Large customers, most notably Walmart-owned Sam’s Club, are looking to source more seafood direct. This has cost Rubicon Resources, a US-based shrimp importer acquired for over $100 million by Canada’s High Liner Foods, a lot of business.
High Liner has warned Rubicon’s sales and profits will drop in 2018, as a big customer – known to be Sam’s – continues to source more direct. The deal could have cost former High Liner CEO Keith Decker his job, an analyst covering the company recently said.
The Aqua Star press release on the Sagar Grandhi investment makes a big play of the “vertical integration” the deal brings.
Red Chamber’s Aqua Star snaps up stake in Indian shrimp packer
“We are very pleased to enter into this ownership agreement now, as Aqua Star has been our exclusive North American and strategic global partners since we first established Sagar Grandhi in 1996. The global marketplace wishes to work as closely with primary producers as possible and this partnership allows us to accelerate that process in North America particularly, as well as other parts of the world,” said Chella Rao Grandhi and Balaji Grandhi, the owners of the shrimp firm.
“With the added benefits of vertical integration, and diversified processing capabilities that include value added products, shrimp rings, tempura, breaded and battered shrimp we are on a path together to continually add value to our customers and meet their go-forward requirements in every aspect,” Dirk Leuenberger, Aqua Star CEO said in the statement.
According to Leuenberger, Sagar Grandhi is “strategically located” in Chittedu, in the Nellore District of Andhra Pradesh, which is a major source for shrimp raw material that cultivates over 10,000 hectares and produces over 150,000 metric tons per year.
“The staggering number of farms under the Sagar umbrella helps us respond to customer demands consistently on a year round basis, with the highest levels of certification and commitment to quality at all times,” he said.
Sagar Grandhi has two plants with capacity of over 125t per day, he said.
During Boston, Tang, the CEO of California-based shrimp importer Sunnyvale, told Undercurrent the company plans to do deeper processing this year and invest in shrimp farms and processing plants in India, Thailand or Indonesia.
“We don’t want to be just a commodity company,” Tang said.
Undercurrent News: World’s 100 Largest Seafood Companies 2017
AUTHOR Undercurrent News
PUBLISHED Nov 8, 2017
The idea is to co-own farms and processing plants in shrimp producing-countries, so that Sunnyvale – which has the Walmart shrimp business – has full traceability. He said the firm has already made some investments, though he wouldn’t say where and how much.
The plans have crystalized amid the current “oversupply” of Indian shrimp on the market – which has driven down profit margins for importers – and growth of Indian shrimp companies exporting to the US. 80% of Sunnyvale’s business is in shrimp, said Tang.
“The Indians are coming. They can sell direct,” he said.
Several Indian shrimp packers have already gone public, with more planning initial public offerings (IPOs) in the future.
On March 19, Live Mint, an Indian news site, reported Devi Fisheries, the country’s largest shrimp exporter, has hired an investment bank for an IPO.
Devi Fisheries joins shrimp firm Nekkanti Sea Foods, Sandhya Marines and Devi Seafoods in filing for IPOs. Apex Frozen Foods did an IPO earlier in the year and Avanti Feeds, Thai Union’s joint venture partner, has been listed for several years.
This does not present an opening for US importers to invest however, said the first source quoted, with an Indian packer.
I don’t think this would work though the IPOs. You need to be an India citizen or an FI [foreign institutional investor] to invest through an IPO or buy shares on the stock exchange," he told Undercurrent.