He mean to says that smaller players will not able to survive and ultimately capacity of small players will be of no use. Also, they have not acquired existing plant as cost of upgradation is almost equal to cost of new plant which indirectly means that small players cost of production is very high & they are using obsolete technology.
I had a question about the cyclicality of such businesses. Now in any usual cyclical industry (say steel, cement etc), there are situations when the business cycle is good, companies expand capacities and then when the business cycle turns (as a result of higher interest rates, for example), there is an oversupply in the market owing to the increased capacities and a dip in the demand as well.
- For the shrimp (or any consumption based industry), will there be a cyclical slowdown in the demand for the product? Assuming of course that the the product in question is not a discretionary spend.
- And in such cases, when there is demand and oversupply, in what direction does the industry go? One thing might occur, in my view, with a very high likelihood, that the pricing pressures kick in, the industry returns go down which forces inefficient companies to shut shop.
- In such scenarios, how long would it take for the industry return ratios to improve?
Good article on Avanti feeds in Outlook business latest edition. Unable to post the entire article
Export figures from India during March 2018 released. Marine exports continue to grow (y-o-y basis). Compared to March 2017, marine exports in March 2018 have grown in value and volume by 11.7% & 10.2%respectively.
jugal @jugs_02 tweets quoting Sumeet Nagar #avantifeeds enters japan n plans to cultivate sea bass!
Good to see a proactive state govt taking positive steps for aquaculture
Avanti is having huge cash reserve around 500 to 600 cr. hopefully they will utilize the same to enter into new markets (Japan as per the above data) and entering into new products(sea bass and high protein fish)including value added products. As of now they don’t own any brand and they are planning to launch soon, there they will see very good margin. I read a article from which i came to know that the china also becoming a big consumer of shrimps. similarly one more global data shows that the meat consumption is keep growing as the population grows and per capita income increases, affordability has increased across the globe. only threat to this industry is disease. hopefully it will not hit indian shrimp market. because avanti learned from thailand experiences which they are carefully teaching or passing on to farmers. Both central and state governments are encouraging aqua cuture farming. i am very optimistic with all i read about the company.
Disc: Holding for long term
Have received few messages from members asking for my views on Avanti and underlying business/recent decline in stock price. Hence, I am writing a common message in this thread. These are my personal views based on various news articles and press reports I came across. I may be wrong in my assessment and this is not a stock recommendation. Pls do your own due diligence before making any buy/sell decision.
Shrimp prices are going down and raw material prices for shrimp feed are going up- I read some where that shrimp prices are coming down owing to extreme weather conditions in US. Now, as per various news reports, all the companies have reduced shrimp procurement prices from farmers and increased shrimp feed prices. This in my opinion would partly mitigate the drop in profit margins. Here is where, in my opinion, market leaders like Avanti will score over other smaller and unorganised players in feed business. In such extreme business operating conditions, farmers would generally look for lower operating costs and ways to arrest drop in yields on their investments. Avanti, in a way is able to fulfill this need with a higher FCR. During my interaction with farmers last year, i realised some of them are well prepared for these adverse business operating conditions. They have a medium to long term view of making good returns on their investments and they very well account for these off periods (great learning for me personally after that interaction, to have a firm view on investments over a 3-5 year period and not get perturbed with short term price movements). They were very clear that, shrimp business has provided them with good returns over many years and they are not going to stop shrimp farming owing to one off bad season!
In my opinion, Growth vectors for Avanti over next 3-5 years are as follows:
a) expansion of US market and in turn higher consumption of shrimp across globe. In the last AGM of Avanti, Mr Inder Kumar did mention that Indian market shrimp consumption is at nascent stage currently and may provide an opportunity in future.
b) rise in Chinese imports and entering new markets like Japan
c) rise in domestic market share in feed category and increase in contribution from processed shrimp.
d) recent outlook article spells out few details on how Avanti is trying to entrench its position in some of the key markets like US by vertical integration with companies like Chicken of Sea (Thai Union group company) etc
Above all, I am very confident about Mr Inder Kumar and his astute capital allocation skills. He remains very closely connected to the customer to understand their needs and in turn create a win-win situation for all the stakeholders.
Few risks (which may not be all inclusive) like adverse climatic conditions, continuous rise in raw material prices and low demand for shrimp /low price etc may bring down the margins from 15% (as per Q3 18). In the current scenario, I presume margins would be lower in Q4 18/ subsequent quarters (till raw material prices cool down a bit) and may be market is factoring in the same to bring down the stock price of late. I personally do not have any views/opinion on short term price movement in future. But, as per my estimates, Avanti would provide good returns to investors in next 3-5 years.
We should also bear in mind that, such adverse operating conditions were prevalent in 2012/13, 2008/09, but Avanti continued to deliver strong operating performance year on year.
Will try and do some scuttlebutt to assess the actual situation on the ground and provide feedback to the forum in the coming weeks.
In a typical down cycle, the problem comes more from oversupply. Because of the expanded capacities, the manufacturers try to undercut on selling prices to cover the operating costs of the new plants. This kicks a price war and margins compress. The inefficient guys can no longer make profits with those prices and hence either shut down capacities or go bankrupt.
When this happens, the pricing starts to stabilize and move up slowly. At the same time, if the demand is increasing at a slow and steady state then utilization levels return to sane levels over time. The length of cycle depends to some extent on this demand recovery and the extent of madness shown (capacities expanded) in good times. This is why its important to be the lowest cost manufacturer and a sane capital allocator in commodity businesses.
The whole cycle shapes up more because of oversupply than on the demand. Of course the demand also plays a role but most of the times its not as important.
However, the above theory applies to commodity businesses. So this can happen to steel/cotton/soya etc but the impact isnt same for a company like Avanti, which adds value to a commodity and then sells it. A quantitative proof of this is the margins and working capital profile. Avanti products have some traits of brand which is visible in negative WC cycle. The oversupply in industry has been there for a few quarters now and management seems confident (bordering over confidence) that they will manage to sell their additional capacities.
The 2 most obvious things all of us want to know-
How bad can the margins get because of the raw material increase? Q4 results of feed companies will give a good sense of this. The raw material sharp run is sometimes short lived so we need to know where it stabilizes. Earlier concalls had mentioned that raising prices is not very easy and they have to consider the impact on the farmers. It will be good to know whether they have tried to take a price increase on the feed. As per my knowledge they had not taken a price hike till Feb end.
Can Avanti use the expanded capacities in Q1? They had indicated that if the season is normal, they can utilize 90% of this expanded capacity.
So there are 4 scenarios but best and worst case are-
- Best case- Decent Margins and they can utilize the expanded capacity.
- Worst case- Poor margins+inability to use the capacities
Of course the outcome will be somewhere in between but let us try to put some numbers to the above cases
Avanti to hold board meeting for considering split and bonus on 9th May 2018.
Click here to read the announcement.
From struggling under 200 DMA to closing above 200/50/20 DMA and also the medium-term resistance in a matter of couple of hours thanks to the split and bonus announcement. Nice timing by the management. Not sure how much steam this will have though this might break the near-term downtrend.
[quote=“sandygenie, post:1412, topic:218”]
I am a new investor in the world of equities. So i need help in understanding somethings here.
I have never before received any bonus shares and hence some basic doubts i have on this.
My query is
What will be the criteria required to get the bonus shares? Like the retain investor should be holding the shares for so many days/months/years, only then they will get the bonus shares? or should hold certain quantity only then they will get it? etc etc.
no specific qty is required…you need to have shares in your demat a/c on the record date
Should i be doing any special action to get the bonus shares …like clicking something in the dmart account to get it or will it be automatically added to my current shares?
they will get added after the regulatory approvals…nothing to do
If bonus shares are free then why would anybody sell shares after the bonus is announced. Because according to my understanding its free and hence will be bringing down our average holding price correct? So why would one sell during this time as even a 1:1 ratio means doubling your money.
say if they decide to give 1:1 and say avanti price is at 3000 and u hold 100 shares…then after the date…u will get 200 shares and prices will be 1500…
Please enlighten me with good knowledge on this.
Please go through this thread for understanding splits and bonuses.
In case of bonus share, the face value of the share remains same, while in case of split, the face value also splits in the same ratio. In both the cases market prices come down in the same proportion.
Today, I had a brief conversation with two shrimp traders based out of Bhimavaram and Nellore areas in Andhra Pradesh. Details as below. Some of these data points may not be fully accurate and hence not representative of actual situation across industry.
a) Demand for shrimp exports is weak currently. This is because of unfavorable conditions in overseas markets, oversupply of shrimp from Indian farms.
b) shrimp prices exported to Vietnam are down currently (the person I spoke to was not sure about prices to US).
c) shrimp farming area has gone up heavily in Bhimavaram (primarily one of the reasons for oversupply currently).
d) Lower shrimp prices are expected to rebound in couple of weeks from now, once US offtake improves. As per him, current lower prices is a temporary phenomenon and should correct
e) exports are done to US, Middle East, Europe, Vietnam, China etc. Export volumes to Europe have slowed a bit due to anti biotic issues
f) in Bhimavaram region, there has been no case of disease and farming is going along smoothly.
g) he hasn’t heard from farmers about rise in feed prices. He mentioned that, people like him would not have much info about shrimp feed.
a) new export markets like Qatar, Tunisia etc are being explored for shrimp exports apart from regular countries
b) exports to Europe/UK have become bit stringent. Export licence to UK for ex is granted only after one shows a fully equipped facility (storage house, lab etc).
c) shrimp procurement price from farmers has reduced by INR 100-120 approx.
d) shrimp farming area has gone up significantly in this area. General sense around this area is, while shrimp export prices are low, shrimp feed companies are expected to do well due to larger area of shrimp farming and large volumes of shrimp that are being procured out of these farms.
e) current offseason is part of business cycle and like in the past, rebound is expected to happen. Overall, shrimp farmers on an average make good returns in this business over a period of 3-5 years. So, they are very well prepared for one off offseason and do not easily give up shrimp farming. Small new shrimp farmers would face tough times during such difficult market conditions.
Two is definitely not an appropriate sample size to provide us with corroborative evidence and draw accurate inference. So, request members to make informed calls through their own verification/research. And, pls do add if you have come across any new/different information. I personally feel, profit margins across the industry may remain low (in Q4/Q1) and then slowly claw back.
Planning to do some actual farm (in and around Amalapuram, AP) visits some time after May second week. If any of you have any contacts, through which we can schedule any visit to a farm/feed dealer, pls pass on. As you all would agree, more the better
Disc: not a buy/sell reco. Kindly do your own due diligence before making any decision.
Edelweiss initiates coverage on Avanti feeds. Research report in the link:
Royalty among shrimp feed produces (moving towards 50% market share)
Augmenting capacity to become largest shrimp processor in India (by FY20)
Tailwinds galore: Industry set to expand 20% in coming years
Outlook and valuations: Attractive prospects & limited downside (FY20 Target: INR 3306)
Not really affecting the shrimp business but interesting news. Wonder if its ethical to combine paddy with shrimp farming. Rice can’t be called vegetarian food if it’s grown like this.
US shrimp imports in month of March from India remain high (growth, mom-12%, yoy ~ 30% growth). Also, volumes from Thailand and Vietnam are down. Volumes may rise further from April onwards, as I guess the severe cold conditions in US have eased out a bit now.