After reading their IPO prospectus, the only thing that got stamped in my mind was the name (“Karuturi”) of the promoters!
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No relation with bse listed floriculture co Karturi. Only name is common
Apex promoters are first gen ethical workaholic promoters with execution track record n high Roce in a sector where opp size is huge. An ideal combo imho.study it discl invested since ipo
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the delivery percentage has been in mid thirties for last many days
the increase in share price looks to be influenced more by ST investors than value investors
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There are calls from StockAxis etc,. that this will become multi-bagger. Since then the stock has been hitting steady highs. The IPO proceeds will be used for capacity expansion and it would take around one year for the new capacity to operate.
Discl: Waiting for a good price to enter. Looks like I need to wait a lot longer.
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Even I wanted to take position in Apex frozen foods, but didn’t get the IPO lot (I’m quite unlucky with IPOs). After that, the stock is shooting up continuously and which made me to consider Avanti over Apex. The reason is Avanti’s P/E is at 39, where as the Apex’s P/E is at 59. Apart from this, the other basic checks like: PB, Debt to equity, etc., all these made me to conclude as “Avanti is quoting a little premium, but Apex is over priced.”
Disc: Bought Avanti at 2500 range recently.
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@naruto - what according to you is a good entry price & why?
In my opinion, the positives in the future seem to be already priced once the stock goes above PE = 30-35
So ideally unless it approaches PE-30, we are away from fair valuation considering that this is currently not the biggest player in its industry
your opinion please
P/E of 35 / 275 (@TTM EPS of 7.81) would be the figure I would be comfortable for this stock. Right now it is astronomical.
Compared to Avanti, market might be rating this stock at a higher p/e because of the lower revenue base.
Q2 results for Apex:
http://www.bseindia.com/xml-data/corpfiling/AttachLive/1ac1b0f9-3307-45a5-80e7-8459893054cf.pdf
Q2 EPS: 7.27
H1 EPS: 13.82
Every day I see Apex Frozen stock price rise by 5% (upper circuit as I understand). Is this price run rational?
Disc: invested a small amount at 400 levels, evaluating for more investment
To my knowledge, no. There has been no change in industry/business fundamentals, Q3 is generally a lean quarter in Aqua industry. May be, many are buying the stock expecting it to replicate Avanti (as the base of Apex is smaller and easy to show larger growth q-o-q). And, I guess if it continuously hits 5% UC, circuit filter would remain at 5% for a longer period of time and would not be revised to 10%/20% in the near term. So, the downward fall may also be very painful. But, in these times, market may remain irrational longer than we expect!. I will not buy at this price. I may be completely wrong with my thesis here and happy to hear others views.
disc: not invested in Apex. Not a recomendation to buy/sell. Pls do your own due diligence.
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The stock price run up is rational
One can do their own maths for 2020 profit - 30KT of capacity. 50-75% utilisation. realisation at Rs700kg+. Margins at 10-12%. The market cap suddenly looks okay.
This takes into assumption that there won’t be any execution errors on part of the management.
@varun.verma
Hi Varun,
What is the EPS you are forecasting?
Right now it is trading at 109.78 P/E
People who got allotment in June are sitting on 415% return so far… its hard to believe that market know something now that promoters didn’t at the time of IPO.
Holding small qty but will liquidate soon.
The stock has priced in the good (capacity expansion) while no longer leaving cushion for the bad (potential European ban…knock on effect on US market as exporters to Europe are forced to dump into US, potential quality issues in the US from a European ban etc). Annualising latest quarter EPS gives you an EPS of 28. Assume 30% growth for next 2 years, gets you to an EPS of 47. At CMP, it is trading at 19 times such a 2-3 year forward number. No cushion left for negative surprises such as the ones cited above. Delivery volumes have been falling (now in 30s last couple of days).
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@BreakingBad01 You’ve made a lot of valid points there with regards to all the positive points of the stock being factored in, but in terms of calculating the EPS, I don’t think you can extrapolate last quarter’s numbers for the entire year considering the seasonal nature of the business.
All that said, there’s either going to be a massive price correction or an extended time correction because there’s nothing left (taking into account the current price) to take this stock higher unless the management announces more capacity addition.
Disclosure: Not invested.
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It was just an indicative calculation to illustrate just how much has already got priced in. For a business that can be susceptible to diseases (such as EMS) which can render entire market in distress or suffer from import bans etc, one can’t give an aggressive multiple. A 15-20x forward multiple leaves some margin of safety if things go south. At current price however, it’s all more than priced in, what with 2-3 year forward multiple not 12m forward being higher than that.
Disclosure: Sold almost all of my position recently. Hold just a sliver for tracking purposes.
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APEX Frozen Foods Ltd
Highlights of Q4FY18 and FY18 annual results
Key Highlights
- New plant is under construction and expect it to be started by FY19. Machinery has also shift toward new plant locations . Total plant Capex of 90 Cr , 27.3 Cr has been incurred till march 2018 .
- Company crossed 1000 Cr mark in total income
- Profitability was constant because of termination of backward integration efforts like enhancing in house operations
- Added one new Hatchery last year and also increase farming by 600 acres in FY18 to total 1800 acre currently .
- Company is fully export oriented unit toward USA and also to diversified it company was success to achieve European sale union. Share of EU revenue in total revenue increase from 18 % to 24 % in FY18 in spite of strict norms.
- Adding new variety of product like Ready to eat category which will cater the demand in existing and new area
- Looking to reach revenue of 1400 Cr in next 2 years subject to price stability in current year
- Board has recommend a dividend of 20 % of face value compare to 10 % last year
Industry Highlights - Key important things to look out is
o Demand supply scenario- In last year there was good demand in Q1 and Q2 then demand taper because of extended of winter and also due to increase in production and on supply of shrimp from south Asian countries
o Shrimp price are corrected in range of 15-20 % yoy . This may have impact on realisation and in turn revenue . This price will lead consumption of shrimp and it will shoot volumes and company already experienced it from last 4 weeks .
o Company margins also don’t get much impacted compare to shrimp price correction
o Falling price of farm gate has impacted in short term but it will not let farmers to get out of the industry . Government has also help the farmer to supply electricity at rate of Rs 2 per unit and there will be a significant headroom for the cost realisation for the farmer with one such event will erosion the margin from them
Financial Highlights - FY17-18
o Net revenue grew by 43 % to 1018.5 Cr from 709.3 Cr last year led by higher volume and average realisation remain flat
o EBITDA grew by 136.5 % to 129.9 Cr from 54.9 Cr last year
o EBITDA margin stood at 12.8 % compare to 7.7 % last year
o PAT grew by 214.8% to 79.1 Cr from 25.1 Cr last year
o PAT margin remain at 7.8 % from 3.4 % last year led by operating leverage as company fully utilise the capacity and increase share of higher value products on backward integration products .
o Going forward company expect demand to be boom and capacity to be fully utilised and reduce cost through backward integration offering customers via value addition
Q&A - Where do company see shrimp price moving in next one year ?
o Only correction has happened and it base on supply and demand . So now the correction in shrimp prices has pretty much competed and stabilise now and looking demand increasing because at these level consumer want consume more shrimp because they are finding a better value in the product. - What is the realisation currently over the past one month ?
o Approximately Rs 680-685 it also depend on the quality of product mix - Is there fall in the procurement cost as well or not ?
o Yes it has also corrected accordingly . The industry in India is pretty much depended on export markets. So it react same as nationally - Will the margin will remain stable or come down ?
o No margin will remain stable , unless there is an adverse change in the cost - What structural things has effected industry to improve margins ?
o There are several factors run for company
Increase in In house farming area by almost 600 acres in the last FY
Added additional Presaging machine which help to make higher value added products .
Increase in pricing from overseas market and cost was lower - Will company will commissioned the new plant in Q2 ?
o Yes company is looking at trial production in Q3 and it will be more operational in 3rd and 4th quarter . In FY20 it will completely available for the full year. - What is company guidance on volume front in FY19 and FY20 ?
o 25 % growth in volume front
o After completion of new factory production will increase in ready to cook as well as ready to eat category also
o Another 20-25 % volume rise in FY20 - How long will the current situation will remain of over supply ?
o There is over production as more farmers are shifting toward aquaculture but in current situation of price correction it will improve the consumption now the product consumption is increased at current level .Any kind of production will be easily consumed in USA , Europe, China , Japan , South Korea , Russia etc . Government is also doing effort to make it export to Australia . Global market is opening up - Is it a complete bonanza for contract done by company few months back ?
o Yes it will benefit the company but at the same time company have to look at the sustainability of primary production. All will be working for a decent margin and good volumes - What will be the additional realisation from additional ready to eat category ?
o Looking for additional 2-3 $ realisation on those products - How is company looking to ramp the ready to eat products ?
o It will be majorly utilised in FY20 . Company is going to utilise the maximum capacity of 75-80 % . Also looking at adding additional line in the year
o Approximately margin expected is 20 % from this value added products - What will be the total retention out of total 2-3 dollar ?
o It will be 1 to 1.25 $ - What will be the guidance on tax rate ?
o There are some tax benefit include in FY19-20 for execution of new plant. - Why is the other income included in revenue ?
o Because it is completely of Foreign exchange difference between realisation - What was the volume in Q4FY18 ?
o 3000 MT ton - What was the actual export revenue in Q4FY18 ?
o 185 Cr - What was the amount company pay in royalty in FY 18 ?
o 18 Cr and it may go up as company enhance the production in FY29 - How much lease rentals are farmers paying on per acre ?
o Average was 30-50000 per acre per year but some farmer has been paying beyond the average because of higher realisation. The cost rationalise will completed in FY19 - What is the capex guidance for FY19 ?
o Major was the new plant of 90 Cr and additional 10-12 Cr for new hatchery construction. Total 100-105 Cr in FY19
o It include the 27 Cr spent already - What is the outlook on working capital cycle ?
o Working capital cycle has come down to 52 Days from 60 Days. Talking to customer for earlier realisation on payments - Where will be the more savings in next year ?
o Savings will be on the cost of funding side - What will be the prices for farmers for the shrimps ?
o On average 350 rs earlier now it is 290 to 300 rs approximately. Because there are multiple sizes , it depend on various sizes . in Q1 there were low size shrimps and in Q2 and Q3 there were medium and large Shrimps - Is Europe is a more value added market compare to US ?
o Yes and company is looking for volume increase even in current year . UK will pay a important role in company business - What was the lowest 40 count company get ever ?
o 40 count was Rs 180 in 2012 , 30 count was Rs 200 in 2012
o That time supply was low and this time supply is high and demand is also there - Are farmers doing break even or losses at current level of prices ?
o Farmers must be making break even or very low margin , it all depend on costing , if the yield rental is higher and input cost is higher and low productivity then naturally their cost of production will be high .
o Now because of price correction farmers are looking at cost rationale - How will be the scaling for ready to eat and ready to cook ?
o The labour for both will be same but lot of training will be required and it is additionally provided depended on the products and company is already being guided by the consumers who are buying such products who are willing to help company - What farm area has been decreased in April and may and how much impact is seen on farmer side ?
o The farm area has not been decreased, jut the strategy of farmers have change and in April and may they had produced small size shrimps and going forward they will produce medium size shrimp. So their strategy is to take low stock production in medium and large size so they can have lower cost of production.
o Volumes have effected some what because farmer have done more inflow of smaller size shrimps . Look it on yearly basis not on monthly or quarterly basis. It is now getting stabilised - Why china has reduce the import of shrimps ?
o China has not reduce import of shrimps but china has restrict the import of products from Vietnam from last 3 years. China government has reduce their import tariff which include aquaculture and shrimp product. Also duty has lower from 15.2 % to 6.9 % it will effective from July. China direct imports are also going to increase so volume will increase from that side also
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Why this stock has fallen from 900 levels to 300 level - Can we consider it as overcorrection?
- Quarterly results (EPS 5.60) can be considered as OK
- Net Margin (%) has been increased
- Debt to Equity is near to zero (0.03)
- Current P/E is 13.35 and looks safe
- In last 4 months MFs have increased stake (Though small but at least not reduced)
Do anyone provide any light on the negative events / news for the downfall of the stock.
Just to clarify there are only 2 funds which hold it
Reliance Small Cap Fund(G) 14,02,713 0.86% of total AUM so its very negligible for that funs
HSBC Small Cap Equity Fund(G) 3,00,316
Only -ve news i am aware is for too much of shrimp supply which is causing decline in prices