Avanti Feeds

Thanks @yogansh for the well pointed summary. Adding below my notes as well as interpretation and analysis from annual report. Some of the points might be repetitive but want to keep it to look back at notes:

Notes from 2018-19 AR:

Key points:

  • Largest manufacturer in shrimp feed in India

  • 5 feed manufacturing units and 2 shrimp processing and export units

  • 4 windmills with 3.2 MW capacity

  • Shrimp feed: 6 L TPA capacity and 4.2L used at 66% capacity utilization

  • Shrimp processing and export: 22000 TP and 11065 TPA used at 50% capacity utilization

  • 78% revenue from feed and 22% from shrimp processing

  • Overall market volume declined by 20% but Avanti’s volume declined by 2% without taking price cuts and Avanti gained market share

  • Added 1400 new farmers to customer base

  • Management compensation though at border of ceiling limit, the good thing is that lot of this is linked to performance and management adjusts its salary based on variable performance which looks in right direction for a cyclic business. However, this also highlights that management compensation would always remain around ceiling limit.

Key Positives and points liked:

  • For feed, company expanded beyond India in nearby countries like Bangladesh

  • For shrimp processing, geographical risk deleveraging by expanding to non-US countries like China, Japan, Korea etc. Exports to US declined from 85% to 74% through effective geographical diversification

  • Despite of turbulent times when there was pressure from demand cool off and increase in raw material price, company could not only maintain its normalized margins but also increased its market share to 48%.

  • The achievement of market share gain and maintenance of normalized margins was not done at the cost of stakeholder and the farmers were paid as usual. This helps in building customer ecosystem strength (to promote shrimp culture by farmers) and competitive advantage over other players and may be these are reasons why Avanti has progressed ahead of others. Still, it makes decent cash profit

  • Good growth in shrimp processing as well as better margins than feed even at relatively lower scale of operation

  • Higher growth into value added products in shrimp processing (347% growth rate)

  • Foray into shrimp hatchery

  • The regulatory requirement of US NOAA was launched in 2019 but Avanti has been proactively doing it from October 2018

  • Good to see 11% margin on shrimp processing businesses which is still growing at healthy rate which looks margin accreditive

Risks/Concerns/Negative Points:

  • Extended winter on customer end can lead to subdued demand through slow stock movement. Last year this led to demand issue. So, there is a cyclic behavior in demand due to:

    • Customer side weather condition
    • International supply in a highly competitive environment
  • Raw material price fluctuations (soya prices) and inability to pass through margins and hence business need to be viewed from cyclicity perspective in terms of valuation for normalized and sustainable metric values. Last year raw material prices increased steeply

  • Extended summer on shrimp cultivation side can lead to higher than expected diseases which can lead to decline in shrimp culture. Another risk to be watched out which also played this year

Outlook

  • Current year looks relatively better than last year on various risks and concerns highlighted

  • Company to keep investing operationally in areas identified in terms of geographical diversification, value added services and additional business lines

Disc: Hold a position and accumulated in last 30 days. Please do your own due diligence for any buy/sell decision

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