Seems like encouraging signs for the sector.
Avanti Feeds has disclosed the setup of Avanti Pet Care Pvt Ltd to the exchanges. Good to see the management finally walking the talk. They had brought this up few years ago and were at the time hesitant due to market conditions not being suitable.
Seems to be a PVT LTD tho!
Comparison of performance for six months ended 30/09/2023 with six months period ended 30/09/2022
- The total income decreased to INR 2,898 crores from INR 2,930
- The PBT increased to INR 270 crores from INR 197 crores (mainly due to decrease in the raw material costs and increase in other income)
- The total income increased to INR 2,415 crores from INR 2,352 crores in half-year ended FY23 due to increase in feed sales and other income.
- The PBT in HY FY22 increased to INR 212 crores from INR 130 crores in the corresponding period of the previous year, mainly due to decrease in raw material costs and increase in other income
SHRIMP PROCESSING DIVISION
The gross income for six months during FY24 was INR 491 crores as compared to INR 583 crores in corresponding six months’ period of the previous year. A decrease of INR 92 crores in the gross income during first six months of the FY24 is mainly decrease in quantity of sales by 1,144 metric tons
The PBT in six months FY24 is INR 63.60 crores as compared to INR 63.10 crores in the six months ended in FY23. The marginal increase in PBT is due to decrease in cost of raw materials consumed at ocean freight rates.
- No additional provision made to compensate for recall of the products (all the earlier provisioning is used up, 0.99 cr left )
Note : As regards the product liability claims for bodily injury caused by consuming company’s contaminated product under the recall, the company has submitted a revised claim for the claims received and settled by the company to the insurance company. The surveyor has confirmed that the claim will be processed by insurance company on or before 30th November 2023. Since the liability has been covered under the commercial general liability insurance policy, no provision has been made in the financial statements of the company.
Projections for the rest of the year
On the basis of estimated shrimp production in 2023, the estimated feed consumption is about 10.5-11 lakh metric tons. The company’s feed sales during the previous year FY22 was about 5.41 lakh metric tons as compared to 4.73 lakh metric tons in FY21, an increase by 68,000 metric tons. However, the company’s estimated shrimp feed sales were 4.97 lakhs metric tons in FY23, down by 44,000 metric tons when compared with FY22. The company’s estimated production in sale of shrimp feed in the calendar year 2023 is about 4.9 lakh metric tons at the same level as in the previous year, when
the total Indian feed consumption is down by 15%. The company has been able to maintain its production and sales, though there was overall decrease in the country.
SHRIMP PROCESSING & EXPORT:
The countries vannamei shrimp exports in terms of value declined in FY23
compared to FY22 by 8.11% from $5,234.36 million to $4,809.99 million. The country’s overall exports of frozen shrimp in quantitative tons for FY23 was 7,11,099 metric tons as compared to 7,28,123 metric tons in FY22, a decline of 17,024 metric tons representing 2.34%. The company’s shrimp exports during the FY23 was about 12,497 metric tons as compared to 12,836 metric tons in the FY22, a decrease by 339 metric tons. It is estimated that the export during the FY24 would be around 12,000 metric tons.
- New Processing Plant and Cold Storage unit at Krishnapuram, East Godavari District with a capacity of 7,000 MT p.a. (Expecting commercial operations by Mar’2024 )
- PET FOOD : Entering into JV with Bluefalo Pet Care Company Limited Thailand (51% by Avanti and 49% Bluefalo) - Market research is in progress about the demand for Pet products in Indian market (Aiming to launch to market by 1st Jan 2025)
- FISH FEED : Huge shortage in the domestic market , most of it is being exported to address this issue working on initiatiative to make it locally for captive consumption and sell in export markets, market research is in progress, an agreement is signed for tech. transfer with Thai Union Feedmill
Raw Material prices are stable , may go down in coming months due to new crop is coming into the markets
A lot of competition from shrimp in Ecuador…I dont think this will go up for some time
US shrimp market seems to be reviving in last 3 months, although realizations continue to be on the lower side. It looks like shrimp sector has bottomed out. Concall notes below.
- Present RM price: 138/kg fish meal (vs 127/kg last quarter), 54/kg soyabean (vs 54/kg last quarter), 29/kg wheat flour (33/kg last quarter)
- Shrimp processing capex (will get 10 cr. state government support in this capex)
- US shrimp import market has seen improvement in past 3 months after 13 consecutive months of YOY decrease. However, realizations are lower by 10-15%
- Petcare: technical know-how will come from Bluefalo Pet Care Thailand, Avanti will hold 51% in this JV. Expect commercialization in by Jan 2025
- US Countervailing Duty: Being proposed on shrimp exporers from India, Ecuador, Indonesia, Vietnam. In Indonesia and Ecuador, there might even be Antidumping Duty
- Ecuador has a lower cost of production of processed shrimp as processors there are large vertically integrated companies. Additionally, they have become the biggest producer of shrimp in past 2 years (from production of 600 mn to 1.5bn now). Ecuador focuses on commodity products like headless shell on or head on, shell on shrimp
Disclosure: Invested (position size here, no transactions in last-30 days)
Encouraging. Some data to chew -
The table illustrates the volume of U.S. shrimp imports from various countries over the years.
- U.S. shrimp imports have shown consistent growth over the years till CY21; degrowth in CY22 and YTD!
- India has seen a substantial increase in its market share of U.S. shrimp imports till CY19; peaked at 43%. De-growth to 36% by CY22. YTD has rebound to 38%
- Ecuador has seen stunning growth in CY20 and CY21; growth rate has tapered since then
- India has seen YoY growth in Jul-Aug-Sep '23 of U.S. shrimp imports after nearly 14 consecutive months of YoY degrowth
Among Avanti and Apex Frozen which should benefit most with revival in sector?
Some General pointers for basic understanding of the cyclicality in the shrimp business and mapping the points discussed in the Q2FY24 with the company:
- Normally, the shrimp culture season starts in end of January or February
- Shrimp Feed Consumption :
- Raw Material pricing : Major component of expenses
Cost Structure Comparison :
- Sales have not seen any improvement in the last couple of years due to fall in shrimp prices and Ecuador chipping in market share.
- But we have to see what has led to the fall in expenses which seems like to be the reason for a growth in profit?
- Snippet from con-call
- Seeing the Operating Profit Margin trend, single digit has been seen only in 2013 which was a decade back, from there on the margins had improved.
- Also there has been other income increase
Why have the trade payables increased so much, it is a liability after all so need to be looked at because due to this the profits would have an upward bias
They are holding extra cash than what they used to
- Not much investment opportunities ?
- Not sure about the near future ?
Answer : Received from con-call
- Seeing the last 5 years PE ratio, 15 times has provided a value comfort and as the margins improve we can see it go 22-24 times i.e. 50%+
- The increase in debtors is a seasonal play and would be in single digits only as mentioned by the management
- Optimistic outlook for an increase in sales in the second half of FY24
- ************************First Area : New plant coming up which would start contributing to sales
- More on Second Area - Pet Care :
************************************Additional Benefits :************************************
- Possibility of an imposition Tariffs/Quotas by US to regulate import prices
- Possibility of a further increase in raw material prices like Soya & Fish Meal
With an intermediate support of 375( No reco, do your own due diligence)
I have summarised the point in this thread too - https://twitter.com/Lakshayy_99/status/1728689844136943949.
Do let me know your thoughts, and correct me if there’s any thing incorrect. Hope you gained some insight from this
This is a normal H1 phenomena, please look at payables at end of each H1 during past few years, this year its not abnormal.
Export of shrimp meals by indian manufacturers to china is biggest problem faced by indian shrimp industries. Indian manufacturers prefer to export china market as ther are getting very good rate by exporting to china. Government is also not regulating the export by indian manufacturers because it is getting valuable foreign exchange. I think Avanti needs to fully backward integrated in terms of shrimp feed rather than going for new expansion in pet care.
Disc: Not holding, just reading out of curiosity. Correct me if l am wrong in understanding of prevailing market conditions.
I hope you know that fishmeals are harvested out of the sea, do you want Avanti to start fishing now? While making shrimp feed, Avanti also consumes soyabean and wheat flour. If prices of soya and wheat increase, should they start farming soya and wheat as well? There is a limit to backward integration!
Hi Harsh, I have read about your views about Avanti, Sharath, but not about Apex Frozen. Do you find any major issues with Apex?
Latest update on ADD and CVD from US
US ITC (International Trade Commission) has voted to continue investigations for AD and CVD. [source]
So far proceedings seems to be going as per expected timelines. Next steps regarding investigations to be conducted by US DOC (Department of Commerce) are the time consuming parts, especially for ADD related investigations.
Expected timeline is as below [source] -
PS: Alleged dumping margins on Ecuador is 9.55% to 25.82% and Indonesia is 26.13% to 33.95%. CVD on Ecuador, India, Indonesia and Vietnam seems to be a non-event with <2% impact.
What are the chances that anti dumping duty is imposed on India along with Eucador and Indonesia? Near term uncertainity is hanging on business model of Avanti feeds in my opinion. what are the signs to look out for revival in shrimp industries till anti dumping duty is imposed on Eucador and Indonesia?
Thanks for the super useful information and case source…!!
We should keep a close tab of the developments here.
Overall I feel the industry has consolidated for last couple of years and if the recent trends are to sustain then there could be some recovery and then going forward if the judgement on duties is favourable then it all could finally play out…and Avanti has been a good performer even during the difficult phase of Industry.
Also, one thing that I want to bring to your notice…
My interpretation is that the subsidies that these countries are offering is more than 2% which is higher than the limit allowed by US for imports coming from developing nations…and the final CVD & ADD will be decided and levied based on the case proceedings.
- The current support provided by the Govt of India to Shrimp exporters to US (major market for Avanti) is above the acceptable limit of subsidy allowed by the US Govt and hence there would definitely be a negative impact post the final judgement due in Jan 2024; significant since 2024 happens to be election year in the US
- Elections in India also in 2024 would benefit the small farmers at the expense of corporates like Avanti. Prices of raw material can be expected to remain high with high MSP announcements ahead of the elections…
- On top the capacity expansion done by Avanti in the last year would ensure that the operating margins cant improve for few more quarters to come…
Give these three points i suspect the share price may consolidate for another quarter or so. lets see…
This is what I was able to come up with after doing some reading here and elsewhere (AR, earnings call, research articles, etc). A huge thanks to those who really dug and put up the information here in the previous posts. I have not read extensively but had a glance at Avanti Feeds and Sharat Industries and so the analysis is in the context of the shrimp sector mainly. Those of you who have been following the stock for a while, kindly correct/comment. A nice video on differences in productivity between the shrimp producing countries: https://www.youtube.com/watch?v=UnUci4BF97k&t=1213s)
What’s against the industry:
- Competitively priced shrimp from Ecuador
- The perception of Ecuadorian shrimp being better than Indian shrimp
- If the US (AD and CVD) investigations concludes that government subsidies by both Ecuador and India are either “equal” or Ecuadorian subsidy is “less than Indian” subsidy or even after introducing the additional import tariff and dumping duty, Ecuadorian shrimp is still more competitively priced relative to the Indian shrimp.
- Apart from Ecuadorian shrimp productivity (and output) already being superior to the Indian shrimp productivity (and output), if Ecuador ventures into Value added products and is able to scale, the Indian shrimp will further lose its competitiveness
- Volatility in price of the 3 raw materials in addition to government intervention (in the form of minimum support price for Wheat and Soyabeans and a non-conducive policy for fish meal production/import)
- Raw material prices remain relatively high throughout and do not come down as anticipated (Feed business is left with mediocre margins)
- Inability to raise prices as farmers are price sensitive (shifting to fish, etc) and government intervention to protect farmers
- A disease or virus affecting shrimp production in India (and asia/globally)
- India is unable to adopt the technological advances for increased productivity (automatic feeders, mechanical harvesting, availability of electricity, lack of vertical integration and large-scale farming), hence loosing against Ecuador.
- Although management has skin in the game, but slightly exorbitant salaries may indicate something – Are good times behind us? / Is Growth coming to an end?
- Management becomes dumber: Either under pressure to meet market expectations or in order to justify the increased pay, they might expand into new areas (destroying capital or taking on debt). This might be unlikely but you never know with certainty with new blood coming in.
- Their ability (and probability) to return to their original (or normalized) margins depends entirely on the upturn of the cyclical-nature (revival) of the shrimp industry in India. (THE UNKNOWABLE)
- How bad could it get? (THE DEADLY UNKNOWABLE) i.e. The probability of the Indian shrimp sector being wiped out as a result of the fast and aggressive ascent of Ecuadorian shrimp sector, which has advantages of higher productivity, large vertically integrated players and proximity to US and Europe.
What’s in the favour of the industry:
- The company has no debt and plenty of cash (most likely can withstand a prolonged downturn)
- Capitalism at Play: If you consider the US to be the cradle of capitalism, and if the AD &CVD investigation levels the playing field for India and Ecuador, then there is a very good chance that things might get back on track with an upturn in the cycle. (The investigation against Ecuador and Indonesia is for selling in the US at less than fair value and govt. subsidies whereas the investigation against India and Vietnam is for govt. subsidies). If allegations prove to be true and the outcome/result of the investigation plays out positively, with the former two countries put at a greater disadvantage than the later, then this might result in the Indian shrimp becoming competitive and growth might continue with the upward turn in the cycle.
- (For Avanti) Management has a proven track record of not making dumb decisions, being conservative and has skin in the game (I am fine with them hoarding cash). They might be slow, but are cautious – slow for not recognizing Ecuador as a threat and cautious for keeping cash for opportunities and not giving it out either as dividend or buybacks along with a strong reluctance to using bank debt (aversion to paying interest – I personally like that).
- (For Avanti) The new areas of pet food and care are accretive to volume, growth and revenues – difficult to put a probability on how this might play out in the Indian market.
- Adoption of shrimp as a part of staple food in India - a distant possibility, unlikely to happen in the short term
- (For Avanti) – Growth from shrimp feed being consumed by Bangladesh and Sri Lanka – again very unlikely. (Pros – low cost of labor; Cons- lower productivity)
- High returns on tangible capital (if the cycle turns normal)
- (For Avanti) All the negative and uncertain aspects discussed above are priced in the stock (This is true from a valuation perspective only if you are investing on the basis of reversion to mean and an upturn in the cyclicality of the business/industry). However, it certainly is not cheap considering the above negatives – On a TTM basis AVANTI commands a PE of 16, an EV/EBIT of about 10 and an acquirer’s multiple of 14; and the fact that I cannot predict the normalised earnings with a reasonable degree of confidence. One might say it’s fairly valued with no debt and management with a decent chunk of skin in the game. (Multiples were calculated on a standalone basis for the core business and hence excludes other income form investments).
- If the business cycle is up by the time the new processing facility comes online in March 2024, this could help them scale revenues, earnings and growth (both for Sharat and Avanti)
- There was a recent month on month increase in US imports of shrimps from India – could indicate an uptick in the cycle (however, difficult to say/judge with Ecuador being a worthy opponent)
- A new initiative of fish feed – this might need a while before it can be considered to be on the cards.
- Freight costs have come down – but doesn’t help much overall
- The raw material costs could decrease gradually once the new crop comes in, with prices of soyabean and wheat normalizing. However, this is speculation.
- I could be wrong/inaccurate here: “The import of brood stock fell by as much as 40% from December to march 2023.” Might indicate lower overall output → decreased supply resulting in higher prices → more farmers in action next season → more consumption of feed → bumper supply before the cycle turns down again. The key would be to get out before the cycle changes direction, but the pot might be sweetened if the US investigation permanently shifts the scale on our side (this is too much to ask btw).
Very good insights from Chins