Avanti is a type of stock where one has to have a strong stomach to withstand all sort of negative news like disease,cyclones,anti dumping duties etc etc and still have a 3-5 year POV looking at bigger picture.
The opp size is huge
Shrimps are tastier and healthier to other non veg food item all over world
Business model is scalable
India has got a natural edge due to its long coast line,weather and low labour costs,and proactive MPEDA
Avanti promoters are one of the most ethical,hardworking,passionate with execution track record over last 20 years.
TUF 25% stake gives them technological edge giving them the best feed conversion ratio and marketing reach
Highly improving financial performance
There have been numerous examples where people who got in v cheaply at 20 rs and higher but sold out too early due to this reason or other.
I agree with most of your points(although only partially)
Avanti is the number 2 player in Indian markets and will be close to number one which is CP foods. So it should be able to handle the slowdown in a much better way.
Regarding white spot disease, yes we need to keep close watch on that development but as far as I know after initial reports in March/April there hasnt been any new occurrence. May be a case of bad brood
Regarding revival of Thailand, you must have read Vivek’s article that even in best case scenario Thailand will have production of about 2.7lakh ton while their processing capacity is of order of 6 lakh ton so they will need to get the raw materials from countries like India
Lastly I dont agree with feed being a pure commodity play(although it appears to be pretty close to one). Yes it is hugely dependent on supply/demand situation but you can definitely see that there is lot of stickiness in business as the farmers who have continuously used a particular company’s feed rarely changes to a new company (similar to seed industry) as you not only need to learn a new process as each feed manufacture has has own timings of breeding and cultivation but also risk getting lower yield or higher FCR.
Avanti Feeds announced that the Board of Directors of the Company at its meeting held on 04 July 2015 approved the following -
Purchase of totoal equity shares of Avanti Frozen Foods. Consequently, Avanti Frozen Foods will be a wholly owned subsidiary of the Company.
Accorded in-principle approval to transfer existing shrimp processing facilities of the Company at Ravulapalem, Andhra Pradesh to Avanti Frozen Foods to facilitate bringing shrimp processing facilities under one roof.
Approved implementation of a new shrimp processing facility in East Godavari District, Andhra Pradesh by Avanti Frozen Foods, a subsidiary of the Company.
Approves to expand shrimp feed production capacity by setting up a new shrimp feed plant in West Godavari District, Andhra Pradesh.
Downward Pricing pressure continues on Indian farmers
The prices for Indian vannamei shrimp raw material have taken a tumble, dropping below the break-even level (The average production cost is INR 250-300/kg) for farmers, sources told Undercurrent News.
Amid a lack of a “big buy” from the US and some emergency harvesting from farmers, prices have come down for all sizes in Andhra Pradesh, the main farming area; even for the small sizes that have been holding firm.
According to sources, the reason for the dive on the small size shrimp – 70, 80, 90, 100 and 120 counts – is emergency harvesting, as crops were hit by the white spot virus and dissolved oxygen.
ll farmers got in a massive panic once the prices crashed, mainly due to price difference,” said Balasubramanian, adding landings have been for 60, 50 and 40 count shrimp.
“The harvest season for summer will come to an end by next week. Even the exporters are struggling to give ice to farmers. Now the June stocking has completely stopped in our area,” he said.
There is likely to be a different picture in the second half. Shrimp prices have gone back to levels of late 2012. Now we are in 2015 and feed prices and everything else has gone higher,” said Balasubramanian.
“The balancing act between supply and demand continues as each side tries to influence the direction of the market. It is clear that farmers and packers across Asia are in the state of shock over the lack of demand from US buyers that, in the past, stepped into the market in early June with their ‘big buys’,” .
These large purchases have yet to materialize and many are questioning if they ever will, reads the update.
“This has caused a constant downward pressure on raw material pricing as the market has clearly shifted from a sellers’ market to a buyers’ market. In come cases, falling raw material prices have dropped below the cost of production, prompting farms to cease production
Silver lining
The current level is around the same point as before early mortality syndrome (EMS) hit, in late 2012,
“It also has to be getting to the point where buyers in Europe and the US have to be starting to make moves. It is not happening yet, however,” he told Undercurrent. “What I can see happening is buyers will come back in and prices will recover. Then, in the UK, as coldwater shrimp prices are so high, maybe you will see more retail promotions on vannamei for Christmas
There is also hope in India, he said, that the export price for the larger sizes, such as 21/25 and 26/30, will rise next week. The view, source A told Undercurrent, is that demand from Vietnam for reprocessing will rebound.
What is exceptional about avanti’s management is countering many adversities like disease outbreaks, cyclones and related weather issues, falling shrimp prices, etc. and still able to grow with good margins. Avanti’s share prices were hovering around 1500 to 1600 for nearly 8 months despite good earnings; may be due to exit of an HNI. Now, after that management’s interview with points like growing demand for products and optimistic scale of growth, share prices have been on up move. Long term story looks intact and those invested with at lower levels with conviction to hold despite all the news and noise of disease, cyclone ,tumbling shrimp prices, decreased export demand etc., have immensely benefitted. Although some amount of risk, especially of the disease remains, it looks to me like a great story unfolding.
Disc. Invested
Indian shrimp farmers and processors are hoping rising prices, albeit from a low level, will stimulate buying from the US and other markets.
Prices in India – where farmers have dramatically increased production of vannamei, supplying 108,664 metric tons to the US alone in 2014 – have been on the slide. They have now stabilized and are rising again.
According to reports from Indian shrimp sector sources, farmers are delaying the harvest and prices are up INR 30-50 per kilogram across all sizes on July 13, compared to the week before.
The low level the price dropped to has been bringing some buyers back in, sources said, both in the US and also in Vietnam and China, where the second seasons are yet to start.
Volumes, particularly in Andhra Pradesh, are down, as farmers “play the game” and delay the harvest, one executive involved in the Indian shrimp business, not wishing to be quoted by name, told Undercurrent News.
Prices in Andhra Pradesh, the main production region, are actually higher than in other areas, such as Orissa and Kolkata, due to the slow landings, the executive, source A, said.
Buyers, especially those in Vietnam, are trying to use the lower price in Orissa and Kolkata as a benchmark to negotiate with packers in Andhra Pradesh, he said.
Some packers in Andhra Pradesh have dropped their prices as a result, but face losses on these deals, said source A.
In, Tamil Nadu, the state south of Andhra Pradesh, the harvest is also slowing down, said Durai Balasubramanian, secretary of the Pattukottai Shrimp Farmers Association, which has 4,000 members.
“Most of the farmers finished harvesting and most of them experienced losses due to low prices,” he told Undercurrent.
The first executive, source A, said the average production cost for farmers is around INR 250/kg ($3.94/kg), with prices now ranging from INR 420/kg ($6.16/kg) for 30/kg count, INR 250/kg for 60 count and INR 200/kg for 100/kg count.
Prices are up more on the smaller sizes, with 100 up INR 50/kg in a week, while 60 count is up INR 40/kg and 30 count INR 30/kg.
One US-based executive, importing from India, source B, said he feels prices have hit the bottom. “Demand in the US is quiet, but they are buying. Several big US retail buyers are also still to make a move for the holidays, this should come from now until August,” source B told Undercurrent.
US buying is starting and also Indian packers have pending orders for Vietnam, where the main season is yet to start.
As for production, “we are at the peak now; it will dip off”, he said.
As India comes to the end of its peak production season, China and Vietnam are about to start their second crops.
Avanti has symmetry between pay and performance. High salary is linked to high performance. The formula has been almost consistent since FY11 (for Indra Kumar) i.e. 4% of profit is paid as commission.
