Rise in inventory could also be like Kaveri Seeds…i.e… they might be expecting a good year ahead and have build up inventory.
Ayush
Read AR today.
For Avanti, working capital has gone for the toss in FY13. While profits are flat, net working capital has gone up whopping 62cr in Fy13 led by 55cr rise in inventory and 27cr rise in debtors.
I could not figure out if its short term abberation or business has become more working capital intensive due to change in business/product profile.
Hi Ayush sir,
Read the Avanti Feeds thread here,then checked out the AR and liked whatever little I could understand.One thing I strongly feel is that, a good management can bring in good times for a not-so-good sector/business(while a bad management can mess up the company in a good industry.) The promoters here seem very ethical…even more so since this is a small company.Coming to the stock: Even with the negatives,a P/E of 5 odd seems too low.No doubt the sector is plagued by policy concerns but a co. like Avanti shouldn’t be trading so cheap.The reasons for investment have already been stated here(TUF stake,turnaround,dividend yield,Mcap/sales,etc) So,the risk reward seems very much in favour.
Disc.:Initiated positions at 161 a few days ago.
2 Likes
hi sagar,
other than dividend yield, what are the indications that show promoters are ethical.
PE is less as the small caps in general are down and I believe that the co. doesnt have much pricing power as it is supplying to other businesses.
hi manish,
The fact that a company like TUF has a 25% stake is a good indication of management quality.Secondly,reading their AR I found that they were very open about their weaknesses & fully aware of it.A co that is so concerned with the shareholder’s interest,available at cheap valuations:given the potential size of the market,in a sector seeing turnaround looks good for investment.Moreover,given the high fiscal deficit,the Government will have to focus on increasing exports too,at some stage.Avanti will be one of the beneficiaries in that case.Even now,a Mcap of 160 odd crores seems low to me.
Don’t know about pricing power but the rupee depreciation will certainly bring in better revenues.
hi sagar yr comments noted.
TUF is a thai company. Though i agree its a positive indication but thailand is not a country ( like UK , US) of high standards of corp governance. How do we know TUF is a good company.Pardon me for asking stupid questions.I am not saying that Avanti is not a good company. About six months back I had read the previous AR of company and felt few negatives related to bs , I dont remember. WIll check current AR.
Also another thing I am unable to assess is the demand scenario for its products and the competition and since its an export driven company it is facing competition from global players. Also depreciation of rupee is definitely a positive but I wont read too much into it.
It depends on the bargaining power of the company. Sometimes the consignee ( as they also know that rupee has depreciated) may re-negotiate the contract.
Maybe the inventory build up is due to company expecting demand. But why has the trade receivable increased from 15 cr to 39 cr thats a big jump. Probably that is the reason for increase in the debt and pledging of shares. The NP margins has contracted y-o-y from 7 % to less than 5 %.
Lets not consider govt action in the valuation of the company. They will be more worried about the elections then the country. If the govt can do something that will be a pleasant surprise and trigger.
Hi Manish,
If you will read on the sector and the earlier posts, there has been a industry change due to the introduction of new specie of shrimp - Vannamei which has made aquaculture a profitable and very fast growing co. And if you will read last 4-5 years of the annual report, Avanti was spot on in catching this trend early and have capitalized on this opportunity beautifully 
Turnover has grown from 100 Cr in 2009 to 650 Cr last year. And I feel co has maintained all the needed transparency and rewarded small shareholders.
Given that the growth in this industry is expected to continue, I feel Avanti is best suited to capitalize on the opportunity, if present.
Trade receivable is at just 6% of turnover vs historical aveg of close to 10%+. FY12 was an exceptional year on several fronts.
Ayush
Disc: I have been invested for quite sometime and my views might be biased.
Some good news:
** BOOST FOR INDIAN SHRIMP INDUSTRY FROM SOUTHEAST ASIAN MALADY**
The Indian shrimp industry is set to gain this year due to widespread damage to shrimp farms in Soutjeast Asia due to a disease called Early Mortality Syndrome.Processing units in these countries will have to import to meet commitments with European & US importers.This shift would be a big relief for the sector since it faces a serioous problem in export to European Union(EU) For the past two years,the seafood sector had been hit by poor offtake & reduction in prices by EU importers.
Thailand,the world’s second largest exporter reported a 38% drop in volume & 34% in value in shrimp exports to EU in the first five months of this year.Data from Marine Products Export Development shows SouthEast Asiawas the largest importer of seafood in 2012-13.The region had imported 340,944 tonnes,valued at Rs. 4,357 crore,which was **37% **of India’s export & **23%**of the total earnings from the sector.The rise in export to this regionwas **24.9% **as compared to 2011-12.Apart from the disease referred to,demand is also rising in a no. of countries in the region.
The sector is showing signs of recovery after hatcheries,farmers & governments worked to stop the disease from spreading but it will take time to compensate for the shortage in supply.Prominent Thai companies are considering importing prawns & related products from Ecuador,India & Vietnam to meet local and foreign demand.
Ayush…Is this a seasonal stock remaining at lows during summers (April / May )
Q1/Fy 13-14 Results out…
Total Income up 69.8% to 270.74 Cr from 159.47 Cr.
EBIDTA up 72.3% to 23.38 Cr from 13.57 Cr.
Adj Net Profit Almost doubled to 14.23 Cr from 7.72 Cr.
EBIDTA margin is 8.6% v/s 9% (MQ-13) and 8.5% (JQ-12)
Adj-NET Profit margin is 5.3% v/s 4.6% (MQ-13) and 4.8% (JQ-12)
(Adjusted Net profit calculated taking out effects of exceptional items)
Total Raw material costs as a %ge to Income is 78.3% v/s 74.8% (MQ-13) and 76.2% (JQ-12)
Employee costs to Income is 3.1% v/s 3.9% (MQ-13) and 3.0% (JQ-12)
Other expenses to Income is 10% v/s 12.3% (MQ-13) and 12.2% (JQ-12)
Financial costs to EBIT is 5.7% v/s 10% (MQ-13) and 3.4% (JQ-12)
Tax Rate 32.4% v/s 38.7% (MQ-13) and 37.4% (JQ-12)
EPS 15.66 v/s 8.5
Recorded TTM (sum of 4 quartr) diluted EPS: Rs. 40.40
On 29/07/2013, stock on BSE hits 5% upper circuit at Rs. 182.85/-
Reproducing here from my comments in ValuePickr Scorecard thread.
Opportunistic Portfolio:
1). Avanti Feeds - will be an excellent addition going by the results. This is again a business/industry not well-understood by the market. From what we understood good days for the Indian shrimp processor/feed companies and Avanti in particular are here to stay - definitely for a year or so forward, but most probably for next 2-3 years as well.
Management Q&A expected to be published in a week - waiting for some corrections from company side. This was a 4 hour long intense discussion to capture, reproduce and then get authenticated - very important - as this is our first real exposure to the business/industry. Please bear with us.
Avanti Feeds Management Q&A)- happy to be able to finally bring this to our readership. Regret the delay - entirely unavoidable due to constraints on Management side - for doing justice to a transcript of this size.
Ayush & my view is that it has come out better for the edits/and the wait:). For one, the tone is more confident b) the entire last section on “Sustainability” got added over email exchanges - we had failed to do proper justice to this in our 4 hour interaction - in what was our first in-depth exposure to this industry:(.
Go through this in detail. You will agree perhaps that now we have quizzed Management as best we could - incl. on sustainability - from all possible angles. My assertion is - This is again a “mis-understood” or not properly understood business/industry.
Eager to see what view emerges from you all - why is this NOT a NO-BRAINER??
I went through the management q&a…
It looks like a no brainer for the short term opportunistic portfolio…
I think stock is in trade to trade and hence liquidity may be a problem…
For the longer term…
I feel there are some concerns I have and those are:
1). We are not sure about sustainibility of price of the vannamei variety and as talked earlier, the prices of input material does seem to go up somewhat.
2). The threat of anti dumping duty and hence problems of exports could remain.
3). Effect of some kind of viral outbreak affecting the prospects of industry as a whole and avanti in specific remain… This could always hit us like a black swan…
Valuationwise it looks very attractive even at all time high price of 200 plus.
But problem of how much to allocate to this illiquid poorly understood company remain… A poor quarter and stock price can crash by as much as 50% from the top and hurt the portfolio returns…this possibility always remains…
1 Like
Sirji,
The stock has been recently excluded from the T2T segment.It is a B group stock now.So,thelow liquidity concerns may not weigh so much now 
[quote="hitesh2710, post:52, topic:330005261"]
> I went through the management q&a..
>
> It looks like a no brainer for the short term opportunistic portfolio...
>
> I think stock is in trade to trade and hence liquidity may be a problem..
>
> For the longer term.....
>
> I feel there are some concerns I have and those are:
>
> We are not sure about sustainibility of price of the vannamei variety and as talked earlier, the prices of input material does seem to go up somewhat.
>
> The threat of anti dumping duty and hence problems of exports could remain.
>
> Effect of some kind of viral outbreak affecting the prospects of industry as a whole and avanti in specific remain.. This could always hit us like a black swan...
>
> Valuationwise it looks very attractive even at all time high price of 200 plus.
>
> But problem of how much to allocate to this illiquid poorly understood company remain.. A poor quarter and stock price can crash by as much as 50% from the top and hurt the portfolio returns..........this possibility always remains....
[/quote]
The nos for export of white shrimp from India for last 2 years are:
For this year, it is expected that the production of white shrimp may increase to 1,50,000 Tn. Hence here the industry has been comfortably growing at more than 25-30% CAGR over last few years.
Hi Hitesh Bhai,
Yes, some of the concerns raised are valid. However, having followed this story for last 4-5 years, I would like to highlight some of the things:
One gets a feel that the story in Avanti is due to the recent increase in shrimp prices....I feel this is just a short term booster. One needs to go back and see what has changed. I believe its a change in the fortunes of the industry since the introduction of new variety - Vannamei in 2009 (which was introduced a decade back globally and became the preferred shrimp variety).
Many often when a industry goes to a huge positive change, then usually the leader which gets to surf on the tide early can go a long long way. In Avanti, there seem to be lot of good fundamental advantages over peers.
This is the reveue nos for Avanti since 2010 (In Cr), while Mcap is 190 Cr:
| 96.16 | 199.62 | 393.41 | 648.04 |
| 40787 | 91000 |
The nos for total export of shrimp for India for 3 years are:
| 151465 | 189125 | 225854 |
For this year, it is expected that the production of white shrimp may increase to 1,50,000 Tn. Hence here the industry has been comfortably growing at more than 25-30% CAGR over last few years.
Over last 3-4 years, this high growth has been even when the shrimp prices were pretty normal at $3.50 - 4.5.
Now this year, as the prices have increased + with rupee fall, its a very sweet position for this sector. This should encourage the farmer to adopt more of shrimp farming for next year thus benefiting Avanti for its feed segment. Also, this rupee fall increases the shrimp prices to farmer in INR terms and hence making this business more attractive even if price reverts to $4.
Obviously, this year, the co may once again have much better than normal margins but the underlying growth may continue for next 2-3-5 years if nothing majorly negative (like disease, bad climate etc) develops.
Antidumping is not a major risk - as India has got one of the lowest rate of dumping as compared to other nations and hence it may be a benefit. Also, rupee fall has contributed much more than that.
We should also see that co gets a very good operating profit from shrimp processing segment, which is more stable and has much better margins. As per Mgmt Q&A, the co would be more than doubling the production in this segment this year and hopes to again double the capacity over next 2-3 years.
Ayush
PS: My views may be biased as I have been invested from before. Plz do your homework on your risk profile.
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Some observations from my side:
If we look back at our history of picks - most our stocks/businesses were mis-understood ornot properly understood:( for a long time - Mayur did not take off for almost 1.5 years, Astral took longer, despite continuing good numbers.
There are entrenched “perceptions” about a business/industry that takes time to weather down. In the end, it is only sustained performance by the business that makes everyone finally sit-up. However we at ValuePickr have always been playing the role of a change-agent/influencer towards better understanding of the business or the industry.
It’s not easy to transfer that conviction that we gain from a one-on-one in-depth and intense interactions - see how management fields the tough questions - do they flinch, gloss-over, or paint an over-optimistic picture or, they are as conservative as it gets - and therefore if we get a sense that even the conservative future picture is very robust, it’s time to take that pretty seriously.
Which brings us to the obvious point - and I think this is what Hitesh’s main point is - though he did not put it in as many words - What we have got is Avanti’s version - Can we make an independent assessment of this industry’s (new found) robustness and promising prospects (despite a chequered past) - and more specifically Avanti’s??
We all know the answer - YES - this is again somethingthat we can touch and feel at various touch points in the industry - shrimp exporters, shrimp feed distributors, aqua farmers and other stakeholders in this industry.
And, the most interesting part of this story:). Andhra Pradesh constitutes 70% of the shrimp market, and our super sleuths home ground happens to be, AP!!
Handing over the ball to Team Hyderabad - for the next phase of conviction building in this promising opportunity! Another reason to visit Hyderabad, soon:)
What will happen when shrimp prices fall? If prices fall back 50% and volume doubles, Revenues will remain same. If ebitda margin remains same (8-10%), then absolute ebitda will remain flat (no growth). If Avanti is riding with the help of a thai co, then if Thai solves EMS problem and ramps up supplies, will India/Avanti be competitive enough to keep selling high volume?
In management q&a, it was mentioned that negative operating cashflows are due to stocking of inventories during jan-mar for season period apr-sep. If that’s the case, then operating cash flow should be +ve in the first half of a fiscal. the op cash flow during April-Sep2012 was, however, negative (-17cr). Inventory rose between sep12 (68cr) and mar12 (42cr). Inventory rose from 26% of next quarter sales to 49% of next quarter sales. I do not find management reply convincing.
The final phase of the worldas most sophisticated Aquatic Quarantine Facility (AQF), which has a capacity to quarantine 2,37,600 broodstock per annum at Neelankarai in Chennai, was commissioned on Wednesday.
With this, AQF, with its 20 cubicles, can quarantine 8,000 broodstock at any given point of time, official sources claimed.
The AQF is one of its kind in the world. Commissioned in 2009, the facility has won global acclaim for its quality quarantine services, receiving appreciation from aquaculture scientists and pathologists from far and wide. aIt is the most sophisticated facility that I have seen so far,a said Dr Donald V Lightner, an internationally renowned shrimp pathologist who is credited with the discovery of several shrimp pathogens.
The state-of-the-art AQF is functioning at the Rajiv Gandhi Centre for Aquaculture a the research and development wing of the Marine Products Export Development Authority of the Ministry of Commerce and Industry. It is equipped to quarantine varieties of exotic shellfish and finfish imported into the country for commercial aquaculture. This facility is presently quarantining the Pacific White Shrimp Litopenaeus Vannamei broodstock imported into India by commercial shrimp seed production units across the country.
Briefing the media at a press conference convened after the inauguration, Leena Nair, chairman, Marine Products Export Development Authority, said that other species can also be quarantined in the AQF, apart from shrimp.
Speaking about seafood export, she said, exports to the tune of 18,800 crore were achieved this year, despite fluctuations and other economic issues. aThe seafood exports are expected to touch20,000 crore next year. India is the second largest exporter of shrimp to the US and the third highest to Japan.a
Stating that Andhra Pradesh, Karnataka, Odisha, West Bengal and Tamil Nadu were the largest producers of shrimp, she said that steps were being taken to promote and attend to farmersa queries.
Hi Guys,
A visit is planned around Oct 3-4, 2013, Thurs-Friday to Vizag to establish sustainability of Aquaculture industry w.r.t Avanti Feeds.
While we have established initial contact with some shrimp processors, exporters whom we will be meeting in Vizag, we would like to expand the base and meet more stakeholders in the Industry - aqua farmers, feed distributors, exporters, shrimp feed association members, shrimp exporter associations, etc.
Will be great if any of you are locally available at Vizag during above dates. It will be good to meet up, and if you can help in facilitating any meetings with relevant folks in the industry - that will be just great!
Let us know.
Just plotted the RM prices (soymeal and fishmeal) against Avanti’s earnings (and also attached the excel, in case anyone wants to use this data to generate even better insights).
Prima-facie, looks like these guys stock on RM in Feb-Mar period usually (else, nothing can explain their increase in earnings along with increase in RM prices over the past 2-2.5 years). (And it makes sense to stock too, since their primary qtrs are Q1 and Q2).
P.S: Am unable to paste the chart on this post. Embedded the chart within the excel itself.
avanti-vs-RM.xlsx (16.3 KB)