Added shrimp prices also to the chart. As folks were mentioning earlier, it’s probably a combination of fortunes of the industry turnings + EMS outbreak, rather than shrimp prices per se.
Here’s the data attached. (Shrimp prices along with RM and NP of Avanti)
avanti-vs-RM.xlsx (22.3 KB)
Since Waterbase figures are miniscule, and Godrej Agrovet’s figures are not available in detail, I culled out some numbers from two big players - TUF and CP foods, for their shrimp/aquaculture business. Hopefully, these details will throw more light on how Avanti is faring/might fare in the future.
TUF (Thai Union Foods):
a) Shrimp related business constitutes 22% of their total revenue (Majority of TUF’s revenues comes from Tuna and shrimp related business is second)
b) They have 330,000 T feed capacity and 100,000 T processing capacity (in contrast, Avanti currently has a 120-125000 T feed capacity and about 5000 T processing capacity. Planning to bump up feed capacity by 50000 T and processing capacity by about 2000-3000T).
c) In FY11, the gross profit margin of their shrimp related business was 13.8%. In H1FY13, the GPM dipped to 6.6% (for obvious reasons of EMS). They even had difficulties shoring up their processing margins since the shrimp feed prices went through the roof and shrimp was also not available (Would we encounter such a situation for Avanti too - in terms of their processing revenues, wouldn’t they have to procure shrimp feed at huge prices? Or did they have fixed price agreements of procuring shrimp for procesing in exchange for 50% credit terms of feed?)
d) Their P/E is 20 
(I don’t think it’s reasonable to expect such a high P/E for Avanti on the Indian bourses, unless they say ‘brand’ ). Their dividend payout ratio has hovered around 50% over the past 3-4 years (not sure why though - their D/E is close to 1 - so why pay huge dividend when you can pay down debt? Anyway)
CP Foods:
a) Feed is 50% of CP Foods’ revenue. Feed and shrimp related stuff comes under a segment called ‘aquaculture’ in CP foods presentation
b) CP foods had losses in their aquaculture business in 1Q and 2Q of 2013 (they follow the Jan-Dec calendar). However, 2Q loss was 50% less than 1Q loss. They may inch back to profitability in the 3Q.
c) The gross profit margin for CP foods in their aquaculture business has been around 14% in 2012 and 2011.
d) CP foods also has a dividend payout ratio of around 50%. (Again, not sure why - since, their D/E is 1.3)
Question on Avanti after reading through quite a bit of material of CP foods and TUF:
2012 was a stellar year for both TUF and CP foods in their shrimp/aquaculture business, much better than 2011. Now, given that Avanti was turning around only in 2011-12, 2012was obviously a stellar year for Avanti (since the growth from negative revenues to huge upside revenues in percentage terms would be very high), but there was hardly any growth in profits in 2013 vis-a-vis 2012.
My question is - Is the 2014 growth that we are/might be expecting then only because TUF and CP foods haven’t been able to perform? If TUF and CP foods start to perform, would that mean flatter growth for Avanti? Or was the growth in 2013 subdued due to other reasons? (I didn’t see any particular reason in the management Q&A).
The other question in all the text above, just in case anyone missed it was - Would Avanti’s processing margins get impacted (and by how much) due to sky high shrimp prices?
Appreciate your views and responses.
Disc: Invested. Still awaiting the ‘click’ to increase position.
Saw this article on Business Standard yesterday. I wonder the impact on Avanti because of this.
Indian seafood exporters to benefit as US lifts CVD on shrimp
The US International Trade Commission (USITC)as decision not to impose _countervailing duty_ (CVD) on _shrimp_ imports from India and six nations a Indonesia, Thailand, China, Ecuador, Malaysia and Vietnam a has come as a great relief to the seafood export sector, under pressure from economic slowdown in the European Union (EU) market.
The US is the largest importer of Indian seafood in value terms because a major chunk of imports by the US is high-value items such as shrimp. However, Indiaas seafood export there was hit badly after the US imposed a 11.17 per cent antidumping duty in 2005. The number of Indian exporters to the US declined drastically from 280 in 2005 to 68 in 2009.
Since 2010, though, exports to the US have been picking up after Washington slashed the duty to 3.49 per cent. The US imported 92,447 tonnes of marine products, valued at Rs 4,027 crore, from India during 2012-13 against 68,354 tonnes (Rs 2,978 crore) in 2011-12. There has been a 35 per cent rise in both volume and value of exports in FY13.
Exporters have always held CVD as a serious threat. The USITCas latest decision to withdraw CVD is a welcome step, said leading Kochi-based exporters.
A J Tharakan, president, Seafood Exporters Association of India (SEAI), told Business Standard this was a major victory. If CVD continues, India cannot compete with other south-east Asian countries such as Thailand in the US market and India is now in an advantageous position to compete with leading shrimp exporting countries, he added.
Already, the US imposes 3-4.5 per cent duties under various heads. aA high rate of CVD will seriously affect our exports to the US. Also, if they (US government) decide to execute bonds for exports, it will further weaken our position,a said an exporter.
Indonesia and Thailand were expected to benefit because there was zero duty for them in the final duty determination of the US department of commerce (DOC). However, there was large-scale loss in production due to early mortality syndrome (EMS) in Thailand and Indonesia. Therefore, these countries had to import from India to meet their commitments in the US market, said Anwar Hashim, former president of SEAI.
With the CVD vanishing, India can compete with other major producing countries on price, said a leading exporter. aFortunately, EMS is not present in aquaculture farms in India and production is in full swing . So, the USITC decision will be advantageous to India,a he added.
Due to CVD (5.85 per cent) and the present level of antidumping duty (3.49 per cent), Indiaas shrimp exports to the US would have been costlier than any of its closest competitors. Moreover, if CVD was imposed, it would have helped Thailand and Indonesia to dominate the US shrimp market and market access for Indian shrimp would have been affected.
While ruling out CVD for import from seven countries, including India, USITC determined the US industry was neither materially injured nor threatened by the imports. USITCas panel of judges voted 4-2 against imposition of CVD against India and other six countries.
Leena Nair, chairman of Marine Products Export Development Authority, said the USITCas ruling would bring great relief to the shrimp industry and shrimp exporters.
In May, DOC had determined a CVD of 5.91 per cent for exports from India. Later, on August 13, DOC announced its final determinations and reduced the duty to 5.85 per cent for India.
In August, Washington raised the duty for Ecuador to 11.68 per cent from zero duty (de-minimis). DOC granted Thailand and Indonesia, the No 1 and No 3 suppliers of shrimp to the US, de-minimis duty. China got 18.61 per cent, Malaysia 54.5 per cent and Vietnam 4.52 per cent duty in the final determination. Chinaas was 5.76 per cent. Thailand, though, had a sigh of relief as it had 2.09 per cent duty in the preliminary determination. For Vietnam, it was 6.07 per cent in May. Malaysiaas duty had been reduced from the earlier 62.74 per cent.
All the seven countries together export 70 per cent of the total shrimp imports to the US. But with Thailand and Indonesia excluded, the countervailing duties practically applied only to 40 per cent of the US imports, leaving 60 per cent of imports untouched. According exporters, this takes away the rationale of providing protection from injury for the domestic producers.
DOC had started CVD investigation against India and six other countries last December based on a petition filed by the Coalition of Gulf Shrimp Industries, a local shrimp producers organisation.
The investigation was based on a finding that 21 subsidy programmes extended to seafood exporters in India helped them export at a much-cheaper rate, affecting the US shrimp industry in bad shape. Twenty-five such subsidy schemes of China, seven of Ecuador, 14 of Indonesia, 16 of Malaysia, 12 of Thailand and 20 programmes of Vietnam also attracted investigation.
In 2011, the US imported shrimp products worth $4.3 billion from these countries.
Hi Kiran,
First of all happy to see someone doing more indepth work on this area 
Thanks
TUF and CP payout 50% as dividend as I heard from someone that all the listed thai cos have to do so as per their regulations.
The profitability of Avanti was impacted in FY13, as they witnessed an extra-ordinary increase in raw material prices during their season. Soya prices had more than doubled and fish meal prices had jumped 50%+ in less than 6 months and hence price increase was not easy. This year, probably we should see much better margins.
Over last 2 years, the processing margins have been much better and stable and if we look in Indian context, I don’t see too much of competition here. So if they are able to maintain margins this year, then it will be a very good indicator as this segment might scale up faster for them going forward.
Thanks & Regards,
Ayush
Kiran,
Sorry for delayed replies. just back in office today.Two keys to understanding this business/industry is
1). At what prices does it become unviable for the indian Farmer?
The higher the shrimp prices globally, the more viable it is for the farmer. He wants to grow more, he buys more feed and he produces more shrimp. the industry grows and leading players like Avanti are in the best position to harness that growth.
The unviable figure is around $2.75 - $3.00 as you can find out from the Management Q&A. As long as shrimp prices remain above $4 to $4.5 internationally, to my mind this industry in India is set to keep growing; farmers will agggressively be growing more, consuming more feed, producing more and Avanti will benefit, as its the leader in both Vannmei Feed and processed Shrimp out of India.
2). Risks to the business from external factors
Climatic factors like cyclones/storms are one, as is new diseases springing up. Also sudden reversal/anti-dumping duties imposed in significant markets. Avanti is hugely exposed to US market - there is hardly any geographical spread.
So one cannot be sanguine about this story and sit pretty in this business even over the near to medium term. It will need tactical riding. I believe it is a good opportunistic bet for the next 1-2 years - with the caveat - it will need constant monitoring.
Many seniors have pointed out that only the Avanti Management version is not enough for a better feel/more visibility on both these fronts.
Accordingly we have planned to visit Nellore/Vizag/Hyderabad to establish how sustainable is the story - by getting responses on both crucial points from farmers, shrimp exporters, competing shrimp feed distributors like CP, association presidents and the like. This visit may now be scheduled after Oct 15th or so.
There are already noises being made about prices falling from current levels from as soon as December!, so we better do a good job to get at the bottom of this promising opportunity.
Shrimp in a Crimp )- recent useful report by Rabobank on global/indian aquaculture industry. Some excerpts though that points to price corrections that are bound to follow
The current EMS induced supply contraction marks the end of a historic growth period in shrimp industry, largely driven by the induction of vannamei. However the allure of high prices is enticing farmers the world over to increase production. While the current high price may last for a year or more, it will most likely be followed by a strong rebound and prices falling possibly below cost of production.
Our expectation of falling prices in future are based on (1) expected recovery from EMS (2) a global response by the industry to high prices, and (3) the forecast for lower priced feed commodities
In our view, Thailand is the key region to watch in timing the recovery from EMS. Although Thailand is hit the hardest, it is considered the most technologically advanced shrimp producing region Given its strong focus on bio-security, it is likely to be the first of the impacted countries to start recovering. In a strong recovery situation,Thailand’s 2014 production could be double that of 2013. A return of Thailand to the top of the shrimp exporters table coupled with the strong momentum in production expansion by regions enjoying current high prices, will create a sudden supply curve shift, and a period of low prices.
Prasit Sujiravorakul, an analyst at BNP Paribas Securities, agreed with Suwantammarong, saying production levels could normalize by late spring. “The second quarter output this year plunged to 50 percent of normal levels and this will slightly go up throughout the rest of the year,” he said.
Output will have recovered to a 20 percent gap compared to normal production levels by the end of this year, he predicted. As a result, prices will go down, and have already started going down. “The price came down 10 percent in the market last week,” he told IntraFish.
Some analysts have predicted a shrimp price crash onceThailandis back to its old strength, and Sujiravorakul agrees – to a certain extent. “The price will drop dramatically next year,” he said. “Margins of businesses could be in jeopardy.”
So what are the key items to monitor in this story apart from Shrimp prices?
over the long
Hi Jatin,
Kiran has already shown the way - monitor production of the two biggest companies he mentioned.
Antidumping duty changes is also to be monitored, but by the time we know about it it might be too late. There may not be drastic changes in that though.
The price correction is going to be from production pickingup world over through a both new capacities and old currently “disease affected” capacity springing back.
So what are the key items to monitor in this story apart from Shrimp prices?
over the long
Sorry for the delay in reply. I was traveling.
Thanks Ayush and Donald. A lot of punch in those short notes.
And thanks for the 'Shrimp in a Crimp' report. Anybody interested in Avanti MUST read that report.
Although the results this year might be very good, am a little skeptical on the sustainability front (which obviously would be key to re-rating). Allow me a little thought experiment -
a) Let's just assume that there would be no disease outbreak in India. That's a big assumption to make, but let's assume that for a second.
b) India would be producing (and exporting most of it) about 200-250K MT this year. This, in a year where there is worldwide shortage of shrimp (esp. from Thailand, which is the largest producer).
c) But the demand from the world, especially from the US (since Avanti's majority revenue is skewed towards the US).
d) Now, Thailand being a large producer from a long time would have entrenched relationships with the importers in US and would probably get a priority over the Indian exporters when it comes to choice.
e) So, when Thailand returns back to say 50-70% of normal production levels by early next year (say, by Q1-Q2 period of Avanti's FY15), supply increase will lead to fall in shrimp prices. Say, the prices fall from the current $8 to $5-$6 (still sustainable for the Indian farmers).
f) So, given the consumption in the world (and majorly in the US) roughly constant, supply resumption from Thailand, would imply that there would be a limited offtake from the Indian market.
My point therefore is, would the production continue to increase beyond the 200-250K MT, inspite of limited offtake? If not, then why are we confident about a 25-30% growth for the next 2 years (atleast)?
Else, if the production continues to increase beyond 200-250K MT (since $5-$6 prices are sustainable), would it increase at a 25-30% growth (since Avanti's revenues are directly proportional to how many farmers will produce shrimp)?
That was the thought experiment bit. Would be great to have some views/answers.
The second bit is the data angle. Just wanted to know the price realization per MT currently. The past data is something like this -
| Particulars (all from previous ARs) | 2009 | 2010 | 2011 | 2012 | 2013 |
| Shrimp Feed Production (in MT) | 13983 | 15930 | 37131 | 62819 | 105824 |
| Shrimp Processing Production (in MT) | 758 | 964 | 1449 | 2102 | 2713 |
| Shrimp Feed Sales (in MT) | 14051 | 15984 | 36709 | 63485 | 103393 |
| Shrimp Processing Sales (in MT) | 670 | 936 | 1327 | 1966 | 2551 |
| Feed Sales (in Rs. Lakhs) | 37.84 | 52.75 | 133.08 | 271.49 | 501.87 |
| Processing Sales (in Rs. Lakhs) | 32.59 | 41.33 | 72.93 | 119.76 | 143.77 |
| Feed Price per MT (in Rs. Thousands) | 26,930 | 33,002 | 35,841 | 42,764 | 48,540 |
| Processing Price per MT (in Rs. Thousands) | 486,418 | 441,560 | 549,586 | 609,156 | 563,583 |
Also, wonderful article on contrasting fortunes (the last line of the article might have a lot of implication for Avanti ) -http://www.ft.com/intl/cms/s/0/8f230656-21e0-11e3-bb64-00144feab7de.html#axzz2gG8qiAlg
Kiran,
Thanks for sharing your work and thought process. Appreciate that. You have also thrown up some valuable data and more questions.
My take is to cut through the clutter.
Beyond a point, hypothetical/what-if debates will always continue. And there exactly lies the opportunity. As the Kaveri Seed experience should have shown everyone, you need lot of skill (and your own information base) to extract reasonable conclusions from scanning of media articles - since they paint extremes. The truth is usually somewhere in between:)
I will only comment 2 things:
1). Investing is an imprecise ART. Information is never ever complete (in time). We need to make educated guesses, make a hypothesis, proceed to make calculated investment bets and keep working towards validating/invalidating the hypothesis
2). We have made our hypothesis - Avanti is included in ValuePickr Opportunistic Portfolio, NOT the Long Term Portfolio for a REASON - some you mention above. Now we are taking this validation process 2-3 steps further by meeting farmers, distributors, exporters, next month.
Meanwhile keep throwing in new data/information to help us extract the most out of the planned interactions. Let Ayush/other old timers in Avanti comment on the /kg realisations.
Hi Kiran,
Good points being raised
As per discussions, more than the disease, the focus has now shifted what if the production of the disease hit countries comes back to normal…which it is expected or two - Yes, the fall has to happen but the extent is unknown. If the price falls back to say $ 3.75-4.5 which was the range earlier for last 2-3 years, the industry and Avanti should do very well. We should also see that the cost for the other countries would had increased due to EMS treatment etc and India will benefit because of rupee fall too (almost a 30-40% benefit). But yes, like the pendulum swings both sides, the correction may be more too.
Regarding the demand supply mismatch due to growing production of India. Yes, this should be thought about for much longer term. Few things which I noticed:
1). in 2010 the global supply was almost 4 mln tonne and has been falling for last 2 years. So India at 2-2.5 lac MT is contributing just about 5% of global trade as of today.
2). Also, earlier India did used to sell 2.5 lac MT of shrimps. Its more of conversion from black tiger to vannamei as of now over last 2-3 years. Going forward only we will start growing meaningfully as a industry.
On the realisation part, yes the data seems correct. As per casual discussion the feed sells at Rs 50-60 per kg so it tallies with the data below. The processing data also must be correct as the shrimp sells at about $4-5 per kg (I don’t know how much is the usual weight of the shrimp)
Thanks & Regards,
Ayush
PS: Guys, my views may be biased as I have been following Avanti for quite sometime and I remain cautiously optimistic on the sector and co.
I am trying to create a US market shrimp Import data table for last 2-3 years, as below
| US Shrimp Imports | 2012 MT | 2011 MT | 2013E MT |
|---|---|---|---|
| Thailand | |||
| Equador | |||
| India | |||
| Malaysia | |||
| Indonesia | |||
| Vietnam | |||
| Brazil |
Once done we can keep monitoring the production/availability for exports in the countries for US market. remember China is aggressively buying from India and other disease free markets, too.
All help/data welcome
Hi,Donald,
Please click on the below link ,may be of use.
http://www.shrimpnews.com/FreeReportsFolder/NewsReportsFolder/ImportsVolumeJan2012toJuly2013.html
Super! thanks a ton Shivanand.
Looks very promising. Will explore the site more tomorrow. And we can maybe approach Rob for an update by end Oct latest:)
Link: http://www.shrimpnews.com/FreeReportsFolder/NewsReportsFolder/ImportsVolumeJan2012toJuly2013.html
more reports on:http://www.globefish.org/shrimp-market-reports.html
But specifically for 2011 data:http://www.globefish.org/shrimp-us-march-2012.html
Imports
The USA imported nearly 2 000 tonnes less shrimp in March 2013 compared with the same period in 2012. Cumulative imports were down 8.35% because of reduced production in Thailand and supply shortfall in Ecuador, Indonesia, Viet Nam and China during that period. However, imports increased significantly from India (+70%).
Latin American countries, in particular Mexico, have also been hit by disease, in this case white spot disease, and this has contributed to the overall reduction in supplies to the US market.
Consumer demand showed some positive signs during the reporting period. According to the US Conference Board, consumer confidence rose in May. Although the gasoline price has been rising, so far it has not affected spending power.
In line with increased consumer confidence, wholesale prices went up until May for most categories and from most sources, and have remained stable since then. However, some buyers complained that the price rise was too fast and reached a point when some end users reduced shrimp purchases. This also contributes to tradersâ reluctance to invest heavily in large purchases. US importers were waiting for some price weakening in exporting countries as is typical at the beginning of the harvest season in June or July but this did not happen. Instead domestic wholesale prices remained relatively low compared with the price demanded by suppliers. Importers supplying the food service industry are not purchasing without previous contracts because of the prospect of increased supply during the main harvest period (likely to be late June and July this year).They prefer to wait and see what will happen with prices and instead use up the remaining stocks in coldstorage inventories.
Hi Sanket/Others
The data Shivanand pointed to was exactly what I was trying to compile. Here's a look again for everyone's benefit.
We can keep refining/adding to this table with latest info for Aug & Sep
Source: Volume of USA Shrimp ImportsJune-July 2012 vs Jun-July 2013 ('000s of Pounds)
| Country | Jan-July 2012 | Jan-July 2013 | Increase/ Decrease | Percent Change |
Anti-Dumping Duty |
Other Comments |
|---|---|---|---|---|---|---|
| Thailand | 161,110 | 102,681 | (58,429) | (36%) | ||
| Equador | 114,287 | 101,042 | (13,245) | (12%) | ||
| Indonesia | 94.859 | 93,578 | (1281) | (1% ) | ||
| India | 58,051 | 97,923 | 39872 | 69% | ||
| Vietnam | 46,226 | 54,336 | 8110 | 18% | ||
| China | 41,464 | 41,207 | (257) | (1%) | ||
| Mexico | 25,647 | 17,664 | (7983) | (31%) | ||
| Other | 88,371 | 72,990 |
(15,381)
|
(17%) |
