We have had incremental learnings over past few weeks/months since publishing of Management Q&A, ValuePickr Portfolio recommendation, and the Field Report. As each week passes we are getting to learn more on intricacies/challenges/complexity in managing the business. Obviously we had more ground to cover, needed more homework done to reach any verdict.
My views currently on Shrimp Industry/Avanti business:
1). There are lot more variables in this business - many things can go wrong - as we have seen in past month or so - threat of cyclones, flooding, temperatures dropping, white-spot disease emerging - et al. None have impacted any significantly so far, but who is to say it will not - next month or next quarter!
Its very difficult, nay impossible, to call the ODDS on this.
2). Avanti is set to do 50-55-60 Rs EPS for FY14, which means stock trades at ~4x currently which is still attractive:). There isnāt much danger of Avanti Feeds falling short on that front - not withstanding the dull performance on processing front.
3). So the real quandary is on Capital Allocation, NOT on attractiveness/sustainability of the business per se. Those with less than 2% allocations should sit pretty - no quandary there.
4). Those with 5-10% allocations SHOULD give this a good think as I am doing! It is NOT good enough to justify saying - āthere are too many variables in this business that can go wrong yes - but thatās why it gets the low valuation!ā
5). IF something/anything DOES go wrong then Mr Market will not look at the 55 Rs EPS and justify, Mr Market will panic and given the poor liquidity, the returns that we see today will not sustain.
We are trying to rectify the situation by plugging the loopholesa) esp. on establishing what all CAN and DO go wrong all the time (albeit limited scale) and b) processing industry dynamics/competitive activity/labour shortage/poaching - region-wise and company/factory locality wise.
I took an aggressive risk (biased with incomplete homework done). I am certainly looking at paring down the allocation to less than 5% levels as the higher risks in this business, (despite all the positives) prohibit aggressive allocation. I will continue to hold at sub 5% allocation.
Should the industry/Avanti Feeds sail through without any untoward incident, as most Avanti Feeds veterans opine, the stock will continue to do well. However is it a NO-BRAINER situation - that allows us to bet heavily like in many others - certainly NOT!
Since I thought so before and must have conveyed the same impression to ValuePickr readership, please note our revised views. Regret the errors in our judgement - its a personal learning for me! The above is for those who have accumulated from 160-200 levels onwards.
There is one CAVEAT - those holding from Rs 100-130 levels can merrily continue to hold at aggressive 10%+ allocations - that much higher Margin of Safety builds in all the cushion you need 
