Avanti Feeds

Stock Opportunities Not-so-Hidden Gems
1986

This is one risk that all businesses dealing with China have to face. Sudden and at times inexplicable actions by China that can change fortunes either ways. This time, it’s shrimps from Equador. With the first (Equador), third (Vietnam) and fourth (Saudi Arabia) largest shrimp exporters to China facing various curbs, how long can the second largest exporter (India) remain safe? As of now, great news for Indian shrimp exporters.

https://dialogochino.net/30661-ecuadors-economy-shell-shocked-by-china-shrimp-ban/

Excerpts:

Five years ago, China accounted for 30% of Ecuador’s shrimp exports, some 68,603 metric tonnes, in trade worth US$584 million. Last year, the share jumped to 61%, or 281,718 tonnes

Sales of Ecuadorean shrimp to China were worth over US$1 billion between January and August this year but were suddenly halted in September for sanitary reasons, casting uncertainty over the trade.

Almost a month after Chinese authorities imposed a ban in response to apparent outbreaks of diseases known as yellow head and white spot, only one of Ecuador’s five companies originally sanctioned to export shrimp is still authorised to do so. The rest are only permitted to sell cooked shrimp meat.

In China, there has been a sharp rise in seafood products such as shrimp, octopus and squid that correlates with rising incomes and purchasing power. Unable to satisfy this demand domestically, China has increasingly looked to other regions for supplies.

Chinese authorities issued a health alert in August, alleging that shrimp was contaminated with yellow head virus (YHV), which affects the animal’s vital organs, and white spot (white spot syndrome virus or WSSV), which affects their appetite and motor functions.

WSSV devastated the Ecuadorean shrimp sector in 1998, but was overcome by adopting optimal cultivation processes. The country has never had problems with YHV until now.

The reversal of the blockade, spearheaded by Omarsa Group, one of the main exporters, was agreed after analysing a container of shrimp that was returned to Ecuador. Samples ruled out the presence of yellow head, according to the National Chamber of Aquaculture (CNA).

While this news had broken some time back, above article is from the perspective of shrimp exporters from Equador.

4 Likes
1987

Almost all of US Shrimp imports growth this year to date seem to have come from India, full year imports from India should be a 15% growth over last year !!

1988

Can anyone share the raw material “ soya meal” price movements? Thanks

1990

Can you please explain the logic for target? Is this a specific chart pattern?
Results to be announced tomorrow. Expecting a good show due to low base effect of margins. There was some “vigorous” delayed stocking as per the AGM speech. I’m also looking forward to see how soymeal price is moving. There has been an epidemic in pigs in China and the feed soya demand from China is dipping.

1991

Good results by Avanti in Q2( mainly due to lower tax outgo in Q2 due to lower tax rate and higher volumes in processed shrimp segment). After all the flood issues and lower stocking related news, company has posted decent results. Qoq- 24% growth in earnings, yoy- 130%( though, low base effect last year). With current improvement in shrimp prices and softening of raw material prices, I expect profit margins to remain stable/ slightly improve from current levels in the coming quarters. Though volumes were higher in processed shrimp, profitability is lower. Will wait for concall for more colour on their performance.

8 Likes
1992

Yes, also drop in income tax rate seems to have impacted positively.

Regards,
Kshitij

Disc. Holding small quantity

1 Like
1993

Good overall quarterly performance. Below are my few snippets after looking at the financial statements:

  1. ~51% YoY growth in topline for Feed business. Feed revenue grew from 553cr to 832cr for the quarter. This shows strong comeback in demand for feed which is great news for the industry and the ecosystem. I feel there is been strong gain in market share. Will wait to see volume and realization numbers in presentation and hear management’s commentary on this.

  2. Operating leverage kicking-in. EBITDA margins grew from 9.56% to 12.12% YoY. Gross margins were flat YoY and QoQ around ~21.84%

  3. PBT margins grew from 9.82% to 13.15%.

  4. There has been dip in PBIT number for processed shrimp segment from 24.45cr to 19.75cr. This is after 15% growth in topline for processed shrimp from 202cr to 232cr. I hope someone checks with mangement during con-call on why margins are under pressure for this segment. Quarterly presentation will show if realization have gone down. Hoping for strong holidays/Christmas demand in Q3.

  5. Cash on b/s grew from ~718cr to ~966cr. Pressure building on management to show its capital allocation skills. Growing cash also proving to be drag on ROE and ROCE.

  6. WC reduced from 1140cr to 960cr. It’s very heartening to see this happening as industry is coming out of the lower end of the cyclicality. It can be because of strong dominance of the company in its industry and possibly proving widening of its moat. Need to monitor this number to draw concrete conclusion.

  7. Strong CFO which grew from 260cr to 348cr.

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22 Likes
1994

Given these results, the business is generating a lot of cash every quarter. Why isn’t the management returning the cash to shareholders in the form of dividends or buybacks? The numbers of a company gain more credibility if they share some of the wealth with shareholders. This becomes more relevant in the light of cooked up numbers of many companies that have been getting exposed recently.

3 Likes
1995

Thanks for the numbers. Sales has remained flat in comparison to Q1FY20. Any idea why the Tax in Q2 FY 20 is just 13.27 cr against 43.81 Cr last quarter. Is there any write back on tax after the reduction in corp tax rates ? May throw some light please

regards

1996

Management has mentioned in last concall that they don’t consider dividends an efficient use of excess cash and are looking to deploy it back into the business

3 Likes
1997

That is BS in my view. If their ROE/ROCE was going up, we could have accepted that argument. They are just sitting on cash without making any efficient use of it.

1 Like
1998

Fair point but isn’t it possible that they were waiting for shrimp culture to clearly recover before building more capacities. The last capacity they built was not operating at full utilization because the downturn hit them.

1 Like
1999

This is a clear western influence in making business big… i see this as positive…

2000

Notes from my recent interaction with few farmers:(I may have misinterpreted few things while discussing…my views will be biased as I have recently invested …many of the points may have already covered in the thread)

Tigers shrimps in 90s …vannamei from last 8 years…making good money.
Avg 1 pond :2 acre…some people will do in large scales 20 to 30 acres, 50 acres…some take land on rent…
Saline water only area where shrimp can be cultivated…almost all farmers depend on borewell water…
Oxygen supply through aerators …circle flow of water…
Running expenses per acre around 7 lac/cultivation…includes feed cost of 3 to 4 lac…electricity bills /aerators fans…1 to 1.5 lac …recently govt reduced electricity bill to Rs.2 Rs.4.

Seed: from govt approved hatcheries…many local players …buying from the approved once is must…quality of seed is most important in getting good yield along with feed and other things…
Avg 30,000 to 50kseeds per acre(upto 1 lac also but not advised)…cost is 35 to 40 paise per seed…roughy its 40 to 50k per acre…price varies depending on the season…(not heard of avanti seeds)
Maximum of 3 season per year…avg 120 days /season…summer is the best season.rainy season is the worst, risk of disease is high, almost 70% of farmers avoid the rainy season.

Feed, probiotics, water movement and management(most important).regular use of water purifiers ,probiotics…etc. movement of water using inlet ,outlet,aerators pumps have to run overnight…sometimes we have to use generators…technical help from govt …weekly once checking the water quality…etc.

Avanti feed well known (CP food also)…avanti 5 variant of feed …depending on the size of shrimp(5gm,10 gms,…etc) in the beginning…after 30 days check tray?..feed every 2 hourly?..maximum consumption happens during summer season…nothing like avanti feed is better or preferred over cp feed…sometimes dealers will give discount on feed…

Roughly shrimps will reach 100 count/kg in 60 days
90 count in 70 days
40 count in 90 -100 days
30 count in 120 days

Maximum harvesting happens at 40 to 50 count(70%)…only a few people will wait for 30 count because the risk of disease is also very high by 120 days.

Present one ton is 49,000 to 50k (30 count): Rs 490
40 count : Rs 390-400 ( 6 months back it was Rs.330 )
50 count :Rs 360-370
100 count: Rs.200-230
Usually 30 count price does not vary much.
Divis exports, middle men and some local buyers…they do some price manipulation also.

Present prices are good and we are making good money…even at low prices of last year we were not at a loss but it looked less because we have made very good money before.

Whitespot disease is there but nothing alarming …we have to take care and proper maintenance and if it’s surrounded by other ponds risk is high…
Floods: not a major concern…may have impacted around 5% only.

27 Likes
2001

Related to catching and future

2002

Dear Spartan,
Can you please elaborate on above - do you mean to say Avanti is not perceived as better quality than CP or other feed brands?
Thanks!

1 Like
2003

Basically the farmers with whom I spoke didn’t find any additional advantage of using avanti feed compared to other feeds. They don’t have preference for any particular company feed. This may have some bias as I spoke with only 3 farmers. There are other investors who have done scuttlebut and found that farmers preferring avanti feeds.

3 Likes
2004

As far as shrimp feed quality point of view, some of the farmer [my native place Nellore] preferring avanti feed or Growel feed than waterbase.Waterbase feed is lesser quality although price is less compared to avanti.

1 Like
2005

If we add to the the feedback @spartan recieved to the fact that Avanti did not increase feed prices, it could be that the moat is weaker than made out to be. It would be very helpful if someone with access to the field can help plot out the comparative trajectory of feed prices per Kg over last 2 years. This could help understand how price elastic demand is.

1 Like
2006

Some much needed good news trickling in

1 Like