Q2FY20 concall notes. Please add points that I may have missed
Better to compare H1 vs last year because of delayed stocking…Margin expansion. Tax reduction.
Export and farmgate prices stabilizing, assuring farmer. Expect industry production to be flat this year but growth next year onwards. Estimated industry CAGR of 4.9% from 2020-2021. Jan-Sept feed consumption numbers- (not noted). Oct -Dec 3.5L Tonns industry feed consumption expected taking total to same as last year of 11 Lton.
Feed business
Adding new farmers and areas, increasing market share.
Guidance of 5-10% earlier. Same or higher? 10-12 (-15?) % for FY20 is possible . All depends on culture. Earlier harvesting was at smaller size but now it is increased so there is good growth. Normally, Apr-Jun is best Q and Oct-Dec in past is a declining season and then next crop start in Feb. But this year we find that culture will continue because many areas which were earlier deprived of rains are getting good rains. Q3 and Q4 will be better than last year because culture continues there. We tone down our market share when we give out numbers.
FY20 we can do 4.60 to 4.7 L Ton for full year
Bangladesh- Only tiger shrimp is allowed. Govt will consider vennamei shrimp culture. India market size= 6L tonnes, Bangladesh is currently only 15000 tonnes. Once vennamei is considered, it can be good because West Bengal our performance has been good. We are trying to target that market, it can be 3x the current size, so total =45000 tonnes. Current supplier is CP feeds. First consignment performance was exceedingly good. We had first farmer meet and farmers are willing to switch to Avanti Feeds.
Feed RM prices- Slightly gone up but we have been able to maintain. Expect margins to be maintained in feed business. Total 52.3Rs per KG in Q2FY20
- Soya crop is ready for harvest. Will start to come on 10-11th November. Production is 10-15% down compared to last year but Indian market price is expected to be stable or come down slightly because US and Brazil had good crop.Went up from 38 to 41rs last Q because of increase in MSP but it came down because exports are not happening because exports are not price competitive.
- Fishmeal- Govt levied 5% GST after Sept 2019. We are asking govt to remove the levy. If it is levied, cost will go up. By and large price is 89-90rs. Season has started and catches are normal. We can raise price if GST comes.
- Flour is expected to be around 27-29rs after MSP announcement, it was rs26-27 earlier.
Processing
Margins down on shrimp processing? Reasons-
- Market is more competitive. We sacrificed margins to enter new accounts.
- Many products are in transit.
Realizations are lower for us but farmer is more comfortable than last year. Everyone expects price improvement. There is stability now. Lot more farmers had taken a holiday and they can come back. Overall, it’s a very healthy industry. Shrimp prices have been stable for last 3 months since last concall. Farmers are waiting to get bigger size, while they had harvested at small size last year in panic.
Shrimp processing inventory hangover in US?? Product is moving well in US. Economy is good, unemployment level is low. Healthy markets this year- US, China, Japan.
Processing CU 63% vs 52%. Expect 70% by end of FY20. Capacity increase will be on Value added side, not on commodity space because it is very very competitive?
70-75% is the RM price. RM increased 5-6% but the realizations didn’t go up so much. We increased Value add so we didn’t get impacted so much as we could have. Margins could have come at 8% but it didn’t drop that much.
Japanese market- we got one customer? Its not only 1 customer, but we have few. Introducing new products that are specific to these markets. New product development takes 6months-1 year to introduce. Volumes can go up after some time. Diversifying to reduce US concentration risk. But this Q our performance in US is good, customers are happy with deliveries, qualities. US has not saturated, we are still growing there.
New tax regime- Avanti Feeds is opting for it and will reduce tax by about 10%. We don’t have MAT credit etc benefits. Avanti Frozen has tax holiday till 2022 and there will be 70-80cr MAT credit, on so Avanti Frozen will continue with the old structure.
Nov-Dec is peal season in US and customers review the inventory in mid Jan
USA trade benefits withdrawal of Thailand. This was also removed from India in March. Shrimp is not included in the list so no impact for either countries.
Cash - Dividend payout increase? Capital outlays are small even if we go for expansion? Same reply. Looking for good opportunities to grow the company. Its so hard to raise money at low interest rates. “We are looking at all sizes- big small medium”
Return on investment is 5.5-6%. Priority 1) Safety of money 2) liquidity 3) last is absolute return. Don’t want to risk a huge investment.
Capex - Working on small plan for new lines in processing. Not much investment required because infra is already there, only machines will be needed. Feed- Working on Fish/animal feeds and we will come to you at appropriate time. Fish is a small domestic market. There are many species and market is segregated. We are doing market analysis- what species to target etc.
