Per my discussions with a shrimp farmer in AP, March/ April was a bad situation on the ground. Shrimp prices were low and many farmers did not go for a second crop. He says, demand is slowly coming up now though shrimp prices r 20-25% lower than jan levels ( when 30 count was around INR 500+)…Labour remains an issue for processing plants and companies are taking extra measures to bring them back to work. Theres a website (40count.com), where we can track shrimp prices ( though prices come with a lag and do not reflect exact situation). Awaiting Q4 results and commentary from the company.
Disc: invested. Not an investment reco. Pls do your own due diligence.
Continued push by Central and state governments. Interestingly the sector hasn’t grown over last couple of years…will it grow at a good rate in coming years?
Superb results considering that there was a general fear in the industry and it was feared that Feb/March month had been hit. Even more important to note is the growth and profitability in the feed segment especially that raw material prices were high. Its rare to see such contrasting performance by a leader vs peers in the industry.
Great results by Avanti. Few things to note and need more clarity on few items-
company is fully debt free. On a net debt basis, they have been prudent in the past by maintaining zero debt levels but in these times it’s even more better to completely remain debt free
clearly, rise in feed prices has improved profitability and no slowdown in offtake by customers
Q1 should give us more colour on the impact of COVID on cos operations. Trying to get some feedback from farmers about actual on the ground scenario.
there has been a large increase in inventory ( feed business mainly) at the end of Q4. Would need more clarity on this, whether these pertain to raw material stocking or finished goods. This has led to a drop in CFO.
capex looks like mainly maintenance and no new expansion. Will need to understand status of feed hatcheries business, when do they plan to start operations.
cash balances have been steadily increasing. Intriguing factor is, declaration of a very small amount of final dividend. To me it appears like, either co is preparing a war chest for some major inorganic expansion or piling up cash anticipating tougher operating conditions in coming quarters
Good results!
I see that inventories up by 164cr.
Cash from operations before tax stood at 231 cr vs 330cr
Full year dividend still at 5.1rs vs 4rs last year. This is in line with ~20% payout.
Actually in such businesses the impact started from january itself
It actually started from the news that eating chicken can cause corona
People stopped buying chicken and other products
Poultry business has suffered a lot because of this confusion and same is the case with other similar business
May exports to the US have dropped quite substantially (from 20391 to 8600). Ecuador has undergone a similar drop in exports (maybe their Chinese supply has resumed). Indonesia seems to be gaining market share. https://www.st.nmfs.noaa.gov/apex/f?p=169:2:::NO:::
Lack of Brood stock and Hatchery seed production
The operations were hit due to Covid lockdown. Approximately 63,430 broodstock animals were imported in the first quarter of 2020, until the COVID-19 lockdown was announced by the Government of India (The Marine Products Exports Development Authority, or MPEDA), with no new imports since lockdown. By March 2020, 16 billion PLs were produced, and of these, some 1 to 1.5 billion animals, were discarded by hatchery operators due to lack of demand by farmers, which disturbed the cycle of shrimp seed production at the hatcheries.
Hatchery operators were not able to produce seedstock during the initial period of the lockdown due to strict regulations on their operations, including various logistics aspects and labor. Also, drivers for delivery vehicles were not available to transport the PLs to distant regions
Because of the lockdown restrictions, lack of SPF broodstock, reduced hatchery seed production and a huge demand for PLs, seedstock prices increased by around 30 percent in the last three months, and further increases are possible unless conditions change. It is worth noting that the state government of the State of Andhra Pradesh has set maximum prices for PLs, with shortages expected in the coming months.
Also, if broodstock imports do not satisfy demands, hatchery operators may resort to using farm-reared animals as non-SPF broodstock to produce PLs to meet farmers’ demand, and this would obviously affect seedstock quality. Nauplii survival during the summer would be lower, leading to severe shortages (of as many as six billion PLs) in the supply of PLs after May 2020
In India’s shrimp farming industry, the first quarter (Q1) and early second quarter (Q2) of the year are commonly referred to as the summer crop, and this is the most active season for PL stocking. During February and March 2020, farmers were preparing to stock their ponds based on a normal PL supply situation. However, the official COVID-19 lockdown at the end of March significantly impacted the supply of PLs and the subsequent stocking of ponds, which resulted in a drastic fall in raw material prices.
Because of the resulting uncertainty in international markets and also disease outbreaks, farmers carried out emergency harvests of ponds. Most farmers that stocked their ponds between January to early March have harvested their shrimp even at very small sizes. As a result, about 70 percent of the shrimp aquaculture area is now ready for stocking
Based on our own data gathered across the key aquaculture zones, the pond area presently stocked is approximately 30 percent
Both the points above clearly seem to be hinting that there would be a significant dip in the Shrimp production in April / May, and by inference, should also reflect in feed sales for AFL.
More details can be found at the following source
In addition to the above, there has also been a significant decline of about 9.5% in Shrimp Prices. Not sure if such price declines lead to hold-up of frozen inventories in hope of a quick price recovery.
To add further, top officials at SAP (Society of Aquaculture Professionals) too are giving out the same message.
The broodstock import of Vannamei shrimp, the mainstay of $6.7 bilion Indian seafood export, was disrupted for several weeks due to Covid 19 lockdown. ``It has improved and we foresee a jump in export in the second half of 2020 like it happened in the previous year,’’ said Ravi Kumar Yellenki, president of Society of Aquaculture Professionals.
In April this year we had 25% increase in exports to the US with China also consuming higher quantities. But broodstock imports not being there for 50 days from March 22 to May 12 and the subsequent imports at 50% of normal may impact the export in June and July,’’ he said
He anticipates the shrimp production to be down by 10-15% down from last year because of a gap in broodstock imports, on which India is heavily dependent for shrimp aquaculture production.
Official Chinese media say that an undisclosed number of customers and delivery personnel have been told to self-isolate in southeastern China after Covid-19 was detected on shrimp containers imported from Ecuador.
According to the official CGTN broadcaster, Covid-19 was detected on imported samples in the city of Pingxiang in Jiangxi province. The local government says that “no abnormal situation has been found in the city so far” to suggest a potential localised outbreak.
This is the second time this week that samples of seafood products have tested positive from the South American country. On Monday, the official China Daily said that seafood from three Ecuadorian companies were being pulled from shelves after six samples from inside shipping containers and the outer packaging of shrimp tested positive at customs.
Many local governments and online retailers quickly issued suspension orders on these products and said that they were carrying out tests.
In recent weeks, Chinese consumers have been nervous about eating seafood, after chopping boards used for imported salmon tested positive at a wholesale market in Beijing. It is believed this led to 335 people being infected across the capital city, and led to Beijing implementing a strict lockdown and aggressive testing procedures.
Q4FY20 call notes. Missed a few things, specially in the beginning. Please add. In summary, there will be a deferment of volumes from Q1 to Q2.
Earlier export incentives- MEIS=7% and duty drawback 2.7%, total 9.7%. Now 5+3= 8%
Some workers migrated. Temp shortage of migrant labour but we are very careful of worker background checks to safeguard other workers
Hatchery- 200mn seed capacity completed and waiting clearances. Expected to start end Sept.
Present situation- Initially Shrimp prices fell. Apr-June is stocking period. Farmers waited for clarity and started to ask for seeds/broodstock in May but seeds were not available. The deferment impact will be seen in Q1. Seed is available now. Stocking will happen in June-July-Aug. Gradual improvement, stable prices. Culture in progress.
Feed industry can see10-12% drop in 2020 - 10lakh this year MT vs 11.5MT, . Avanti to maintain same level or 5-6% down as its adding farmers and geographies to sale network. 42-28%. Not seeing any players going out of market. Farmer sentiment is good as fargate prices are stable, in fact moving up slightly.
Exports expected to drop by 10% , 7L T vs 8 LT. Turbulent market in last 6 months, restaurants closed. China demand is low because of second wave of virus. We are looking at it week to week. Prices have remained stable or remained upwards similar to other proteins. Retail was very strong in beginning of year but some restos opened. Currently 50-60% is retail vs 60-70% HoReCA /restaurants earlier. World over there has been a drop in production also. There is a good demand-supply balance.
Govt support- Blue revolution, PM Matsya yojana 20k cr in 5 years. Modalities not yet announced. Possibly on Cold chains and support to farmers.
Feed price hike- Andhra state govt wanted to monitor the aquaculture. They have an act now. Some farmers wanted prices reduced. We hiked by 4.8rs in feb and considering farmer situation, we agreed to reduce by 1rs from today (16th July 2020). We will be able to cover this 1rs by reduction in RM price.
RM-soya and wheat are more stable. Good production likely. Crop will come in Sept-Oct. We will be able to have stable price without fluctuations. Fish meals price also stable but right now going up due to the ban.
Fish feed- Not yet come to material shape.
China- COVID case in Ecuador shipment. Virus was on packaging, not on the product. Companies were banned. China is doing lot of checking. None of our shipments tested positive. US gave a release that its not possible for virus to be present on frozen shrimps. Shipment is in transit for 1 week. So not sure if this news is credible. As of now we haven’t seen any concerns.
Exports at 60% utilization - We were planning to expand capacity but right now there is disruption in supply chain, labour. Will be able to plan when things calm down
RM procurement- Over the year. Some pdts where prices go up. Wheat flour -15-30 days. Soya- 1 month. If price is good then we stock 15 days higher inventory.
Receivables- 90-95% sales are in advance payment before dispatch. 4-5% sales also come within 15-20 days.
Soya meal, wheat flour, fish meal prices- what you see on website is different from what we buy. It depends on quality. We have qualified vendors. Fishmeal - 30-40 companies in India. Soya meal 100 companies?
Scalability of processing business? Great opportunity to scale up. Our performance of 4-5 years- consistently scaled up. We can easily reach 85-90% utilization in next 2 years. Some slowdown of the plans because of current situations. Increasing same customer sales in all accounts. If we can maintain quality and consistency, we can add customers. Currently USA focus but there are other opportunities too. Vietnam player Minh Phu does 60-70,000 MT shrimp exports (some more digging in next post)
After reaching full utilization, can it double in next 3-4-5 years? Not very clear due to COVID. We need to see how things restart. If required, we can scale up capacity very very fast. We are also looking at mechanization of some of the processes.
Cash on balance sheet- beyond any capex needs. Still not been able to find a suitable investment opportunity. Expect safety, reasonable returns. Things are very uncertain. Currently we are getting 6-7% post tax return, which should be good for the time being.
Plan for fwd integration and roll out a brand in US market? As of now primarily OEM. Penetration of new brand in US is difficult because retailers have their own brands. Havent evaluated but have thought about it in US/EU/ Japan, but scope of growth is not very high
Is China margin same as margins in US? China buys more commodity so margin is lower but there are also Chinese customers that import value add that is similar to US, but bulk is commodity. US realization is higher. China is a high growth market, saw exponential growth in 2-3 years. It can be a big consumer of sea food in future.
March we keep RM stock, particularly wheat crop comes in Feb, so we stock for April , May, June. This year we expected good production so we procured in Feb, March.
We expect to make up in H2, but overall drop of 10%.
Vietnam player Minh Phu, one of the largest exporter, has capacity of 76k MT and does 60-65k MT volume (Avanti is at 22000). They had plans to increase capacity to 200k MT by 2025. (source- May 2018 prospectus). Minh Phu has also put an emphasis on vertical integration and digitalization/ automation of processing, in a bid to strengthen margins. This has especially been pushed since it took an investment of $150m from Japan’s Mitsui & Co. for 35% stake in 2019, with money going into expanding farming and new processing plants
Vietnam should benefit from new or imminent trade deals including the EU-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (signed by New Zealand and 10 other Asia-Pacific nations)
Vietnam cost of production is 10-30% higher than India and Thailand. Among the current competitors, India, Indonesia, and Ecuador are the three countries that Vietnam must pay special attention to. However, although India has many competitive advantages in price due to low shrimp farming costs, its shrimp production has an unstable growth due to strong impacts of weather and disease… Source
Ecuador is becoming prominent. Production and technology has grown fast. Its Quality is recognized by many importers
Could you share your views on the near term impact on Indian feed companies in general and Avanti feed in particular because of reported Covid infections found on shrimps packages imported by china?
