AVT Natural Ltd

Attaching the link to initial analysis note on AVT Natural Products Ltd. (BSE-519105; NSE - AVTNPL), which, deserves to be a part of the core portfolio because of its world-leadership status in Marigold Oleoresin Industry, its Derisked-Business-Model wherein it ties up almost entire offtake with vendors, Clean Management with High Promoter Holding, Attractive Dividend Yield of 3.5 % as well as Commencing of Fruit-Bearing Phase after a 3 years' of capital-intensive phase.

Views Are Invited on the company.




Why AVT Natural Ltd. demands a place in one's Core Portfolio ? :

  1. Two of the three operational segments of the company (Food-Grade Marigold Oleoresin and Spice Oils & Oleoresins) have surpassed the immature stage which will see a multi-year demand boom starting from 2011. The third segment (Value Added Beverages) is still at a nascent stage but is bound to grow two years hence, once the decaffeination plant (one of the only three in Asia) set-up by the company fully stabilises. The new related segments in which company is entering now (Phytochemicals and Soluble Beverages) offer tremendous potential for growth.

  1. Company has a World-Leadership status in supply of Food-Grade Marigold Oleoresin.

  1. Is the only company in the world which has a large production-base in two (India & China) of the only three major countries (India, China & Peru) that supply marigold and so is the first preferred choice as a reliable supplier of marigold which is evident from its exclusive tie-up with Kemin Industries Inc. (one of the world's largest consumer of Marigold Oleoresin) and Chrysantis Inc.

  2. Is world's only player in marigold industry which has own cultivation as well as processing facilities.

  3. Is a rare end-to-end player in marigold market with in-house development of high-yield hybrid-seeds, firm contract farming arrangement (one of the largest in India) as well as own plantations for growing marigold, certified extraction plants to extract food-grade and feed-grade oleoresin from marigold and exclusive agreements (is the only supplier) with world's leading consumers Kemin and Chrysantis for the offtake of entire produce of marigold oleoresin. Hence, the only risk left with the company is the weather and therefore production risk which is very well mitigated by establishing large cultivation-base (production-base) in two countries viz., India and China.

  1. Kemin, AVT's largest client, has last month (April 2011) launched an aggresive multi-million dollar promotional campaign (second in its history and that too after a decade) with renowned celebrities like Lolo Jones, Emme, Aaron Scheidies and Jennifer Galardi to aggresively promote its FloraGlo Lutein brand for eye-care ahead of the release of AREDS-2 Study in 2015, to enable the brand to reach the annual sale figure of 100 mn. US$ by 2014 from current 50-55 mn. US$. In addition, Kemin has, in March 2011, started a personal care division in which it plans to use its FloraGlo Lutein in the formulations meant for skin and beauty care. These developments augur very well for AVT Natural as it has an exclusive agreement with Kemin wherein Kemin has to procure all its requirement of food-grade marigold oleoresin for production of FloraGlo Lutein from AVT only and so the business from Kemin is bound to rise exponentialy for AVT in the years to come which is evident from the robust financials registered by AVT in Q3FY11 & Q4FY11.

  1. AREDS-2 Study (a major clinical trial sponsered by US Federal Government's National Eye Institute), which is closely watched and is followed by almost all the leading Ophthalmologists around the world as well as Pharma & Nutraceutical companies, is likely to release its findings on intake of lutein and zeaxanthin on prevention of AMD (Age-related Macular Degeneration â which affects more than 30 mn. people worldwide and accounts for more than 50 % of blindness in USA) in the beginning of 2015. Based on the progess done and the reports generated so far, it is almost certain that lutein and zeaxanthin will be given a prominent place in AREDS-2 study as they are actually found in high concentrations in the macula of human eye. Once this is done, the demand for these carotenoids (lutein and zeaxanthin) will rise exponentially which will significantly benefit AVT Natural as Food-Grade Marigold Oleoresins are the richest source for extraction of lutein and zeaxanthin and AVT is the world's largest supplier of the same.

  2. Spice Oils & Oleoresins, the other operational segment of AVT is also experiencing a demand boom because of two reasons â first â Because of the steadily growing demand from the domestic as well export markets due to their varied uses in confectionary, noodles, beverages, sauces, canned meat, soup powders, curries and poultry products, and --- Second â Because of the increasing preference for quality products in each of the user-industry, use of spices is rapidly getting replaced with oleoresins and spice oils. Both these facts are validated by the recent Indian Spices Board report which states that âin 2010-11 fiscal, a significant feature of spices export was the rise in shipments of spice oils and oleoresins. They made up over 15 % of the export basket.â. AVT, being a significant player in this segment (almost second to India's largest exporter in the category â Synthite) with a wide-spread customer-base numbering more than 80, is bound to exploit the opportunity of demand-expansion in the segment fully.

  1. The third operational-area of the company, Value Added Beverages, for which it has set up a Decaffeination Plant at Vazhakulam, Kerala (present processing capacity is 7 mn. kgs which is one of the largest in the world), learning phase has already concluded and stabilisation started which will see a significant rise in volumes going forward. This segment of AVT is again a niche one, because there are only 20 odd companies in the world who provide Decaffeination facilities out of which only two are located in Asia, Nine in Europe and Four in USA while others are located in Brazil, Mexico and Colombia. Major Beverage companies like Kraft and Sara Lee have their own Decaffeination Plants but most of the other beverage companies (including Unilever-Lipton) around the world outsource their Decaffeination requirement via what is called as toll arrangement wherein they provide tea or coffe to Decaffeinators (like AVT) and pay a fix processing fee. This is because, to set-up and maintain a Decaffeination plant, it requires a lot of capital and skill and so not many companies venture into this business. However, beacuse of health consiousness, the demand for decaffeinated beverages is, of late, robust, in both, developed and developing countries, but price is the major constraint hampering thier demand. Asian continent, especially China and India, are the obvious choices to outsource the Decaffeination requirement at the most competitive cost and this is evident from the first Decaffeination plant in Asia becoming operational in 2007 in Vietnam, only 2 years before the operationalisation of AVT's Decaffeination plant in India.

  2. Finlays, the largest independent tea trader in the world trading more than 100 mn. kilos of tea each year (also one of the largest producer of tea producing 45 mn. kilos of black tea each year), has chosen AVT for outsourcing its Decaffeination requirements w.r.t. Tea. It has entered into a toll arrangement with AVT till 2013. It is worthwhile to note here that Finlays already has an in-house Decaffeination plant in Hull, UK where it decaffeinates almost 3 mn. kgs of tea each year at present, but the demand as well as the need for offering Decaffeination at competitive rates is such that it has decided to outsource the Decaffeination requirement to AVT and this itself is the vindication of positioning of AVT in the space.

  3. Alongwith Finlays, AVT counts amongst its clients Harris Freeman (which through its division Harris Tea is the largest Own Label tea supplier in USA) in Decaffeinated Tea space.

  4. Company has a clean management being a group-entity of AV Thomas Group (69.6 % Promoter Holding +

    4 % acquired on 6th May 2011 via Open Market Purchases at the rate of Rs. 150 so present promoter holding is 73.6 %) and is headed by a professional management under Mr. MSA Kumar (ex-vice president Shaw Wallace & former Chairman of CII Kerala).

  5. The company has grown its topline at a CAGR of 20.6 % and EBITDA at a CAGR of 5.3 % over last 5 years. This growth was achieved inspite of the company being in a learning-cum-investment phase (expanded capacity via addition of another extraction plant and added a capital intensive Decaffeination Plant) which depicts the bottomline-focussed approach of the company. If one analyses the balance sheet of the company closely of last 3 years, then we will find that the company has expanded heavily on assets front with no significant rise in topline as well debt-to-equity. The first part is quite easy to understand as normally the plants like these take atleast 1.5-2 years for stabilisation and therefore any meaningful contribution from them can be expected only after that. However, the second part of the observation is really commendable as the expansion is done without burdening the balance sheet with debt as also maintaining the profitability level and dividend payout level (35 % and 30 % in FY08, FY09 & FY10).

  6. With expansion already done and the stabilisation occured in all the three operational segments, going forward we can see a healthy topline growth, a glimpse of which can be seen in recently declared Q4FY11 results wherein company has attained a 101.5 % jump in topline YoY and a 105.6 % jump in PAT YoY.

  7. Company has maintained an average dividend payout ratio w.r.t. PAT at healthy 32.15 % over last 10 years which speaks highly of the management's concern towards the return of its shareholders and based on the expected FY11 dividend, the company is offering an attractive dividend yield of 3.5 % with a significant growth opportunity for the capital invested.

    At current market price of Rs. 145, AVT Natural is available at a p/e of just 10.03 on declared FY11 EPS of Rs. 14.44 and at a market-cap-to-sales of just 0.75 on FY11 reported topline of 147.02 cr. If we look ahead, then based on FY12e numbers, company is available at a p/e of just 7.45 and a mcap-to-sales of just 0.62 and on FY13e numbers, company is available at a p/e of just 5.6 and a mcap-to-sales of just 0.48.

Past Financials of AVT Natural (alongwith key expenses as % of sales/ebitda/pat to assess quality)










(Fig. in ` cr.)






























(-) 1.7

Dividend Declared

To Be Declared

30 %

30 %

35 %

30 %

50 %

40 %

10 %


Div.Payout Ratio as % of PAT

To Be Declared

40.85 %

38.06 %

33.63 %

30.6 %

29.82 %

33.5 %

18.6 %


Taxes Paid

(% of EBITDA)


(24.29 %)


(21.67 %)


(24.29 %)


(31.9 %)


(26.66 %)


(31.53 %)


(18.84 %)



Interest Paid

(% of EBITDA)


(19.15 %)


(21.13 %)


(20.04 %)


(14.9 %)


(15.82 %)


(12.69 %)


(17.35 %)


(33.81 %)


(88.84 %)


Hi Mahesh,

Good report as usual from you. Company looks quite good and worth considering.

Coming to the company AVT, it looks like a company on the cusp of change in terms of growth trajectory looking at the last two quarters.

**How can poor monsoons affect the company’s fortunes? As far as I understand the company is also into cultivation of marigold and might be affected by the vagaries of monsoon. If the produce is poor how does it affect the equation with the companies it supplies to? **

**What kind of revenue and margins come from each of the segments? **






Thanks Hitesh…

Coming to your queries, yes, if monsoons are bad it does affect the production but its for this reason onlycompany has spread its cultivation base across five states in India as also in China. In India AVT cultivates marigold in approx. 35,000 acres while in China it cultivates it in approx. 4000 acres. Also, to improve the production, AVT cultivates marigold in summer too in addition to monsoons. To add, AVTuses high quality hybrid seeds for marigold production which reduces the chances of significant production loss. But, if monsoons are too bad, it will definetly affect the production, no doubt.

Now, with rgds. to the equation of supply of marigold to the companies AVT supplies to, here, you need to be aware of one thing that, it was the policy of Kemin of having a two country supply line because of which AVT expanded into China… But, because of quality issues, the same vendor Kemin has a policy of using food grade marigold oleoresin for production of lutein from India only and for this it has to procure all its requirement from AVT only (bound by an agreement). Hence, as far as Kemin goes, its production of lutein has to be satisfied by AVT only till its patent expires somewhere in 2014. Hence, if production at AVT gets affected production at Kemin will also get affected and for this AVT takes each and every step of ensuring that supply of atleast food grade marigold oleoresin for production of lutein doesn’t get affected. What it does is that it cuts on the production of feed grade oleoresin so overall the sales might get affected to the extent of production loss but the supply line for lutein remains intact. This is the reason why Kemin has signed a binding agreement with AVT as Kemin considers it as the most reliable supplier.

Now, with rgds. to production of china, it is mainly used for feed grade marigold oleoresin meant for poultry pigmentation.

Now, with rgdg. to contribution of each product line, its 60 % from marigold, 30 % from spice oils & oleoresins and remaining from value added beverages.

With rgds. to margins, food grade marigold oleoresin operates ate around 20-22 %, feed grade at 18-20 %, spice oils & oleoresins at 8-10 % and VAB at 16-20 %.


Hi Mahesh,


** considering.Coming **

** quarters.How **

** What







Hi Mahesh,

Whats the source of this data, I couldn’t locate this detail in the Annual report?


Hi Aditya,

Some of these data is already present in AR (itsadvisable to refer to last 10 ARs - if u want I can mail them… I have from 1999), for other data u need to dig deeper into all the info available rgdg. the operational segments as also the co.,

for ex. rgdg. the agreement signed between kemin and AVT u need to refer to the articles and interviews ofboth themanagements at the time of signining the agreement; as also take the leads u get from such articles and dig more deepper, like — the agreement is valid for the whole duration of arrangement of kemin with DSM for floraglo lutein-- so here go to details of agreement between DSM and Kemin then u will find that the agreement between them is for the entire patent period — and so dig again deeper for the expiry of patent which is in mid-2014.

For opportunity of lutein and zeaxanthin, refer to all the articles/reports of global carotenoid market, as also assess whether the claims made for the said carotenoids are justifiable-- also look for AREDS studies its following in the world health market to assess if the said carotenoids find favourable place in AREDS-2 study in 2015, what sort of potential market gets opened up— look for companies that have started to develop products around lutein and zeaxanthin to assess whether they see future market or not— look for positioning of floraglo lutein in the market — the media campaign that kemin has launched, read between the lines, to assess whether kemin will succed or not, – assess DSM, kemin’s only exclusive partner for floraglo, its positioning in the global carotenoid marketplace (only there are two major players BASF and DSM),

For spice oils and oleo segment alongwith the data available of AVT refer to Indian Spices Board as also the info and articles of Synthite - India’s largest player in the respective segment.

For Decaffeinated beverages, refer to the industry reports as also the entire global tea market articles/reports to find how many players are actually there and what is the potential opportunity— also refer to Finlays, its size of operations, importance given by it to its partner AVT in its internal newsletters, etc.to assess its capacity to drive the business of AVT.


Promoters are continupusly buying from the open market and in current
FY they have bought almost 4.4 % equity from open market at avg.
150-155… The creeping acquisition limit will soon get reached and
after that it will be interesting to watch what promoters next move

In any case, promoters buying from the open market at current market
price makes downside risk minimal for the stock.


DSM, world’s second largest player in carotenoids market has opened a
new centre with focus on Lutein and zeaxanthin… AVT, being world’s
leading player in both the carotenoids can immensely benefit because
of the positive worldwide developments for these carotenoids…

DSM opens state-of-the-art innovation center in Parsippany, NJ

May 23rd, 2011

The center, which is staffed by more than 100 applications specialists
and technical marketing experts in food, beverage, dietary supplement
and personal care, includes laboratories, pilot plants and sensory
analysis facilities enabling DSM to work far more closely with
customers at every stage of the product development process.

The facility will enable DSM to optimize production processes, improve
quality, test new ingredients and develop novel finished product
concepts, from sports nutrition bars with zeaxanthin and lutein to
enhance visual performance to chocolates or beverages laced with green
tea extracts, resveratrol and vitamin E for beauty-from-within.

But it would also help the firm build closer relationships with
customers, who are increasingly working with DSM at the earliest
stages of product concept development, DSM Nutritional Products North
America president Jim Hamilton told journalists during a preview of
the new center last week.

âIncreasingly weâre doing our own market research to understand where
consumers are heading and combining that insight with our science and
applications expertise to help customers get innovative products to
market more quickly.â

Metabolic health, mental performance and fitness/wellness

While the US dietary supplements market continued to grow throughout
the recession, the functional food and drink market had not weathered
the storm so well, with a steady drop in the number of new products
launched in 2008-10, accepted market segment head for infant nutrition
and medical foods Anthony Palmieri.

However, big branded manufacturers were still looking at functional
foods because genuine innovation would always be a differentiator,
stressed Todd Sitkowski, senior marketing manager.

âI still think most people want to get their nutrition from food not

For consumers, the hot areas were metabolic health, fitness and
wellness, and mental performance, said Jean-Claude Tritsch, director,
global technical marketing.

âWe are involving our customers from the very beginning, right at the
concept stage, starting with health benefits rather than

Visual performance and sports nutrition

Customers visiting the innovation center could see a raft of new
concepts in all of the above areas, including new bars targeting an
emerging area in sports nutrition, said senior marketing manager
Aparna Parikh.

While visual performance might sound niche from a functional foods
perspective, DSM had recently pitched concepts featuring Keminâs
FloraGlo lutein and DSMâs OptiSharp zeaxanthin for enhanced contrast,
glare tolerance and recovery to major food and beverage manufacturers
as well as dietary supplements companies, she said.

âThis is an emerging area in sports nutrition. If youâre playing
sports in the sunshine, being able to tolerate and recover from glare
and see the ball more clearly at pace and from a distance can make a
big difference.

âItâs not something you would just eat once before a baseball game,
youâd need to take it regularly.â

Battling the bulge

New product concepts on show at Parsippany featuring appetite-busting
palm and oat oil emulsion Fabuless were also garnering interest,
claimed dietary supplements marketing director Lynda Doyle.

âFabuless has been doing very well, and more products should be
launching this year. To date, most of the launches have been in one
shot products or stick packs but weâre working on solutions for bars
and other products.â

Meanwhile, a new powdered formulation for partner Provexisâ Fruitflow
tomato-extract was expected to launch in second half of this year,
while a raft of new concepts â and new ingredients â were also being
investigated in the mental function arena, said Tritsch. âCognition is
particularly hot, right now, and weâre got new products in internal
pipeline beyond DHA and B vitamins.â

Although the firm did not provide a precise definition of what
constituted a ânewâ product, 20 percent of its revenues were expected
to be from innovation/new products by 2020, said Doyle.

âWe have bought or invested in companies in order to access new
ingredients but we are also doing a lot of work internally on new
ingredients and have a huge database of compounds and molecules from
natural sources that weâre looking at across multiple health

Formulation and applications expertise

While DSM spent a whopping â¬424m on RD in 2010 (5.2 percent of net
sales), much of which went into new ingredient discovery and
development, the investment in the innovation center at Parsippany
reflected an increasing commitment to differentiate itself in the
market through its formulation and applications expertise, he said.

âA key part of the value we add is in blending, formulation, from how
to add [fat-soluble] vitamin E to a beverage without it going cloudy
or how to add vitamin A to sugar and retain stability to how to
improve the bioavailability of iron.â

Major branded customers in the food and drink world were also turning
to DSM because of its expertise in quality and sustainability, said

âIf you have a brand and you are interested in quality and innovation,
you will be interested in us. You can never buy back your reputation
with the money you save on cheap ingredients.â

Meanwhile, sustainability and the desire for âcleanerâ labels and
natural ingredients was âbecoming more and more part of the
conversation weâre having with customers and end consumersâ, he said.

Hi Mahesh,

There was a disclosure of substantial aquisition of shares by AVT, The data in BSE site has the below details. Its shows 10% aquired, but overall holding is still 29%

Scrip Code:519105 Company: AVT NATURAL PRODUCTS LTD.
Name of Acquirer / Seller Transaction Date Acq/Sale No.of Shares Transacted Holding after Transaction
Qty % Qty %
Midland Rubber & Produce Co Ltd (Revised) 02/05/2011 Acq 761420 10.00 2223987 29.21 #
Nelliampathy Tea & Produce Co Ltd 06/05/2011 Acq 304568 4.00 304568 4.00 #
Nelliampathy Tea & Produce Co Ltd 06/05/2011 Acq 304568 4.00 304568 4.00 *
Midland Rubber & Produce Co Ltd 16/05/2011 Acq 4082 0.05 2228069 29.26 #
Midland Rubber & Produce Co Ltd 16/05/2011 Acq 4082 0.05 2228069 29.26 *
Midland Rubber & Produce Co Ltd 17/05/2011 Acq 4909 0.06 2232978 29.33 *
Midland Rubber & Produce Co Ltd 18/05/2011 Acq 2505 0.03 2235483 29.36 *
Midland Rubber & Produce Co Ltd 19/05/2011 Acq 2058 0.03 2237541 29.39 *
Midland Rubber & Produce Co Ltd 19/05/2011 Acq 2058 0.03 2237541 29.39 #
Midland Rubber & Produce Co Ltd 17/05/2011 Acq 4909 0.06 2232978 29.32 #
Midland Rubber & Produce Co Ltd 18/05/2011 Acq 2505 0.03 2235483 29.35 #
Ajit Thomas 27/05/2011 Acq 1200 0.02 31200 0.41 *

Hi Vinod,

The data you have gathered is right but the interpretation is not correct… Promoters in AVT hold their stake under the banner of various companies in addition to personal capacities…

The first 10 % stake buy that you see by Midland is actually an interse transfer between promoters’ entities wherein i think Neelamai agro has sold and Midland has bought so that transaction is immaterial and what you see is Midland’s stake got raised from 19 % to 29 % because of that interse transfer.

What is material is the purchases after that as all other transactions are via open market purchases… the 4 % stake that is bought is again by another promoter group entity viz., Neeliampathy Tea and this transaction is not an interse transfer but big shareholders holding more than 1 % have exited and promoters have bought…

Even after that promoters are digesting all that they can get upto the rate of Rs. 150 which is evident from small small purchases which shows retails are exiting and promoters are buying.

Overall, promotersstake has actually gone up to i think 74 % till date which is sign of something to come in coming FY…

Just for info… DSM, the largest player in carotenoids market, has indicated just before 2 days that it wants to aggresively look for buys in India and China… lets see what happens…

In any case, promoters buying till 150imparts a greaty safety for any downsides in the stock.


Hi, AVT is uo 11% today and 27%up from the day Mahesh introduced it here. Good going indeed!



Time to book partial profits…


Hit an all time high of 251 rs. today… time to book profits partially and make the shares free and hold such free shares for bigger gains as something is cooking in the counter.


Big one from Mahesh. This one is still not talked about in any forums.

Great going and keep them coming.


Thanks Mahesh.

Another v good one from you after PI. You have a stellar record of introducing un-discovered stocks.

I could not participate in either story, but my radar is now open, and waiting. Please keep them coming:)

Hey Mahesh,

Any idea whats happening in the stock. The numbers for June 2011 are mind boggling. Also EBITDA margins have jumped significantly to around 40% this quarter. Made quarterly EPS of RS 15.2 as compared to Rs 14.2 it made for last full year. Now that’s the reason insider buying was done but we need to check if anything fundamentally has improved in the company…

Yes Darshit… the number are much beyond expectations…

The reason of expansion in margins should be 1-more of the sales contributed by lutein and 2-decaffeination fees having been received…

Fundamentally its a strong company and its just that it has built assets since last many years and now what we are seeing is utilisation of the assets. However, having said that, at current price i will not advise fresh buying although it could rise a lot from here if co. can repeat Q1 performance in other 3 qrtrs.


Should the stock be bought at current price even after the runup?Views invited

Money life published an article withbuy recommendation on AVT.Please go through the link: http://www.moneylife.in/article/avt-natural-products-sweet-aroma/18238.html

Why so volatile this one ? Any views.

Has risen too much too fast because of speculative interest… investors need to be cautious…