Avanti Feeds: Annual Report updates

We discussed Avanti Feeds about a year back at Rs 35. The stock has been a multi bagger backed by very strong growth in revenues and profitability and is currently trading at Rs.145.

Financial Data of last 6 years (Figures in Crores):

FY 2007 2008 2009 2010 2011 2012 CAGR
Sales 121.74 102.83 73.00 96.16 207.75 393.41 26.41%
N.P. 1.67 0.88 (7.03) (1.2) 3.42 28.07 75.82%

The reason for change in fortunes has been due to introduction of new variety of shrimps – Vannamei. Earlier Black Tiger variety was being produced which had lower density and hence higher cost of production.Vannemei is more remunerative for the farmers now.

It was encouraging to go through the FY 2012 Annual Report of the company. The undertone is very positive and as per it, Industry is expected to continue growing at 20- 25% for next 2-3 yrs. Avanti is aggressively expanding its capacity in anticipation of the demand.

Key Highlights of the Annual Report – 2011-12 (Link to report):

  • Thai Union Frozen Products PCL (TUF) holds 25.12% equity stake in the company. Mr.Wai Yat Paco Lee has been appointed as a director representing TUF. TUF is one of the largest seafood exporter company in the world.
  • The overall Shrimp culture was very encouraging and rewarding for the company. Its the second consecutive year where the overall increase in the shrimp culture both in terms of water spread area and density of culture was by around 25%.
  • The main reason being shift from Black Tiger shrimp cultivation to Vannamei shrimp cultivation.
  • The improvement in the international prices for shrimps has also encouraged new farmers in taking up the shrimp cultivation.
  • Strong sales growth by 125% in the Shrimp Feed segment. The processing and export division sales increased by 58.4%.
  • It is the most preferred brand by the farmers due to maintenance of high quality and constant technical support to the farmers.
  • The Government of India’s support and emphasis on Vannamei has also resulted positively
  • First quarter of 2012-13 itself has witnessed overall growth rate of 20% of the industry
  • The dividend has been increased to 65% from 10% last year.

Expansion Plans:

  • It is in process of buying a land near Chennai to set up hatchery in collaboration with THAI UNION
  • During the year the company has doubled its capacity by replacing old machinery with the new ones and constructed new godowns to handle increased volumes.The capacity has increased to 1,10,000 Mts p.a from 52,000 mts p.a.
  • The shrimp processing capacity has increased to 8000 Mts p.a from 2720 mts p.a.
  • As the demand anticipated by the company is slated for a big jump in a couple of years from now, further expansion would be needed as current capacities would be insufficient. Therefore, 4.94 acres of land near their current plant of Kovvur is already bought for expansion.

Risks:

  • Dependency on climatic conditions makes it unpredictable. Natural calamities like floods, cyclones, during the culture season can have serious impact.
  • Shrimps getting affected by virus and diseases also is a threat.

Our View:

The industry has had a poor past till 2008 but the recent changes in the industry are very strong and augurs well for the good players. Avanti Feeds is one of the biggest and perhaps the most efficient player with a significant tie up with worlds largest Seafood company Thai Union Frozen Products. TUF holds 25% stake in the company.

If the industry is to maintain 20-25% growth for next few years then Avanti has a good opportunity to capture a good business and make the most of it. We feel that the stock has potential and monitoring of performance is needed.

Analyze the company on our Screener

  • Yep, Ayush, potential is certainly there and for sure monitoring performance is necessary. Cheers !!

  • omprakash

    Hi ayush,Noticed some news in local media reg falling realizations for vannamei and rejections due to quality issues.Better to check.Although in long term consumption and demand going to increase.

    • Ayush

      Hi,

      Thanks for pointing out the same. Can you plz provide the link to he article?

    • Omprakashji, thanks foyr your updates on this n Kaveri seeds on other forum. Has the result already been taken into Account which led to price touching around 800 before the June 12 announcement .
      So can we still purchase Kaveri at current price. Hope the co is an ethical group unlike most of their Hyderabadi counterparts.

    • Ayush

      Hi,

      Spoke to someone in the industry. Yes, the realisations have softened but nothing too concerning. The industry is expected to continue growing at 20%+

  • Kushal Dalal

    Ayush,

    Do you track SRF?

    Kushal

  • Sandeep

    Hi Ayush..

    Any view on Narmada Gelatiin for medium term 2-3 quarters?? Bought at 145 before Q1 results.. has been sliding down… I dont think much downside exists for the stock as it is cheaply valued at this price..

    • Ayush

      Hi Sandeep,

      The expected growth looking at the industry was missing in this qtr results and hence the correction. At these prices, the downside is quite limited due to consistent growth and high dividends but major upside would be only if co delivers growth. So one needs to keep a tab on the performance.

  • shankar

    Hi Ayush,

    Do you think this is the right price to enter Avanthi feeds ?

    Regards
    Shankar Nadakarni

    • Ayush

      We have shared about the developments in the industry and the co and the future does look bright however being a perishable item there can be quick changes.

      Hence one needs to take his own call at higher prices.

  • Krishnamihan

    Avanthi feeds moved rapidly from 160 to nearly 200 before coming back to 160 now.Would you recommend a buy now

    • Ayush

      I think one may wait for Q2 results for more clarity

  • Krishnamohan

    Excellent results.I think it is worth a buy now.

    • Ayush

      Yeah, the results are better than the expectations.

  • Things seem to be turning for the worse again. It appears to us that even though Vannamei has increased yields per hectare, Avanti’s raw material costs haven’t really dropped and hence operating (and net) margins remain subdued. The only story here seems to be increased revenues due to switch from Black Tiger to Vannamei. But if it doesn’t show up in the margins, its just a growth bet – that too a shaky one. Does any one have any insight into the raw material costs. It appears from the results that the increased density is probably only helping a little because of reduced acreage cost per tonne – which apparently is not the key cost anyway.

    • Ayush

      Hi Parijat,

      Good to see your interest. One of the major input material for Avanti is – Soya and as per the charts etc available, it had risen sharply few months back and has been correcting since. I think this should help the company over a longer term.

      If one wants to understand the margin picture – I think FY12 was extra-ordinary in terms of margins. The current margins of about 8-9% seem more comfortable and sustainable for longer term.

      Yes, the growth in the industry has slowed but due to the benefits of Vannamei over Black Tiger, I think moderate growth should still be there.

      The important point perhaps is to look at the valuations – The co is trading at just 3.5 times earnings and 6.5% dividend yield. Till the co doesn’t deliver negative growth, don’t you feel the valuations are attractive at current levels?

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  • Vivek Gautam

    Going through this thread shows how prescient you were with Avanti. Company has performed exceptionally well as predicted by you. Thanks a ton as always.

    Now at CMP what’s your take on Avanti with 1-3 year POV? Has your worries on disease n other risks reduced a little?

    This thread has been inactive for long unfortunately . We need to make it active n looking forward to a quick response from you .

    God bless Mittal family.

    • Ayush

      Dear Vivek,

      Thanks for the kind words.

      The co has done extra-ordinarily well and delivered beyond expectations. The industry continues to do well and Avanti is the best co to capitalize on the same. As of now, it seems that this year should again be a bumper year for the co.

      Regards,
      Ayush

      • Vivek Gautam

        Delivery percentage are still very high Inspite of nifty going down 80 points today . Shows knowledgable hands are buying on every dip.
        Seems the new capacity is coming at same premises of Kovvur so wont operating leverage come into play as fixed costs will be spread over larger capacity?
        R Srinivasan of SBI MF n Dolly Khanna are the 2 high profile investors who entered the stock recently besides Girish Gulati.
        Equirus Capital was present at AGM . Any other Instt n names who are interested in stock that u r aware of?

        • Ayush

          Hi Vivek,

          The new expansion will take sometime to come up and we shouldn’t expect operating leverage as its a highly competitive business. It will be great if they can maintain current margins and maintain good growth.

          SBI MF has been there from before. Yes, there was lot of institutional interest in the AGM. But we should focus more on the underlying business.

          Regards,
          Ayush

          • Vivek Gautam

            ok thanks. will hold on to the qty i have.

            any views on ADI FINECHEM N CHD DEVELOPERS?