Avanti Feeds

Background

Avanti Feeds is one of the largest manufacturer of Shrimp Feeds and Shrimp Processor and Exporter from India


Main Products/Segments

Shrimp Feed

Processed Shrimp export


Main Markets/Customers

  • The feeds are used by shrimp farmers.
  • The processed shrimps are exported to countries like US, Europe, Japan etc.

Bullish Viewpoints

  • The aquaculture industry was having a very bad time till 2007 as the quality of earlier species – Black Tiger was not good and hence un-remunerative.
  • Since then the industry introduced a new variety of shrimp – Vannamei(white shrimp), this variety though generally smaller than tigers, are more resistant to disease, have higher survival rates, cost less to feed and tolerate higher stocking densities. And they grow faster.
  • India is one of the cheapest shrimp producer and with the increasing adoption of Vannamei species, the shrimp exports from India have picked up sharply[Business Line]
  • Avanti Feeds has grown at 75% CAGR for last 3 years. The turnover grew from 73 Cr in 2009 to 393 Cr in 2012. Similarly profits have grown from a loss of 7 Cr in 2009 to a net profit of 28 Cr in 2012.
  • The industry is expected continue growing at 20-25% for next 2-3 years and if so, then Avanti Feeds can grow at 30%+ rates. The latest annual report is very optimistic and co has undertaken some major expansions
  • 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.
  • It is operating a Vannamei hatchery on a leasehold basis producing Vannamei seed to supply good quality Vannamei seed to the farmers. It is in process of buying a land near Chennai to set up hatchery in collaboration with THAI UNION for building hatcheries. This will reduce the return of export consignments due to quality reasons, reduce the risk of shrimp getting damaged due to diseases and will improve its operating efficiency as it is a significant addition in the value chain.
  • US government has raised the anti-dumping duty on import of frozen shrimps from India. The average duty has been increased  to 2.51 per cent  from 1.69 per cent. This would have little impact on seafood exports to the US as DoC has decided to calculate the weighted-average margins of dumping and anti-dumping duty assessment rates in a manner that offsets non-dumped comparisons while using monthly average-to-average comparisons in reviews. This may lead to de-minimum duty (below 0.5 per cent), which in effect carries zero anti-dumping duty on exports to the US. This decision of DoC will be effective from 2013, when the seventh administrative review completes. This is a great boost for the exporters and Avanti Feeds being the market leader will benefit significantly from it.
  • The dividend has been increased to 65% in FY 2012 from 10% in FY 2011.
  • India’s Competitive Advantage in shrimp industry is that the Competing countries now have to pay a higher anti-dumping duty as compared to India.

Bearish Viewpoints

  • 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.
  • The margins may soften going forward.
  • Trade restrictions in importing countries can unsettle the industry as US  did in the past by applying anti dumping duty.
  • lack of diversification in the export destination.

Barriers to entry

  •  Thai Union Frozen Products PCL (the worlds largest seafood company) holds a 25% stake in Avanti Feeds. This relationship provides them the lead in terms of research and better quality.
  • The company has its own brand and distribution and farmers don’t switch the product quickly.
  • Though the shrimp cultivation is a very unorganised segment of the industry, the processing and export segment is an organised segment. The company through the technical support to the shrimp farmers and the good quality seeds has built a relationship with the farmers, which ensures a regular supply of good quality shrimp.
  • The leasing out of hatchery has added another tire to its value chain which is going to yield economies of scope. It will further strengthen its position once it builds its own hatchery.

Interesting Viewpoints

  •  Thai Union Frozen Products PCL holds a 25% stake in Avanti Feeds and hence they have access to latest research and quality requirements.
  • Avanti is one of the top three producers in India.
  • The company has low debt and strong cash flows.
  • The promoters have a good track record of being transparent and investor friendly.
  • The company also has investments of about 30 Cr in two power projects from which it gets regular dividends.

Disclosure(s)

Donald Francis: More than 5% of Portfolio in the Company; Holding for more than 1 year