Avanti Feeds Q1FY18 Concall Summary

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Financial Highlights

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  • The gross income from operations for Q1FY18 was Rs. 1004.35 crores compared to Rs.726.22 crores last year showing a growth of 38.30% y-o-y
  • The PBT and exceptional income during Q1FY18 was Rs. 226.46 crores against Rs. 74.98 crores last year showing a growth of 202.03%
  • The revenue from feed business during this quarter stood at Rs. 881.28 crores compared to Rs. 631.24 crores, exhibiting a growth of 39.61% y-o-y
  • The profits from the feed business rose to Rs. 210.15 crores in Q1FY18 from Rs. 67.80 crores last year, showing a y-o-y growth of 209.95%
  • The reason for this increase was due to increase in sales volume and reduction in raw material prices
  • The company hedges its dollars and thus the variance in dollar rates does not affect margins much
  • Globally, India is the number one exporter of shrimps with 485,000 tons of export
  • The company recorded a 41000 tons increase in Q1 compared to last year

Processing and Export Business

  • The shrimp processing and export business has been transferred to Avanti Frozen Foods Pvt. Ltd.
  • GST on feed sales is NIL and fishmeal, soyabean meal and wheat flour are exempt from GST, the GST on spares and other inputs is also insignificant
  • With consistent maintenance of high quality feed, technical support to farmers and improvement in feed technology the company is confident of utilizing full feed capacity
  • The company also hopes to fully utilize shrimp processing capacity, grow in exports and maximize returns with support of Thai union
  • The present feed manufacturing capacity is 4.25 lakh tons, the company is going to add 1.75 lakh tons and make it reach 6 lakh tons
  • Per kg fish meal prices ranged from Rs. 70-80 for Q1
  • The checking of consignments for Indian shrimps has been increased from 10% to 50% by the EU

Business Highlights

  • The first crop of shrimp culture started a bit early this year and a healthy growth of 10%-15% is expected because of increase in area of culture, favourable climatic conditions and conversion from fish to shrimp culture
  • Avanti keeps one month of stock for indigenous products but increases the stock to two or three months of stock in the new crop season
  • The present in-built capacity is more than 20 lakh tons feed and the company is able to utilize 100%-110% due to quality and technical support to farmers
  • The seasonality of shrimps has reduced and farmers are stocking one crop after the other but there would still be relatively less material in the non-peak season
  • The raw material prices have come up as the government increased the MSP on soya by 10% and GST has been levied on soya seed, these are low compared to Q2FY17 but higher than Q1FY18
  • Shrimp export prices have an average realization of $5 to $5.5
  • The market share of the company in the feed business has increased by 4%-5% to 43%-45%
  • The feed conversion ratio for the company has increased over the last one year and a half and is presently stable at 1.5 to 2.5
  • Although the industry has a sustainable growth rate of 10%-15%, the company is achieving 2.5 to 3 times the industry growth rate/This is because the company provides a FCR ratio of close to 1.2-1.3 against others average of 2
  • The feed sales increased to 1,38,532 MT in this quarter against 96,706 MT in the same quarter last year, registering a 43.25% growth
  • The trial production at the new plant hat Yerravaram has started and commercial production is scheduled to start by the end of this month
  • The company has established its marketing network in the US and would be helped by the Thai Union
  • The company has got international standard quality products so the demand would not exceed capacity
  • The tailwinds of lower raw material prices were present in Q4 last year and continued in Q1 this year
  • For the feed business, 10%-12% is a sustainable margin, whereas, for processing, 5%-7% is a sustainable margin
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Capex 

  • The new shrimp feed at Bandapuram, West Godavari District of Andhra Pradesh commenced production from August 2016 and a further expansion of plant is undertaken to add 1,75,00 MTA capacity after which the total capacity of all units put together would be 6,00,000 MTA
  • The company has completed implementation of new processing plant with capacity of 15,000 TPA at Yerravaram, East Godavari District in addition to current capacity of 7,000 TPA
  • Avanti Feeds  has purchased land for the hatchery and is expecting few clearances to come in a month’s time and expects production to start by next year July-August
  • Thai Union would help with technology and in marketing of products
  • The company expects revenue potential of about Rs. 600 crores from expansions and the new plant
  • The company expects Rs. 50 crores of CAPEX expenditure in the next four to six months
  • Rs.75-80 crores of CAPEX would be required For 1 lakh feed capacity greenfield plant for 1 lakh feed capacity greenfield plant, 

Future Guidance

  • Presently the ratio between feed revenue and shrimp export revenue is 87:13. The company hopes to make this ratio 60:40 and emerge as a billion dollar company by 2022
  • The company is setting up capacities and going for more value added products to improve margins and focus more on exports
  • The company expects 10%-12% margins for the value added products
  • For shrimps, the first quarter represents the peak season, then sales dip and come back up again during the third and fourth quarters
  • For the export business, the company is expecting a capacity utilization of 30% and expecting a revenue of Rs. 300-350 crores
  •  The company expects to earn Rs. 3500-4000 crores of revenue from six lakh tons of sales volumes of shrimp, in three to four years
  • The company expects the ROC of the shrimp processing business to be much lesser than feeds
  • The production of frozen foods, the capacity for which is 15000 MT, will start by Q2FY18

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