Description
Avanti Feeds (AVANTIFEED) is a leading provider of high-quality shrimp feed, best technical support to the farmer, and caters to the quality standards of global shrimp customers. AFL is the largest shrimp feed producer in India with an installed feed manufacturing capacity of 600,000 tonnes per annum. The company commands a market share of about 45% in the domestic feed business. The company’s shrimp processing subsidiary, AFFPL, has an installed processing capacity of 22,000 mtpa across two state-of-the-art processing facilities and is one of the leading shrimp exporters in the country.
Market Trend
The Indian shrimp farming industry has an established production capacity of 120 billion postlarvae (PLs) per year, from an estimated 550 to 600 hatcheries. India produced 7 billion PLs in 2019.
The Indian shrimp market attained a volume of 0.71 million tons in 2020. The market is further expected to grow at a CAGR of 9.5% to reach a volume of approximately 1.23 million tons by 2026.
Government Initiative
The Indian Government is promoting sustainable shrimp farming practices to produce high-quality ‘sustainable’ shrimp to minimize the environmental effects of shrimp aquaculture. Moreover, the Seafood Exporters Association of India (SEAI) and the Marine Products Export Development Authority (MPEDA) are supporting the export of shrimp, especially for ready-to-eat and ready-to-cook products.
Recent Government’s Policy of “Economic Revolution through Blue Revolution” giving shape to the scheme “Pradhan Mantri Matsya Sampada Yojana” (PMMSY) for fisheries in May 2020 with an investment of over ` 20,000 Crores in next 5 years. This scheme aims at increasing fish and shrimp production in India at an annual growth rate of 9% from 137.58 Lakh MT in 2018-19 to 220 Lakh MT by 2024-25. Hopefully, if this scheme is implemented in the right earnest, it will go a long way in the growth of the Seafood Industry.
Investment Thesis
On 30th January 2020, the World Health Organization (WHO) declared the Coronavirus (COVID-19) outbreak a “Public Health Emergency of International Concern” and on 11th March 2020 declared it to be a pandemic. The Government of India imposed a countrywide lockdown from 24th March 2020. The Shrimp Feed manufacturing and Shrimp Processing and Exports were declared as “Essential Services” and exempted from restrictions of lockdown. However, due to low manpower turnout coupled with difficulties in transportation of raw materials and finished goods, the production and sales/exports reduced during April and May ’20. This fall in demand did reflect in the fall of stock prices from 650 to 250.
Now the whole world has started to recover from the pandemic. Avanti Feeds has also started to show returns the same as pre-corona level. Even though the company is back to pre-corona level stock is still trading in the 500-550 range.
Company subsidiaries are also doing great.
Financials
i. The company is almost debt free.
ii. Company has delivered good profit growth of 26.90% CAGR over last 5 years.
iii. Company has a good return on equity (ROE) track record: 3 Years ROE 34.80%
iv. Company has been maintaining a healthy dividend payout of 17.39%
v. The company’s median sales growth is 35.16% of the last 10 years.
Growth Strategy
Considering the current scenario in Shrimp culture in India, the Company sales during 2020-21 is expected to be maintained at the same level of 4.85 lakh MT as in the previous year.
The company has not only been keeping its farmer base intact, but it is also adding new farmers and new areas to its sales network year after year.
Construction work of shrimp hatchery is completed and commercial production commenced on 13th November 2020.
Continued focus on export of Value-added products and exploring opportunities in new markets is bearing results. Value-added products accounted for around 25% of total exports in Q2FY21 and also Q2FY20.
Threads
Given the anticipated drop in shrimp consumption globally by about 20% to 25%, correspondingly Shrimp Production is likely to come down, and Shrimp Feed Consumption in India during FY 20-21 is expected to be around 10 lakh MT as compared to 11.50 lakh MT in FY19-20.
Valuation
In 2021, the company is going to see a lower growth rate because of the pandemic as the overall economy is going to take some time to come back to the previous level. After that like company will see a higher growth at demand will start to revive.
Margins will improve as the new facilities will be able to work at full efficiency and the overall cost will come down.
The company already has done huge capital investments, has built many facilities so the reinvestment rate is going to be low in the future.
As we can see in the final figures company is trading at a discount right now in the market.
Catalyst
i. Company has a market share of 45-50%
ii. Company has improved its performance and financials in last few years.
iii. DCF shows company is Trading at a discount.
iv. Mutual funds have increased their holdings in last few months.
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