AVANTI FEEDS LTD.

1.) Till 1999, 99% of Thailand's shrimp production was Blacktiger. Today 99% of shrimp output is Vennamei. Thailand is the largest shrimp exporting nation in the world.

2.) Vennamei was permitted in India by the govt. in August 2009. Today Vennamei constitutes around 50% of the domestic shrimp production & is expected to go over 90% in the next few years.

3.) Cost of production of Vennamei is far less than Black Tiger & the yield is higher.

4.) Today, India is the lowest cost producer of shrimps. During FY12, shrimp exports constituted 50% of the total seafood exports from India. In rupee terms the value of shrimp exports was Rs.8144Cr. vs Rs.5566Cr. in FY11 & Rs.4167Cr. in FY10.

Due to India's long coast lines, India has a natural advantage in shrimp production.

5.) AFL has 2 main divisions :

i.) Shrimp Feed

ii.) Processed Shrimp (Exports)

i.) Shrimp Feed - The co. manufactures & sells shrimp feed to shrimp farmers. This division contributes around 70% of the sales of the co. 

There are around 15 shrimp feed manufacturing plants in India. CP is the largest shrimp co. in the world. In India, CP & AFL control 90% of the shrimp feed  market. Shrimp feed market is obviously directly proportional to shrimp production. According to the management, there is some 'stickiness' in the shrimp feed business as the farmers dont shift to other feed manufacturers.

Cost of shrimp feed as % of total cost of production of shrimp is low.

During FY12, the co. sold around 60,000MT of shrimp feed for Rs.271Cr. AFL has also increased its installed capacity from 52,000MTPA to 1.1L MTPA and plans to increase it further. 

FY13E Shrimp Feed Volumes = 90,000MT or 50% volume growth yoy.

The Shrimp feed prices have increased this year so the realizations would also be higher.

Therefore, the co. should do sales of around Rs.400-450Cr. from this division in FY13.

  

ii.) Processed Shrimp - AFL buys grown up shrimps from the farmers, processes & exports shrimps in frozen form. Around 1/3 of the revenues come from this division. If the cost of production of shrimps in India is competitive as it is now, then this division should do well. Also rupee depreciation is hugely beneficial to this division. Around 75% of the exports were to USA.

During FY12, this division achieved sales of Rs. 120Cr. (exports = 108Cr.) on volumes of 2102MT. The company has recently increased capacity of shrimp processing from 2720 MTPA to 8000 MTPA. 

The exports from this division were down to 10.7Cr. vs 28Cr. yoy in Q1FY13 due to plant closure for increasing capacity.

AFL earned Export Incentives (DEPB) of Rs.11.6Cr. on Exports of Rs.108Cr. during FY12. Hence, export incentives constitute around 11% of export sales. These export incentives are expected to come down in future possibly leading to erosion of margins.

Shrimp prices have recently declined which might also put the margins under pressure. 

The management believes that the threat of anti dumping duty by USA, as happened in mid 2000's is now behind us. 

6.) Shrimp business is seasonal. H1 > H2. 

7.) HATCHERY - AFL is setting up a Vennamei Hatchery for producing vennamei seeds near Chennai. This plant will be set up with an investment of around 15Cr. & will be commissioned by mid 2013. Thereafter AFL will become an integrated shrimp co.  

8.) The biggest threat to the shrimp industry is Disease. Vennamei is far more disease resistant than the conventional Black Tiger variety. Moreover, the GoI is taking bio-security measures to prevent such diseases.

9.) AFFORDABILITY - Shrimps were once considered an expensive food but now Mutton, Fish & Shrimp all cost Rs.400/- per kg. Hence, the affordability of shrimps has increased in the domestic market but the lack of cold storage is a big impediment. 

China is the largest shrimp producer in the world & was once a net  exporter but has now become a net importer due to the rise of domestic demand.

Western markets are also shifting to sea food from red meat due to health considerations. 

10.) TUF - Thai Union Frozen Products is the second largest shrimp co. in Thailand after CP. TUF now holds 25% stake in AFL & has 2 members in the board of the latter. AFL also paid Rs.1.5Cr. Royalty to TUF during FY12 for imparting technical expertise. 

The association with TUF has clearly helped AFL in shifting from Black Tiger to Vennamei. TUF is also assisting AFL in setting up the Hatchery project.

11.) CAPEX - The total Capex for FY13 & FY14 is ~ Rs.40Cr.

12.) SALES :

FY13E ~ Rs.500 - 550Cr.

FY14E ~ Rs.750Cr. 

13.) THREATS :

i.) Disease Outbreak. 

ii.) Crash in Shrimp prices leading to fall in shrimp production & consequently lower shrimp feed demand.

iii.) Oversupply in Shrimp Feed market.

 

14.) VALUATIONS :

CMP = 145/-

MCap = 130Cr.

TTM :

Sales = 440Cr.

EBITDA = 50Cr.

PAT = 30Cr. (including extraordinary items worth Rs.6Cr.) 

Net Debt = 15Cr.

Networth = 104Cr.

EV = 145Cr.

EV / EBITDA = 2.9x

PE = 4.33x

P/BV = 1.25x

RoE = 27%

15.) GROWTH : FEED

                           Volumes                 Revenues

FY09                14,050MT                Rs.38Cr.

FY10                16,000MT                Rs.53Cr.

FY11                36,700MT                Rs.133Cr.

FY12                60,000MT                Rs.271Cr.

FY13E              90,000MT                Rs.400 – 450Cr.

CAGR              59%                          80-85%

GROWTH : PROCESSED SHRIMP

                           Volumes                 Revenues

FY09                746MT                      Rs.28Cr.

FY10                936MT                      Rs.36.5Cr.

FY11                1327MT                    Rs.64.5Cr.

FY12               2102MT                    Rs.120Cr.

CAGR              41%                          62%