Friday, May 26, 2017

Why Avanti Feeds has Nearly Tripled in 5 Months

Avanti Feeds stock has nearly tripled in the first five months of 2017, during a period when many small-cap companies were reeling from the post-demonetisation impact. In the current month of May itself the stock has shot up by 62% on blockbuster Q4 numbers. 

Seasonal Magazine takes a look at what is driving the future at India's shrimp feeds major.

Q4 / FY'17 Performance

For the full fiscal of FY'17, Avanti Feeds' sales is up by 35% while net profit is up by 36%. This has been possible due to excellent performance in the first three quarters and blockbuster numbers in Q4. Sales is up by 50% year-on-year and 26% quarter-on-quarter or sequentially, in the fourth quarter. Net profit has nearly tripled YoY in Q4 while it has nearly doubled QoQ or sequentially. 

Government Policy vs. Risks

The overall business climate is expected to improve dramatically for Avanti Feeds after the government announcement to grow marine exports by 20 per cent every year. Avanti Feeds can gain maximum benefit post this announcement because it earns 85 per cent of its revenue by selling shrimp feed and rest from shrimp processing. On the other hand despite having sizeable domestic sales, Avanti had nil impact due to demonetisation, as seen in the excellent Q3 results. 

Market Opportunity

Avanti Feeds is India's undisputed leader in the aquafeeds market, especially in its most lucrative shrimp feeds segment. The global aquafeeds market is estimated to be valued at USD 107.82 Billion in 2017 and projected to reach USD 172.56 Billion by 2022, at a CAGR of 9.9% from 2017 to 2022, with Indian market emerging as a leader in Asia. While Avanti Feeds is the market leader in India, its annual sales of Rs.2700 crores leaves unlimited opportunities to grow. Currently, Avanti Feeds is not exporting its feed products.

Scope for Value Addition

Aquafeeds manufacture is rapidly emerging from a once generic business to a highly specialized business offering immense scope for value addition. While traditionally aquafeeds were manufactured by base ingredients like Soybean, Corn, Additives, Shrimp meal, Fish oil etc, today's market is getting dominated by feeds having additives like Vitamins, Antioxidants, Amino acids, Feed enzymes etc, a field where Avanti has significant expertise.    

Factors Driving Global Growth

Increased consumption of seafood across the globe, especially in developed nations across Europe, North America, and Far East is the primary driver. Quality by way of better protein quality, and better natural taste have been additional factors. Driven by these factors, high growth was observed in the European Aquafeed Market, especially in countries like Norway & Germany, and Avanti as an emerging exporter has favourable tailwinds from this higher demand.

Avanti's Positioning Among Peers

Today, Avanti's feed products are ranked amidst global leaders in USA, Europe, & Australia like Archer Daniels, Ridley, Cargill, Nutreco, Purina, Nutriad, Alltech, Aller Aqua, BIOMIN, Norel, Dibaq, De Heus etc. However, being an India based company, and that too operating with strict capital controls and tight expense controls, Avanti's products are competitively priced, whereas its tie-up with Thai Union provide comprehensive support in international reach. 

Input Costs

Soybean is a key ingredient in aqua and shrimp feeds. Soya is used for its superior amino acid profile, higher total phosphorus content, and energy content. Soybean contains about 48% high-quality protein. Compared to last year, price of the raw soya in India has come down due to the good monsoon in 2016. According to the most recent climate forecast, 2017 will also have a good monsoon, which augurs well for soya feeds as well as Avanti Feeds.

Guidance / Value Addition

Avanti Feeds has guided for 25 per cent growth for the financial year 2018. Two strategies have been put in place for achieving this robust performance. Firstly, the company is going for higher value added products in the shrimps segment. Secondly, many of these value added products are being designed for the consumption by direct consumers, thereby establishing Avanti as a consumer brand. 

Long Term / Future Plans

The company currently has more than 40 per cent stake in the Indian prawn feeds market. Avanti Feeds is now working hard to become a billion-dollar aquafeeds and shrimps player in the coming three years. To achieve this, the revenue break up between shrimp exports and shrimp feed which is currently at 15:85, is being better balanced to a ratio to 40:60. There are also plans to diversify into fish feed manufacturing, from mainly shrimp feeds now.  

Unique Trackrecord

Andhra based Avanti Feeds Ltd is a farm-to-fork leader when it comes to aquaculture, especially in shrimps. Over 23 years of its existence, Avanti has grown from strength to strength, based on significant forward and backward integration, as well as high quality products and technical services to its clients in both India and abroad. Founded by legendary entrepreneur Alluri Venkateswara Rao, and led by his son and visionary business leader Alluri Indra Kumar, this listed player is also noted for its stunning wealth creation for its long-term shareholders. 

Pioneering Efforts

Started way back in 1993 by Alluri Venkateswara Rao, who had proven his mettle in various business fields, Avanti Feeds has been an Indian pioneer in aquaculture, spanning operations like prawn culture, shrimp feeds, and processing. This is the 23rd year of operation for Avanti, and this early mover advantage has been helping the company to weather the many storms that have affected the aquaculture industry of India in recent years.

Synergistic Divisions

From its inception onward, Avanti Feeds has steered clear of being a one-trick pony. Instead it has successfully forayed into all synergistic operations in the aquaculture domain including the core feed manufacturing and shrimp processing operations. This has helped the company scale up impressively, especially during the second decade of its operations. This also enables the company to better control its market share in both the segments.

Export Focus

When Avanti started out in the early 90s itself, the company understood the need to tap the export markets. Towards this, Avanti perfected its quality standards, and today the company has a long list of loyal customers from USA, Europe, Japan, Australia & Middle East. Avant's shrimp processing units conforms to HACCP, USFDA, EU & BRC Global standards. Avanti is also ACC Certified for best aquaculture practices.

Strong Domestic Operations

While exports are one side of the coin, aqualculture companies can thrive with only strong domestic operations. Avanti has 5 Prawn Feed manufacturing units across West Godavari District in Andhra Pradesh and Valsad District in Gujarat, which together produce 4,50,000 metric tons of feed per annum. Its plants are located at the heart of aquaculture operations in India, thereby enabling better reach to farmers.

Reputation for Highest Quality Feed

Over the years, Avanti has built up a name for itself in delivering fine quality feeds. Made from world-class raw materials, Avanti's feeds are nutritionally well-balanced, ensuring greater appetite, faster growth rate, and high Survival rate, in both shrimp and fish. For the farmers, this readily translates to higher yields and higher profits, and this has been a big factor in winning Avanti the loyalty of the farming community.

Tie-up with Thai Union

Aquaculture is a field where there is rapid technological evolvement, and a hallmark of Avanti has been its constant upgradation of aquaculture technology by bringing in from abroad the latest developments in the field. Towards this, Avanti has a long running and multi-facted tie-up - spanning equity, technical, & marketing - with Thai Union Frozen Products Public Co. Ltd., of Thailand, which is the world's largest sea food manufacturer, as well as a major player in feed and hatchery. 

Better Management Bandwith

For many years now, Avanti Feeds is being led by Alluri Indra Kumar as its Chairman and Managing Director. A BE Chemical Engineer from University of Bangalore, Indra Kumar has been instrumental in bettering almost all facets of the business since he took over the operations from his father. It was Indra Kumar who forged the tie-up with Thai Union, and his marketing accumen signed up several new customers in key markets like USA, Europe, and South Africa.

Stress on Quality and Traceability

In aquaculture, traceability of issues is a major challenge. At Avanti Feeds, quality of processes is taken seriously. A qualified and experienced team performs stringent tests for evaluation of raw material quality. Close monitoring and testing is done at every stage right from the raw materials to the finished products. This has resulted in the implementation of a practical traceability system. 

Superior Technical Services to Farmers

Avanti serves shrimp farmers through its highly equipped quality testing Labs in the coastal regions, for shrimp seed quality analysis, PCR testing, and Water & soil tests for shrimp culture. The company also guides the farmers in seed selection, and culture practices. Resolving farmer complaints happen within 48 hours.

Exceptional Wealth Creation

Avanti has been an investor’s delight for the past 5 years, when its share price surged by nearly 106 times. Powering the market cap expansion was its earnings expansion that was nearly 5 times in 5 years. In the market, Avanti is also noted for its high dividend yield (around 1.5% now), while the growing nature of the aquaculture market in India, especially after the introduction of the vannamei shrimps, is ensuring that the base effect will favour Avanti, going forward too. 

Prudent Financial Management

Avanti Feeds is noted in the financial management circles for its small equity and low-debt model. The company also comes across as strong in several other core metrics like Return on Equity (RoE) and Return on Capital Employed (RoCE), which shows the prudent financial management in the company. This has enabled the company to focus on sales and profit growth in good times as well as not so good times for aquaculture.  

Impressive CSR Activities

CMD Indra Kumar, through group concern, AVR Trust, offers best quality education to thousands of poor and needy students through ABN & PRR Colleges of Science located in Kovvur, West Godavari District. Indra Kumar also runs the "Home for the Aged" which was started by his mother Late Alluri Subhadra Devi under "Sowbhagya Durga Trust" in Kannapuram, West Godavari District. The inmates are provided shelter, food and medical care, completely free of cost, in a very pleasant environment.

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