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.
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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