Rising shrimp prices, exports make Avanti a good catch

ET Intelligence Group: For Andhra Pradesh-based Avanti Feeds, which generated over 1,000% returns for shareholders in two years to December 2015, the business situation is turning in its favour once again after a lacklustre show in FY16.

The government's initiative to grow marine exports by 20% bodes well for Avanti Feeds, which earns 85% of its revenue by selling shrimp feed and the remaining from shrimp processing. In addition, increased processing capacity, falling raw material prices amid rising shrimp prices in the export market will support profitability.

Shrimps account for around 66% in value and 40% in volume of India's marine exports. Avanti sells shrimp feed to local aquaculture farmers and has 40% market share. It also produces shrimp which are mainly exported to the US, Europe, China and South East Asia.

The company's performance was muted in FY16 due to 31% drop in international shrimp prices. This along with weak monsoon discouraged shrimp farmers to produce more, resulting in only 13% revenue growth in FY16 compared with 58.5% in FY15.


In the first half of FY17, shrimp prices were stable but price of soya, a major raw material for shrimp feed, rose by 25-30% thereby shrinking operating margin to 8.7% from 10.8%, year-on-year.

Despite 29% year-on-year growth in revenue, net profit was flat in the first half of the current fiscal. In the past three months, international shrimp prices have risen by 20% and soya prices have fallen by a similar magintude, which will improve its margins.

In addition, the company is in the process of adding shrimp processing capacity of 75 tonnes per day to the existing 25 tonnes per day. This will help Avanti to quadruple its shrimp processing over the next few quarters.

“We are confident of clocking 25% revenue growth and achieving previous years' margin in FY18,“ said Indrakumar, CMD Avanti Feeds.“Export demand is rising due to our superior quality,“ he added.

At Friday's closing price of Rs 546.50 on the NSE, the company's stock was traded at 8.5 times the expected FY18 earnings.

This looks attractive for a debt-free company with high growth rate, 60% return on capital and consistent 20% dividend payout ratio. Long-term investors can consider the Avanti Feeds stock for further analysis.