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You must have seen the social media posts - An investment of Rs 1 lakh in the Avanti Feeds in 2009 was worth over Rs 3.23 crore a decade later!
The company’s shrimp feed volumes have grown at a CAGR of 39% since 2009. It controls 45-50% market share due to its focus on R&D, having started research in 2003, ahead of the competition. Company’s partnership with Thai Union has facilitated implementation of technology to enhance Feed Conversion Ratio (FCR). As per experts, Avanti’s FCR is 1.2 FCR vs. 1.5 for the industry. Further Avanti sustains its market leadership via quality product and technical assistance provided to over 16,000 farmers.
In 2002 Avanti managed to partner with Thai Union to cater to the feed market in South Asia and grew multifold on the back of the partnership. With the feed business having grown to a scale where almost half the market has already been acquired, Avanti is trying to repeat the trick in frozen shrimp through another JV with Thai Union in 2015. But in shrimp feed, it had to compete only with local producers who had a technology handicap. In frozen shrimp, it will have to compete with global players. Is the earlier success replicable?
The company had flat revenues in FY21 due to the impact of COVID-19. Shrimp consumption had decreased globally by about 20% to 25% during FY21 due to closure of restaurants, malls and eateries.
In TTM, EBITDA margins declined due to soybean prices (input raw material) having risen sharply. Now that the government has given permission to import GMO soymeal, EBITDA margin should climb back to ~11-12%.
RoDTEP scheme being implemented by the government should also protect the industry from duties levied by importing nations on Indian shrimps.
So what is our view on company valuation?
Avanti is currently trading at EV/EBITDA (TTM) ratio of c. 15x and P/E (TTM) ratio of c. 23x and is debt free with net cash position of c. INR 1,300 Cr. Company has just enhanced capacity and entered into a new business segment and hence it will witness revenue growth.Company has delivered 16% revenue CAGR over the last 5 years with high ROE/ROCE and 35% CAGR over the last 10 years, an EV/EBITDA of 15x seems fairly attractive.
The risks to this analysis include inability to create a large dent in the global frozen shrimp market and susceptibility to outbreak of diseases, unfavorable climatic conditions, and coastal calamities.
So, would you invest in Avanti Feeds?
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